JustFab Team - Goldenberg, Ressler, Simmons

JustFab, the Los Angeles-based women’s fashion subscription ecommerce giant, has raised a $40 million Series C round. The news comes as the company continues to expand aggressively into Europe and grow its brand portfolio through the recent acquisitions of ShoeDazzle, The Fab Shoes, and FabKids, as well as the launch of its first brick-and-mortar storefront.

The latest investment round, which come just over a year after its $76 million Series B round in June 2012, was led by Hong Kong-based Shining Capital Management with participation from existing investors Matrix Partners, Rho Ventures, Technology Crossover Ventures (TCV), and Intelligent Beauty, the brand incubator which launched JustFab and its sister companies Sensa and Dermstore (since acquired by Target).

Collectively, JustFab reaches over 35 million members globally. Three million of its current members are located in Western Europe, a number that the company says is increasing by approximately 400,000 each month, with the rest based in the United States and Canada. In recent months, the company has expanded its European footprint, entering France and Spain – thanks to that Fab Shoes acquisition – in addition to its previously announced markets of Germany and the United Kingdom.

“We’re way ahead of our own expectations in Europe,” JustFab co-founder and co-CEO Adam Goldenberg says. “It’s been difficult to keep up with at times, but it’s obviously a good problem to have. We could actually grow faster there, but we’ve had to walk a fine line between investing for additional growth and slowing things down to allow our logistics and customer service to catch up.”

Goldenberg describes the Western European market opportunity as comparable in size to North America, noting that both markets spend approximately $19 billion per year in women’s non-athletic footwear. The challenge in Europe is that nearly every country requires additional language support, new logistics solutions, advertising networks, and other intricacies to be considered. Nonetheless, the company has been able to acquire customers as cheaply as 50 percent of the cost of adding US customers, Goldenberg says, and is happy to continue investing in this growth.

JustFab’s founders expected the company’s Series B round to be the last capital it ever needed to raise. But over the last 12 months the company encountered several opportunities to invest in additional growth earlier than originally planned – namely accelerating its European expansion, absorbing its largest competitor in the footwear category, entering the kidswear category via another acquisition, and launching its activewear brand Fabletics. Had the company not had additional cash reserves, it never would have been able to capitalize on these opportunities.

Today’s round is meant to ensure that JustFab is equally well capitalized when the next unexpected opportunity crosses its path, according to Goldenberg. “We got access to capital at an extremely attractive valuation and were able to add the right partners,” he says.

The addition of Shining Capital gives JustFab a window into the Asian market at a time when it’s beginning to plan future geographic expansions. It’s a similar playbook that the company employed when it chose Matrix to lead its Series B round. Matrix general partner Dana Stalder, who lead international expansion of both eBay and Paypal, has been instrumental in JustFab’s continental expansion, Goldenberg says. The idea is that Shining may one day play a similar role, should the company expand into China and other Asian markets.

It has been less than one month since JustFab cut the ribbon on its first brick-and-mortar storefront, a “flagship location” located at the Glendale Galleria mall outside of Los Angeles.

Of the decision to enter retail, Goldenberg says:

It’s certainly a test. If things go well, we could do a broader rollout in the future. But it’s also a phenomenal learning opportunity for us. We believe we have the best selection and the best quality at our price point. Having a physical store will help us overcome the two biggest reasons keeping women from making their first purchase with us: concern over whether the item will fit and concern over quality.

We have over 200,000 VIPs within driving distance of the Glendale Galleria who we paid to acquire as members but who have yet to buy from us. We think that having a storefront will help us convert some of these women to loyal customers and we’ll certainly learn a ton about what they want.

JustFab’s retail store is unlike nearly every other brick-and-mortar shoe store you’ve ever entered. First, the merchandise will be cycled weekly, rather than seasonally, meaning that the selection will be different nearly every time a consumer walks through the door. Also, the company developed its own custom iPad-based POS (point of sale) system which will be carried by each of its stylists (retail sales reps).

“We wanted the store to be a very integrated experience,” Goldenberg says.

The POS system enables stylists to look up a member’s ecommerce account to view their purchase history, style preferences, and sizing information. Members can also use their ecommerce credits in store and return or exchange merchandise purchased online. The system also monitors back of house inventory in real-time and can send an alert to support staff to bring requested items (in the proper size) to the floor to be tried on by a customer.

“Our goal is to have the shoe on your foot within 60 seconds of it being requested,” Goldenberg says.

JustFab’s latest round of funding appears to be less indicative of the company’s immediate cash needs and more the size of the opportunity that Goldenberg, his co-founder Don Ressler, and the company’s President, fashion icon Kimora Lee Simmons, see ahead. It also indicates that several prominent investors are willing to bet on more good times ahead for the company. JustFab has now raised a total of $149 million across three rounds of financing.

While Goldenberg declined to discuss JustFab’s current financial performance, he reiterated projections first made in August around the acquisition of ShoeDazzle, that he expects JustFab to generate $400 million in 2014 revenue, and reach profitability by the year’s end. Goldenberg has also said previously that the US operations of the JustFab brand (excluding ShoeDazzle, FabKids, and Fabletics) is roughly break-even today.

The more capital JustFab brings in, the greater the pressure it puts on the company to achieve a massive exit. Goldenberg has said repeatedly that he views JustFab as a multi-billion dollar opportunity and that he has no intentions of exiting in the near term. But while early investors are presumably thrilled with the growth, the time continues to tick.

Another interesting twist is that Goldenberg has said repeatedly that an IPO is not his preferred outcome, and that he would choose a strategic acquirer if the option presented itself. And yet, as JustFab’s valuation continues to climb, this option becomes less and less plausible.

File these all away under good problems to have.

JustFab is the clear leader globally in fast fashion ecommerce. Having acquired its largest competitor and now with a fully stocked rainy day fund, there are fewer and fewer obstacles in the company’s path. Thus if someone’s going to prove that a massive and sustainable business can be built in this category, it’s going to be JustFab.

And there’s the rub.

All signs point to the fact that the JustFab model is “working,” but the company still has miles to go until reaching any sort of finish line. Consumer shopping habits can be fickle, and today’s online business model of choice can quickly become tomorrow’s old news. (See Gilt and Groupon.) This remains anything but a sure thing.

Whether JustFab’s founders truly have the midas touch or whether they’ve been the on the right side of fortunate timing and missteps by competitors remains to be seen. Those who have bet against team Intelligent Beauty in the past have routinely been proven wrong. With JustFab appearing closer than ever before to joining the billion dollar club, it may be Goldenberg and Ressler who have the last laugh.