Small is the next big thing in retail.
Announcing Lightspeed’s investment in Faire, a wholesale marketplace connecting the world’s best consumer brands with independent retailers.
Take a walk down any Main St in America, and you will likely stroll past a number of independent retailers.
“Mom & pop” stores are the bedrock of American retail.
Independent retail (<10 stores) is a massive segment of the American consumer economy. It generates nearly $900 billion in annual sales, measured in 2018 dollars. That’s roughly equivalent to three times Walmart’s annual domestic retail volume.
These stores are everywhere. 95% of all U.S. retailers have only a single location, and over 600,000 retailers earn <$1 million in revenue each year. This segment of retail is surprisingly resilient in the face of macroeconomic headwinds. During the recovery period of the Great Recession (2008–2014), retailers with 1–4 employees were the only segment of the market to have added employees every year:
Customers love shopping at independent retailers because they provide an outsized level of service. They are hubs of the communities they serve. A recent survey found that local stores now account for half of U.S. consumers’ shopping trips, and another study found that specialty retail is the fastest growing category of offline commerce. Even independent bookstores have grown 35% annually since the bottom of the Great Recession.
Independent retailers are also surprisingly resilient against Amazon. The e-commerce behemoth has been far worse for the “big box” retailers, who originally based their value proposition on low prices and broad selection. That’s Amazon’s turf now. As millennials have gained purchasing power, and have moved closer to downtown areas in their cities, the idea of driving to a big box to shop for a handful of items seems anachronistic. These same shoppers, however, love spending their discretionary dollars on Main St at local stores with highly curated selection and the customer service only a fellow community member can provide.
As I wrote last year, the retail apocalypse isn’t evenly distributed. The re-platforming of retail is good for some, and bad for others. We think independent retail has some unique advantages that can be enhanced and aggregated with the right technology platform. That’s where Faire comes in.
Faire (“to do” or “to make” in French) is a wholesale marketplace for independent retailers to stock their shelves with products from the world’s best brands, artisans, and makers. Today, most wholesale merchandise is purchased through a network of offline brokers and trade shows. This old-school distribution channel is both expensive and inefficient. The majority of the wholesale purchases are sold through showroom floors like this one:
Faire’s co-founder and CEO Max Rhodes experienced these frustrations first-hand. While working at Square in San Francisco, he introduced the New Zealand-born Blunt Umbrella to the U.S. market, as a side project:
Getting the Blunt Umbrella into independent stores was no small feat. In a blog post last year, Max described the frustrating process of getting a new brand like Blunt to market:
“Reaching these independent stores felt close to impossible. We spent almost $1M on trade shows and sales reps, but we struggled to stand out in these oversaturated channels. It’s become easier and cheaper than ever to take a product to market, so we were frequently lost in an ever-growing sea of products created by the Maker Revolution.
Even when we did get in front of local retailers, it was extremely difficult to convince them to take a chance on a $79 umbrella. They were afraid of getting stuck with the products and tying up their capital in inventory that might not sell. And because we were cash-strapped ourselves, we couldn’t give them payment terms, making a bad problem worse.
Local retailers today survive on their ability to find the best products for their stores and offer them at reasonable price points. After all, that’s what keeps customers coming back. Too many local retailers just buy the same stuff over and over again. Those that do experiment often end up marking up their best-selling items well over their suggested retail price to cover the costs of bringing in products that don’t sell. In a world where consumers have limitless options available at cutthroat prices online, that’s simply not sustainable.”
Max determined that independent retail needed a centralized platform to remove risk from wholesale purchasing and, simultaneously, provide a productive distribution channel for innovative brands like Blunt. So, he started a company with Square colleagues Marcelo and Daniele to build that solution.
A Faire deal for merchants
Faire unlocked marketplace liquidity by offering free returns and net 60 payment terms on new brand purchases for retailers. Small retailers have tiny balance sheets and limited access to working capital, so the risk of purchasing a new item is high. A few bad purchases can literally put a small retailer out of business. Faire completely eliminates this risk and capital barrier, enabling retailers to experiment with new brands that better serve their customers.
Faire underwrites this credit risk with proprietary data generated from marketplace transactions, as well as point-of-sale data and other external sources. This approach was inspired by the founders’ prior experience building financial products for small businesses like Square Capital, which underwrites loans based on actual transaction data. The more transactions that flow through Faire’s marketplace, the better it gets at matching its makers’ products to specific retailers. At scale, Faire will eventually possess the world’s most accurate machine learning model to underwrite inventory purchases.
The company has scaled rapidly since exiting beta in 2017. Today, Faire serves more than 15,000 retailers and nearly 2,000 brands all over the country, driving a growing portion of their businesses. Just as Uber provides a transportation service without owning any cars, and Airbnb provides a hospitality service without owning any hotels, Faire has built a service for selling products, equivalent in scale of “doors” to a top 10 retailer, without owning or leasing any stores.
Raising $100 million for the next phase of growth
Lightspeed led a $40 million Series B in Faire only a few months ago, and I joined the board on behalf of the firm. As we closed the round, Faire quickly outgrew its already ambitious plan and was approached by YC Continuity to lead a $60 million Series C. I am thrilled that Faire now has such ample resources to build and scale the leading wholesale marketplace for brands and retailers!
I am also beyond excited to work with some of our favorite co-investors — Keith Rabois at Khosla Ventures, Kirsten Green at Forerunner Ventures, Alfred Lin at Sequoia Capital, Anu Hariharan at Y-Combinator— all of whom are supporting the company in these dual financings.
The future is indeed bright for Faire. But, even if it rains, we’ll be prepared!
P.S. Did I mention Faire is hiring in both San Francisco and Waterloo, Ontario? If you want to help revolutionize retail, check out some of the job listings below:
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