In the first half of 2019, four major retail startups — Casper, Rent the Runway, Glossier, and Away— have become “unicorns,” companies with a valuation of at least $1 billion.
The exclusive unicorn club, according to CB Insights, comprises just over 350 members worldwide, from fintech companies l
ike Stripe and Robinhood to delivery services like DoorDash and Instacart.
Part of their high valuations includes the venture capital (VC) funding they have raised in order to grow their businesses. Sridhar Tayur, professor of operations management at CMU’s Tepper School of Business, underlines the importance of VC: “Beyond capital, they bring experience and networks, which helps in recruiting key executive talent, market messaging, competitive positioning, and strategic partnering with established insiders in an industry.”
There is no universal formula to acquiring or using VC funding successfully, but any aspiring entrepreneur could take some notes from these retail unicorns that can seem to do no wrong.
This particular wave of funding and valuation success is exciting because the startups represent a variety of industries (home, fashion, beauty, and travel), signaling the broad potential of the future of retail.
At a glance, here is what they do:
Casper: Sells sleep-related products, including foam mattresses, bedding, and bed frames.
Rent the Runway: Rents out designer clothing pieces, which can be rented individually or on an unlimited basis through a monthly membership.
Glossier: Sells beauty and makeup products.
Away: Sells travel-related products, including suitcases, bags, and interior organizers.
These startups manage to make basic products — a mattress, a suitcase — demand greater attention than something far glitzier or more convenient to obtain.
Cassie Young, the chief commercial officer at marketing automation company Sailthru, points out that to stand out from under the looming shadow of Amazon is a difficult and impressive feat.
Every year, Sailthru’s Retail Personalization Index ranks retail brands based on how well they personalize the customer experience. Companies at the top of the list prioritize what makes their brand unique, what makes their buyer unique, and what they can do that is unique compared to Amazon.
Young says, “If you look at the retail brands that have achieved unicorn status, they are very deep in a particular category, which allows for effective differentiation vis-a-vis the Amazon platform.”
Away’s suitcases, for example, are instantly recognizable in a lineup of luggage. Its core collection of colors are stylish, but the company also regularly offers trendy, limited-edition colors and personalization options, which range from luxe leather stickers to hand-painted, engraved, or embroidered monogramming.
Away, founded in 2015, is the youngest unicorn of the group. Away/Instagram
Beyond personalized, aesthetically pleasing designs, Away is appealing to millennial sensibilities by incorporating features like a built-in battery pack to accompany their tech-fueled lives, and making its suitcases part of a larger story about travel.
Its spin-off travel magazine, “Here,” has nearly 50,000 Instagram followers and shares picturesque locales around the world and journal-like entries that dive deeper into each destination. Implicit to the enjoyment of these travels is the knowledge that an Away suitcase helped get the traveler there.
As a result, Away’s growth is soaring relative to its category. According to data provided by Rakuten Intelligence, sales are up 96% year over year, and the brand has spread itself more evenly across age demographics than its competitors.
In 2018, only 2.3% of all capital invested in venture-backed startups in the US went to companies founded solely by women. While efforts by female-founded venture capital firms are contributing to progress, the VC gender gap is still clear and wide.
Megan Bent, founder and managing partner of Harbinger Ventures, which works exclusively with early-stage female or mixed-gender-founded companies in the consumer sector, says that “Having female representation within CPG company leadership can be a significant advantage. Neither men nor women are necessarily better at innovating, but more diverse teams will inherently identify more diverse opportunities for disruption.”
And the opportunities for disruption are truly ripe.
An event for Rent the Runway’s new San Francisco store. Rent the Runway/Instagram
Bain Capital Ventures has participated IN every single funding round for Rent the Runway, including its seed round and most recent capital raise that brought the company to unicorn status.
Partner Scott Friend says the firm began discussing the idea of the “sharing economy” and penchant for renting a decade ago, an interest that coincided nicely with a meeting with Rent the Runway founders Jennifer Hyman and Jenny Fleiss. He believes “this new behavior of having a ‘closet in the cloud'” is still in its “early innings” and has massive potential.
Rent the Runway’s consistent raising of capital over the years has been funneled aggressively towards inventory growth. The careful selection, purchase, and processing of fashion-forward designer pieces is integral to serving the company’s rapidly increasing member base, who are always looking for new styles to introduce to their closet.
It is also being used to expand into more product categories, such as kids’ line and its partnership with West Elm, open a second distribution warehouse, and open a new store in San Francisco.
The art of customer engagement and community-building is not lost on these companies. They have all figured out that the fans provide the hype.
These four startups are talented at managing and maintaining relationships with their customers, who end up being better marketing tools than any internal strategy.
Social media makes it easy for brands to interact directly with customers, who often use the platform to discuss new products they would like to see and rave about their experiences. When they feel like they have a stake and influence in the operations of a brand they love, they are more likely to feel valued as a customer and make repeat purchases.
It is also where they proudly show others how they styled their latest Rent the Runway pieces, incorporated a Glossier product into their daily makeup routine, spent a blissful weekend morning in on their Casper mattress, or packed their Away carry-on in preparation for a tropical vacation.
What is essentially free advertising confirms the quality of the products while feeling more authentic than a paid placement. By encouraging this type of behavior, and continuing to make quality products to prompt it in the first place, the unicorn startups can ensure growth that is not only quick, but also — more importantly — sustainable.
So, with such a strong start to 2019, what can we expect in the retail VC landscape for the remainder of the year?
Bain Capital Ventures partner Scott Friend says that investors are increasingly interested in how products are distributed and experienced before purchase. He says investors are “realizing that the most disruptively interesting opportunities in commerce are less about new brands, per se, and more about new forms of distribution — concepts that are replacing traditional brick-and-mortar retail shopping with a better, faster, higher, ROI value for the consumer.”
“I also expect we will see more investment in exciting new experiential retail concepts, leveraging virtual and augmented reality to create experiences for consumers that are physical, social, and associated with commerce.”
We are already seeing hints of these practices being implemented. Casper, Away, Rent the Runway, and Glossier all have a limited number of retail shops nationwide where customers can discover and shop in real life.
Compared to that of traditional brick-and-mortars, the design of the shops tends to be less aggressive about selling and more intent on introducing the brand to new potential customers. Aside from its Sleep Shop retail concepts, Casper has even opened a nap room called The Dreamery, which offers a 45-minute moment of respite for weary travelers and office workers.
These 2019 retail unicorns are showing no sign of stopping as they reinvent online shopping.
(Source: Business Insider)