Brandless Inc. announced this week that it is shutting down, illustrating that it can be tough to survive in the direct-to-consumer personal care and packaged goods world, especially when attempting to make money and ship products that are only a few bucks a pop.
Brandless, No. 973 in the 2019 Digital Commerce 360 Top 1000, was the fastest-growing CPG manufacturer in the Top 1000, growing its web sales 150% in 2018. In 2017, it started shipping consumer staples, mostly at prices around $3 apiece.
The company said it would stop taking orders Monday, Feb. 10, but all existing orders will be delivered and customer service will remain available. Brandless is cutting about 70 employees and retaining only about 10 staffers, who will stay on to fulfill outstanding orders and handle customer questions.
“After more than two amazing years of bringing customers across the country better for you and better for the planet products, Brandless is halting operations,” the company said in a statement on its website. “While the Brandless team set a new bar for the types of products consumers deserve and at prices they expect, the fiercely competitive direct-to-consumer market has proven unsustainable for our current business model.”
Brandless’s board had been evaluating its position for several weeks and ultimately decided to shut down and use the remaining cash for severance for employees, according to a person familiar with the matter who asked not to be identified discussing private information.
“I’m proud of what we created at Brandless,” interim CEO Evan Price said in a statement, adding that it had become too difficult for the company to compete in the direct-to-consumer market. “I’m confident the next great brands of tomorrow will be built from this experience.”
Brandless.com pledged each item it sold was “bad-stuff-less and goodness-ful.” To bolster its case, the retailer coined (and trademarked) a term, “BrandTax,” which it defined as the hidden costs consumers pay for a national brand. It estimated that the average shopper pays at least 40% more for products that are a comparable quality to the ones it sells—and in some categories, such as beauty products like face cream, it contends that markup is up to 370% more. “We’re here to eliminate BrandTax™ once and for all,” the retailer’s website declared.
Brandless launched pop-up stores in New York and Los Angeles to gain exposure. The New York location featured a bamboo forest installation that showed how tree-free paper goods can be made from sugarcane and bamboo grasses and a fair-trade coffee bar and installation highlighted the importance of supporting fair wages and safe working conditions for coffee farming communities. It also launched a shipping membership that was a third the price of Amazon Prime at $36 a year.
In 2018, SoftBank Group Corp.’s Vision Fund, which has invested in companies such as Alibaba Group Holding Ltd., said it would invest $240 million in the startup. The Vision Fund paid out about $100 million of its promised investment into Brandless up front, according to a person familiar with the matter who asked not to be identified because the details of the deal were private. But a promised second tranche never arrived as the company struggled to hit targets while building out its own warehouse and distribution network. Co-founder Tina Sharkey stepped down as CEO last spring, and the company pivoted to selling CBD, or cannabidiol, products, which tap an ingredient in cannabis to help lessen anxiety and promote better sleep. The CEO who spearheaded that plan, John Rittenhouse, stepped down in December.
“The failure of Brandless is a reminder that business fundamentals and execution—not fundraising skills—are the ultimate measure of success in the market,” says Hilding Anderson, head of retail strategy, North America at digital consultancy Publicis Sapient. “In this case, their poor fundamentals in this low-margin, low-consideration purchase segment proved too much to overcome. High shipping costs, multiple strong competitors and a lack of a clear customer value proposition all contributed to their inability to deliver the marginal economics necessary. These DTC failures highlight the challenges of building your own private label brands. DTC remains an effective strategy, but it has to be grounded in business fundamentals and complement your other retail strategies.”
Indeed, bigger players with more name recognition and a store presence proved to be tough competition for Brandless. For example, Target Corp.’s Smartly line of products, ranging from paper plates to body lotion, were often priced less than Brandless’s competing products. Brandless’s total website visits fell 14% from 430,000 in August 2019 to 370,000 in January 2020, according to data from SimilarWeb Ltd.
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