Shoe Obsession

JustFab has officially confirmed the transaction that we reported last evening, announcing that it has acquired Shoedazzle. The two subscription women’s fashion and footwear ecommerce companies have positioned the deal as a “merger,” but this seems like a generous characterization, given the fact that the former is several times larger in terms of revenue, users, and traffic. That said, there are reasons both companies stand to benefit from the tie up.

The companies declined to specify deal terms, but our sources have told us it was an all-stock transaction that valued Shoedazzle at less than half of the $66 million of venture capital it raised. ShoeDazzle co-founder Brian Lee says that the valuation range of $10 to $40 million that we reported yesterday was “incorrect,” while declining to specify whether it was high or low, and to what extent it was off. Lee adds that ShoeDazzle’s shareholders and board were “very, very happy with the terms.”

In today’s deal announcement, the combined company was described as “the world’s largest fashion subscription e-commerce company.” Lee further referred to it as “truly global, multi-brand lifestyle fashion company.”

Lee and JustFab co-founder Adam Goldenberg predict reaching profitability as a combined company in 2014, with more than $400 million in total sales and more than 33 million global members. The companies are adding roughly 1 million new members per month, according to Goldenberg.

Goldenberg confirms that both the JustFab and ShoeDazzle brands will be maintained independently, thus broadening the company’s demographic and geographic reach. ShoeDazzle is a US-only brand at present, while JustFab has growing operations in Europe. To consumers, each of the brand should look no different after today’s transaction than they did going into it.

The deal brings to an end several months of negotiations between the two women’s fast fashion ecommerce companies. Both Lee and Goldenberg described the transaction as “four years in the making,” referring back to the friendly cross-town rivalry that began in the two companies’ early days.

“If you look at fashion, women want choice,” Goldenberg says. “There’s not a single woman who shops at just one brand. Both companies appeal to fashion forward women, aged 18 to 35, but they attract different demographics.”

JustFab is a multi-category company, Goldenberg adds, that generates 30 percent of its revenue outside of footwear. ShoeDazzle, on the other hand, is more of a multi-brand platform, focused heavily on shoes, according to Lee. The two companies have slightly different takes on the subscription business model, and while they plan to share learnings going forward, there are no plans to make wholesale changes to either, according to the pair.

The deal also marks the conclusion of a two year roller coaster ride in which Shoedazzle sped out to a $200 million dollar valuation and category leading position, only to be kneecapped by a failed CEO change and then rescued – but just to the point of stability – by Lee’s return. It is certainly not the outcome that Lee and his investors expected two years ago, but it appears to be the best option available today.

Under the deal, ShoeDazzle gets access to JustFab’s customer acquisition expertise and global manufacturing and fulfillment infrastructure. It also relieves Lee of his burden of running both ShoeDazzle and Honest simultaneously – a situation that would have been unsustainable in even the best of times.

Lee will join JustFab’s Board of Directors and focus on operating Honest day-to-day. Goldenberg and his co-CEO Don Ressler will continue to head JustFab, while ShoeDazzle co-founder and President MJ Eng will continue running the newly acquired sister brand.

JustFab, on the other hand, has gained a valuable brand that it can use to target additional demographics, geographic markets, and price points. It will also eliminate its largest competitor, and presumably improve its customer acquisition economics as a result.

In summary, there’s reason to believe that the combined company will be stronger that the sum of its parts. That notwithstanding, there will be challenges involved in integrating the two companies and potentially some shakeup among both employee rosters.

The companies plan to move into new, 65,000 shared office space in El Segundo in early 2014. Today, the companies have “well north” of 500 global employees in total, according to Goldenberg. There are no plans to shake up the team in the near term, the founders say, although synergies between the combined companies may lead to future personnel changes.

“This deal is all about reaching critical scale,” Goldenberg says. “It equates to a major advantage in product quality, variety, and cost.” To which Lee adds, “By combining two companies reach we reach this scale immediately and as a result can better attract the best talent, best investors, and best customers.”

For the LA ecosystem, this means the end of questions about the health of ShoeDazzle and the emergence of a now stronger ecommerce leader in the new JustFab. Consolidations and soft landings like this are rare in up-and-coming startup ecosystems like LA. The fact that it came to fruiting is a good sign and speaks to the magnitude of the opportunity.

When selling JustFab sister company Dermstore earlier this month, Goldenberg reiterated that JustFab was a multi-billion dollar opportunity and one that demanded his full time attention. Now, with one less competitor and more resources at its disposal, JustFab better positioned than ever to fulfill its enormous promise.

[Image via StyleCurated]

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