Startup makers of premium consumer goods have had to change course rapidly amid the coronavirus outbreak. Jonathan Eppers and Lucas DiPietrantonio are two examples of entrepreneurs who made quick pivots as the crisis took hold.
A quick shift to selling online
Eppers is the founder and CEO of Vybes, which sells bottled beverages infused with CBD, or cannabidiol, a derivative of cannabis that some believe eases stress. Since founding the business three years ago, he’s mainly been selling through bricks-and-mortar businesses: About 15-20% of his retail sales were to grocery stores that are still open, but the bulk of sales were to cafes, smaller retailers, hotels and gyms in California and New York. When they shut down, he quickly shifted to selling online.
Businesses readjust schedules
DiPietrantonio, co-founder and CEO of marketing agency Darkroom that largely works with ecommerce startups, planned to introduce in July his own Nera brand of luxury sneakers made in Italy that would be sold online. He anticipated pricing the shoes at $260-$400 a pair. But with the coronavirus spreading across Italy and many factories there shut down, he decided in March against placing his initial order for 300,000 euros ($327,000) worth of shoes.
“I’m so happy we didn’t,” DiPietrantonio says. “Nobody is buying luxury sneakers. They’re not going outside.”
Now, a month later, his Italian factories are still not in production. That means they have been unable to provide him with the samples he had hoped to provide to influential sneaker bloggers—a common tactic for building buzz in advance of the launch of a trendy product.
DiPietrantonio now expects the Italian factories will reopen later in April. “Because of this,” he says, “we are now shooting for an August launch.”
While DiPietrantonio’s was pushing back the introduction of his new online brand, Eppers refocused Vybes on ecommerce in March as the stores that accounted for most of his business shut down because of the COVID-19 pandemic.
Vybes moves to sell directly via the web
Eppers had been operating an ecommerce site at IDrinkVybes.com, but it was a small part of his business. With most of his retail outlets shuttered, he took three steps to boost online sales.
First, he cut the price of his primary product, a 12-pack of Vybes drinks, by 30% to $67.20 from $96. Then, he introduced a smaller product that’s less expensive for consumers to buy and for Vybes to ship, a six-pack priced at $48. The retailer is now selling that at a 15% discount, lowering the price to $40.80.
Finally, he introduced free same-day delivery in Los Angeles, where Vybes is based, and parts of New York City. “People are stressed out,” Eppers says. “They want CBD, and they want it now.” For orders to other locations, Vybes charges a $10 shipping fee and advises customers they typically can expect delivery in two days.
Those three changes had a big impact: Online sales went up 600% for the second half of March compared with the first two weeks of the month and are increasing at an even faster rate in April, Eppers says. Sales are still modest, however. While Eppers declined to provide precise figures, he says web sales are approaching $100,000 per month.
The early success of the new products and same-day shipping has convinced him that the direct-to-consumer innovations prompted by the coronavirus outbreak are worth keeping. “Ultimately, people will still buy from Vybes online once this is over,” he says. “As a result, direct-to-consumer will be a bigger part of our business post-pandemic than it was pre-pandemic.”
Vybes made “a smart pivot from offline to online sales,” says George Deeb, managing partner of consulting and venture capital firm Red Rocket Ventures. “But, at the same time, people are still shopping offline grocery stores—so there many opportunities to pitch large chains that are open for business, while the gyms and cafes are closed. I don’t think it is an ‘either/or’ decision. It is maximizing both/all opportunities in a prioritized way that works within the company’s budget.”
A quick infusion of cash
Eppers, who previously founded and subsequently sold the company that created the apartment-finding mobile app RadPad, hasn’t raised outside capital to fund Vybes. But he has relied for the past year-and-a-half on a Small Business Administration loan and a line of credit from a small lender, Celtic Bank, to provide cash needed to produce inventory.
That relationship proved valuable when the U.S. government enacted a stimulus package in March that included loans, some of which can be forgiven, for companies with under 500 employees. The bank immediately reached out to clients like Eppers explaining the program and in a matter of days a loan of more than $100,000—he wouldn’t be more specific—was in the company’s bank account.
Eppers says he’s heard from entrepreneur friends that big banks have been slow to respond to their requests for government-backed loans, and he’s grateful for the fast service Celtic Bank provided. “They know my business and me well,” Eppers says. “That’s the advantage of small bank.”
Based on his experience working with ecommerce startups through his agency Darkroom, DiPietrantonio says obtaining and preserving cash is crucial now for young companies. He says those companies should make budgets that will allow them to survive 12 to 18 months of an economic downturn.
“Overall, cash flow is the most important thing,” he says. Companies with a strong enough cash flow to meet their expenses are fortunate, he says, adding, “but a lot of startups are less fortunate.”