Ecommerce is, and may forever be, the market speculators favorite trend to analyze. Since the advent of the internet, entrepreneurs have worked endlessly to make commerce electronic. Unlike electronic mail, ecommerce is still in its nascent years, representing just 7.2% of retail sales in Q2 of 2015.
So VC’s continue to search for the next eBay and Amazon who can take their share of the retail industry effectively online. The size of the opportunity and the potential for growth, along with the consumer facing nature of ecommerce, keep its trends, winners, and losers in in plain view.
The problem with trends is that most of them are bullshit. With ecommerce, trends are almost always fads; short-lived, exciting, often quirky, and loved by millions only to dissipate into the archives and annals. Dig into the rise and fall of funding for startups in daily deals, subscriptions services, and flash sale companies and you see a small handful of leaders and and barrels of followers.
Riding the trend wave in ecommerce rarely pays off. The winners are the early investors who put their money behind the first movers and not the trend. The VCs chasing “what’s hot in ecommerce” rarely come out alive.
Recently, investment dollars and focus are following vertically integrated/direct to consumer startups in a variety of retail sectors. The list is endless for “the Warby Parker for _________” Fill in the blank.
Instead of following a trends, you need to have a theory about the world, evaluate each company individually against that theory on their own merits, invest, and give them the resources they need to be successful.
Coolhouse Labs’ theory about ecommerce is the base of brand building for every B2C company; authenticity and customer longevity matter above all else.
Let’s look at the mattress startup space that includes Casper, Tuft & Needle, Helix Sleep, Leesa, Saatva, YogaBed, Loom & Leaf (owned by Keetsa), & Eve Mattress. Each claim to be “The Warby Parker for Mattresses” but face similar challenges of starting-up a vertically integrated brand — namely supply chain and scale. Building a product, in this case a mattress, from the ground up is not an easy task and to outshine legacy brands in production quality is not easy. These startups aren’t building factories from the get go. They have to work through manufacturing partners, who are deeply concerned about their margins and push high minimum order qualities for production. To win on margin in the long run startups are forced to bring production to scale (read: own the entire supply chain and build factories) and this takes massive amounts of capital.
Within “The Warby Parker for Mattresses” space there will only be a few early winners, and the long term sustainability of those brands will be difficult to predict. Casper is leading the charge, eclipsing the competition in funding and leading the scale race, with $70 million in funding over three rounds in a little over a year and a half. Casper seed investors weren’t following a trend, they were funding the first mover.
This model can be applied across retail sectors, be it mattresses, slippers, hearing aids, or furniture. The biggest issue each vertically integrated/direct to consumer company faces is they ability to tell an authentic story and to keep those customers engaged and coming back.
One of our first investments at Coolhouse Labs was in TRNK. This was our fund’s launch point into the ecommerce space. We made this investment because we follow a theory and evaluate companies based on this investment view.
We invest in design + brand driven companies working at the intersection of technology and human interaction. These are companies that build products that are delivering superior end user experiences, solve big problems, and have the potential to fundamentally change the way industries do business.
Tariq & Nick, TRNK Co-founders, started the company with a simple but lofty goal: become the go-to destination for men thinking about home design and shopping for their living spaces.
What we love about TRNK is their approach. Unlike the vast majority of ecommerce sites where products are listed in an infinite scroll, TRNK tells stories about influential men in their homes. By sharing authentic and engaging content, and then making that content shoppable, they have build-in lasting relationships with their customers. A third of all of TRNK customers are repeat, and they spend 2x that of a first time customer.
Beautiful homes & musings on what makes every space special
TRNK’s secret sauce is its “shop the story” feature. Instead of building content around products, Tariq & Nick source products inspired by exploring the homes of leading men in design, fashion, and business.
“shop the story”
Engagement in new content and, in turn, new products is always a novel experience for TRNK customers, providing context and a reason to purchase with every new shoppable story. This creates a positive feedback loop for the customer, encouraging them to explore new living spaces, get inspired and buy curated goods for their homes.
There is one trend that we can all get behind: retail will continue its slow and steady transition from in-store to online. But with every huge opportunity, you have to sift through the bullsh*t short-term peaks and valleys, to discover and invest in what matters. We are long on authenticity and longevity that is evident with every customer interaction and every touch point.