The $300M Rise and Fall of Brandless

Innovative products produced with quality materials and clean ingredients, at a low $3 price point. That was the model that Brandless espoused from its very founding.

It was a hit from the start with venture capitalists. The fledgling brand raised more than $50 million in venture capital from companies like New Enterprise Associates and Redpoint Ventures by the time it started, then picked up another $240 million from SoftBank in 2018, continually raising funds and getting splashy press coverage.

But just a few days ago, Brandless announced abruptly that it was shutting its doors for good.

What happened? Why did Brandless rise so rapidly, and what caused its fall?

The Buzz of Direct to Consumer

Brands like Warby Parker, Casper, Away, Harry’s and other direct-to-consumer companies have carved out niches for themselves and garnered enthusiastic press coverage.

But lost in that coverage is the fact that not every one of these brands is going to be Warby Parker. Though D2C is exciting and venture capital likes it, it’s a minefield for any company trying to get into it now.

Adam Spivack of VC firm Comcast Ventures noted at this year’s National Retail Federation show that “the pendulum has swung” on investors’ expectations. He added that it’s now easier to launch a direct-to-consumer company than keep it going.

Other VCs are taking note. Brandless’s collapse was directly caused by SoftBank’s withdrawal of support as they cut back risk after the WeWork debacle. Harry’s has had trouble in its quest to find a buyer, despite it having better success than Brandless. Venture capitalists are being more cautious with their money after getting burned badly a couple of times or watching others get burned.

Brandless launched with a few main tenets. Everything on their site would be $3. Their products would be sustainably and ethically sourced. Because their branding was minimal (hence “Brandless”), they could save money on product packaging and branding and instead use that money to pass savings to consumers.

But like other high-profile e-commerce failures, they weren’t able to make the leap from venture capital injections to a sustainable customer base. They were optimistic at the start that they could find a niche and serve it, but ran into unforeseen problems.

Customer Retention

Brandless was looking for a very particular subset of customers, as one Axios postmortem points out: young consumers who are price-sensitive but care about quality, not brands. Those people probably exist. But do they exist in sufficient numbers to support an entire company that only sells a limited supply of goods through one distribution channel?

Not only that, but Brandless was directly competing against other options that offered far greater selection, and in some cases similar prices. If a potential customer is already on Amazon or Walmart.com or in a brick and mortar location like Costco, Walmart or Target, they don’t have much reason to buy Brandless over the more convenient option even if they’re saving a dollar here and there.

This is borne out in retention rate numbers. Brandless came in very low on retention measures. Most customers who started with Brandless fell away—only 11 percent were still making purchases a year later. The vast majority made one purchase and left.

That’s not specific to Brandless. That’s a problem across the e-commerce industry. But because of the very limited but scattershot product selection, it hurt Brandless more than some others.

Product Selection

One of the biggest things that hurt Brandless compared to other D2C brands was its product selection. In a way it was both too niche and too scattershot.

The product selection was too niche in that it focused on a very specific subset of customers and tried to sell them a variety of household goods they could find elsewhere. But it was too scattershot because that variety of goods didn’t really coincide with a coherent market segment.

Think about the well-known and successful D2C companies out there. What do they have in common? In almost every case, they sell a very specific item. Warby Parker and glasses, for example. Or Harry’s and shaving supplies. Within that segment they have a wide selection of demographics they can market to and ways to expand their base.

Brandless never had that, and you only need look at the strategies they pursued later in their lifespan to realize that they shot themselves in the foot early. By the end they were trying to expand product offerings, adjust pricing and figure out ways to reach a bigger market. But it was too little too late.

Muddled Message

That departure from its original message hurt Brandless, too. Many of the companies it competes against are more or less consumer product brands, not retailers. That allows them to sell through other channels if they need to. Harry’s, for example, expanded into brick and mortar retailers and began wholesaling by necessity.

Brandless never seemed quite sure whether they were a brand or a retailer, and that cost them. Instead of carving a niche with a particular product, they wound up going toe-to-toe against companies with far better customer penetration and distribution networks.

Store brands have been around forever, and basics brands like Amazon Basics directly compete against Brandless with the advantage of a clear message, better product selection and a customer base that’s already established.

There is a legacy that Brandless will leave behind, though. Venture capitalists are more aware now that direct to consumer is just another channel, not a game-changing proposition. And larger companies are creating more of their own “brandless” product lines as they pick up on the effective parts of what Brandless did.

Brandless was never really able to find its footing. But though it may be gone, it left an indelible imprint on e-commerce and venture capital. It may not be much, but it’s more than many other short-lived startups can say.