Betting Big on Local Retail

Introducing Indigo Fair: the First Wholesale Marketplace to Offer Guaranteed Sales to Retailers

Like so many aspects of our lives, technology has revolutionized the way we shop. In 2016, e-commerce represented 11.7% of US retail sales and 42% of the rise in volume. Books, clothes, even mattresses are selling online in ever-increasing numbers. Yet, there is one surprisingly large segment of commerce the internet has left untouched: the $400B local retailers spend each year buying products for their stores.

Whether they’re buying stationery, jewelry, apparel, or whatever else you’d expect from a neighborhood boutique, most of the 1M local retailers in the US are still wandering through trade shows or thumbing through paper catalogues with sales reps to find products. The result is an overweight supply chain that increases complexity for everyone and makes it harder for local retailers to stay competitive.

Almost all the cool stuff in your favorite boutique came from a trade show or a sales rep’s catalogue

Today, Daniele, Marcelo and I are excited to introduce Indigo Fair, an online marketplace designed from the ground up to empower local retailers and win this final frontier of commerce for the internet. Our approach? We are going to use the same playbook that’s gotten consumers comfortable shopping online across a dozen different verticals: free returns.

While you and your friends have been sending back shoes, mattresses and anything else that didn’t meet your expectations the past decade, retailers have never been given this luxury. As a result, until today, store owners have mostly avoided shopping online for fear of getting stuck with inventory they haven’t evaluated in person. Indigo Fair eliminates that risk.

Store owners can visit our site to find and buy unique products we guarantee their customers will love. Retailers can return any recommendations we get wrong within 90 days for free.

“Indigo Fair gives us the opportunity to experience new merchandise in our store and see if it is a good match for our customers. We are able to try new merchandise we might not have purchased. For example, PyroPet Candles have been one of our bestsellers and we would not have ordered them without the option to return them.” — Marcy Isreal, WinkSF

By allowing retailers to try out products risk-free like this, we are clearly making a big bet on local retail. Now, if you’ve read some recent headlines, this might feel anachronistic. So why would three guys who spent the past four years at Square be making such a crazy bet? And how did we convince Y-Combinator, SV Angel, and Khosla Ventures to make this bet with us?

We are betting big on local retail because we believe now is the time to jump on two big waves that are about to converge:

  1. The rise of machine learning
  2. The renaissance of local retail

Machine Learning and the Future of Buying

Over the past five years, an explosion in publicly available data and machine learning technology has made it possible to predict how well a product will sell in a given store. Almost every retailer and maker has a social media and web presence that can provide powerful signals about the popularity of products and how well a product will match the category, customer demographics, and style of a store. Using this data, we have bootstrapped a prediction algorithm that will get smarter and smarter as we feed our own sell-through data into it.

Our models are also learning from our retailers. Shop owners can draw on years of experience to pick the best options from our recommendations and teach our algorithms how to buy. We learned the power of combining technology with well-trained human intuition during our time building the risk models that power Square Cash. When Cash first launched, people reviewed a large percentage of the transactions, and deposits took two days to arrive in your bank account. Now a Top 100 app in the app store, Cash allows customers to send money instantly with a machine making underwriting decisions based on rules learned from the human reviewers.

We know from experience that machine learning and human intuition can create a powerful combination, and we believe this combination can help create a very bright future for local retail.

Shop Local and the Future of Offline

As mentioned above, recent headlines paint an ugly picture for the future of offline retail. However, if you dig deeper, you’ll find almost all the bad news is focused on big-box retailers. Meanwhile, many local retailers are thriving.

With their lower prices and larger assortments, big-box retailers enjoyed a devastating advantage over local retailers for the past fifty years. Now, these big-box stores are getting a taste of their own medicine — good luck competing with Amazon on price and assortment.

You know who can compete with Amazon? Local retailers who have spent the past five decades crafting alternatives to the internet giant’s most compelling value propositions. Personalized service and serendipitous discovery are both areas where e-commerce struggles and local retail excels. Furthermore, the closure of big-box stores is creating white space for local retailers to fill. In a microcosm of this trend, the number of independent bookstores in the US has increased every year since 2009 — Borders’ loss to Amazon was the local booksellers’ gain.

So, even as offline retail continues to lose share to online competitors, the future of local retail will still be bright. That future can be even brighter with Indigo Fair.

Indigo Fair and the Future of Local Retail

Indigo Fair helps retailers embrace their role as curators. Offline shopping is no longer a utility. The draw instead must be selection and experience, and therefore inventories must be kept fresh and exciting to get customers coming back. That’s why Indigo Fair makes it delightfully easy to bring on new products. Each week, retailers get a new list of new top items chosen just for their stores. If the products don’t resonate with customers, retailers can simply send them back and swap them out for new items that will.

“I want to carry new and great products. Finding them is part of the fun of owning a small store. It is also the most time-consuming activity I have. Indigo Fair has already done the legwork and researched the products. And they researched my store and showed me only the lines they had already curated for me, saving me a great deal of time.” — Patricia Rudd, Office Hours

Indigo Fair also helps retailers get more value from their suppliers. One of the biggest challenges facing retailers big and small is the fact that the value exchange between makers and retailers has started tilting in the makers’ favor, but the economics have not caught up. Twenty years ago, if a customer found something she liked in a store, she either bought it in the store or not at all. Today, that same customer may find a product in a store, go home and buy it online from the maker’s website, then tell all her friends to go and buy it online as well.

Indigo Fair is working with makers to help them recognize the opportunity for them in this shift. Retail is no longer just a sales channel; it’s also an advertising channel for their own high-margin e-commerce site. So, we are taking our commission from makers and transferring it to our retailers in the form of benefits like free returns. The result is a win-win for everyone: the more stores that are able to grow and expand to new locations using Indigo Fair, the more places makers will have to sell their products and the faster their high-margin e-commerce businesses will grow.

Ultimately, this is what Indigo Fair is all about. We are using technology to connect and empower local retailers and makers. These small business owners employ millions of Americans and support a growing maker ecosystem employing millions more. Boutiques are also a vital part of the color and character of communities across the country. The internet has long been viewed as a threat to these store owners and the livelihoods that depend on them, but Indigo Fair is using technology to enable local retailers to compete in this new era of commerce.

You can bet on it.