Bad Fashion

When we last reported on the state of Beachmint, we pointed out that the company had nine months of runway to either build a sustainable business, sell to an established player, or find a source of new financing – none of which were an easy proposition given the tumultuous preceding three years. Right on cue, now ten months later, the company announced that it chose door number three, entering a joint venture with Conde Nast’s Lucky to form a new content and commerce hybrid, including a yet-to-be-named destination commerce site.

So we know the answer to the near term cash crunch. But given it’s nothing as final as an acquisition or as solid a vote of confidence as a new big round of funding, we still don’t know — really — what will be the fate of one of the most hyped, heavily funded, and celebrity endorsed of all the thing-in-a-box companies.

Beachmint isn’t done yet, but if it’s yet going to turn into a success, this is basically a move back to square one (point five). Talk of synergies aside, it has to feel a bit like Bill Murray waking up, hearing “I got you babe,” slapping the snooze button and starting a long slog to build an independent ecommerce brand again. It’s basically a restart with two teams that have both struggled of late, with no liquidity, no win, just a promise to keep on the same mission and keep getting a paycheck.

Woo-fucking-hoo.

Still, the most valuable commodity a startup has is time and Beachmint’s execs have excelled at always finding more of it. This could still work. There’s still a chance.

Marrying content and commerce has been a major trend of late, with the likes of Thrillist/Jackthreads, Fab, Jetsetter, One Kings Lane, Houzz, Nasty Gal, ShopBop, and many more espousing the benefits of the strategy. But despite the multitude of devotees to this everything-to-everyone approach, it remains up for debate whether it actually works. Sure editorial businesses need new ways to generate income and commerce businesses need new sources of eyeballs, but is it truly possible for the marriage of the two to create a sum that’s greater than its parts?

It’s sort of like the social travel category. Sure we like to travel with friends or get recommendations from those we trust who’ve already gone where we are going. It all sounded great. But iteration after iteration just hasn’t worked.

Everyone says consumers want the ability to click-to-buy a great purse when they see it, but the failure rate has to beg the question, does anyone actually? With both Beachmint and Lucky coming into this with wounded brands losing money, it’s a valid question and one whose answer will go a long way toward determining if this is more a stay of execution for the two brands or indeed an exciting restart.

Let’s deal with the state of the companies coming into this first.

Since debuting with the early plan of launching a new “mint” product vertical every month, Beachmint corralled those ambitions considerably, settling into just a handful of women’s fashion categories and moving away from producing private-label merchandise or taking inventory risk wherever possible. The result is four remaining in-house brands – StyleMint (apparel), ShoeMint (shoes), IntiMint (lingerie), and JewelMint (jewelry) – each of which features a manufacturing partnership with an established offline brand or, in the case of JewelMint, a curated Etsy-like marketplace for creators to hawk their wares. The company will more than likely further consolidate its in-house brands, Berman says, continuing to address the same categories under just one or, at most, two labels.

Putting aside for a moment the operational challenges of producing and delivering branded merchandise, Beachmint’s other core problem is one that plagues all ecommerce businesses: attracting loyal customers in an economic, scalable manner. Once the initial sheen of Beachmint’s many celebrity endorsement and the novelty of subscription commerce wore off, consumers were left with another generic, low-cost online retailer. Evidently that wasn’t a compelling enough proposition to drive the level of shopping activity needed to support Beachmint’s one-time $200 million valuation and reported $3 million monthly burn rate. Hence the pivot.

Lucky, on the other hand, has long been an shopping-focused publication, with an average of 200 products featured in each monthly issue. Where the company was weak was in the transition to digital. In today’s online and mobile commerce-driven world, this proved a tough place to be – it was nearly enough to kill the glossy brand. Ad sales in Lucky’s most recent issue (September 2014) were down 34 percent year-over-year, making it among the worst performing fashion magazines during the period. But despite this decline in volume, editor in chief Eva Chen tells Techcrunch that the magazine’s “P&L is much healthier than it’s been in a really long time,” with digital sales and revenue up 33 percent and 47 percent respectively (over an unspecified period).

Lucky’s performance is interesting, because in many ways it predated the commerce and content revolution. It was not billed as a fashion magazine, it was a magazine about shopping. There’s a difference. Young girls can’t hope to buy anything on the editorial pages of Vogue. But Lucky would identify a trend and show you 50 versions of it in a variety of price points with all the information to purchase it immediately. It even included a page of “yes” and “maybe” stickers for readers to use in flagging pages. All it needed was a way to click and checkout. Only, it didn’t ever develop that, and hence never captured the full promise of content and commerce. One thing both the tech and fashion world get: “Ahead of your time” isn’t a compliment.

So, is it too late?

The promise in this merger is that by combining what Lucky is good at – attracting eyeballs and highlighting on-trend fashions – with Beachmint’s core competency – building online shopping experiences – both businesses and their respective users will be better served. But merging these two dramatically different operations is easier said than done.

The two divisions will operate with a “church and state” separation says, Beachmint co-founder and newly appointed Lucky Group CEO Josh Berman. That will surely be key if the editorial side of the house is to maintain any degree of authenticity with its readers. After all, the magic of sales is to subtly convince the consumer that they’re not really being sold. If Lucky ends up as a glorified ad-circular for Beachmint products, that illusion will quickly dissipate. Lucky EIC Chen echoed this sentiment, telling AdWeek, “My fashion editors won’t suddenly become merchandisers.” The print publication will evidently maintain its current publishing cycle, while the digital publishing team will transition to creating ecommerce-related content.

But then again, if there’s no connection, then where are the synergies? Remember, these aren’t two parties coming at this from positions of strength. They need the best of each other.

It’s this tension between editorial and commerce that makes Lucky Group’s plan of launching a new shopping portal both interesting and challenging. Rather than simply directing traffic to the existing “Mint” websites, or even focus primarily on selling in-house products through some Lucky-branded site, the company will instead sell products from other brands as well as its own private labels via an entirely new destination. The vision is a so-called “high-low” mix of fashions targeting an upper-middle class female audience. It’s unclear, based on this description, how much of the existing Beachmint business will survive this merger. One thing that is clear, according to Berman, is that the new Lucky commerce site won’t have a subscription or membership component. (A tacit admission that the company’s original value prop simply didn’t work.)

Beachmint has contributed 100 percent of its assets to the newly formed Lucky Group, Berman says, adding that there was no liquidity offered to Beachmint investors or employees. Conde Nast contributed the Lucky brand assets as well as an undisclosed sum of cash to be used for future operations (in addition to whatever limited cash Beachmint and Lucky presumably had on hand). The original plan was for Conde Nast to invest in Beachmint, Berman says, but as the two companies sat down to discuss the transaction, they decided that the best possible outcome was to more deeply integrate.

Combined, the newly formed Lucky Group will have between 200 and 220 employees, split nearly equally between editorial and commerce, and in similar measure between Santa Monica and New York. Like Berman, Beachmint senior executives COO Greg Steiner and President Diego Berdakin will also be staying on board in largely similar roles – Lucky GM Gillian Gorman Round will be named President of the combined entity, with Berdakin assuming a yet-to-be-named senior product strategy role. The senior team will be rounded out by Lucky Senior VP Eva Chen who will be the new company’s Chief Creative Officer.

Kudos to Beachmint’s senior execs if they do in fact stick with it long-term after what must be a generally disappointing outcome given the heights to which Beachmint briefly soared in late 2012. The bright side is that Beachmint lives to fight another day – in some form. But four-plus years in, it’s hard to imagine investors and the early team are excited about essentially starting over and signing up for another multi-year slog. The fact that the best outcome available was to combine with another struggling and aging brand in an entirely different sector suggests that there weren’t many better offers.

Several of Beachmint’s venture capital board directors will remain on the board of the newly formed company, according to Berman. This, and the fact that the deal required unanimous agreement at the board level suggests that Beachmint’s backers view this as a (relatively) positive outcome. What’s unclear is against what benchmark the deal is being compared – it’s surely better than Beachmint closing its doors.

This also raises the question of what is the best possible outcome for Lucky Group at this point. Berman says that the goal remains to build a large, standalone company that may one day go public or make an attractive acquisition target for a strategic other than Conde Nast. But Lucky Group finds itself in a not too dissimilar situation from Tinder, where the better the company performs, the less likely it is that its parent will let it go. In that sense, the best case may be that Conde Nast decides to buyout the rest of Lucky’s shareholders at a premium. Anything short of that likely means that the company’s founders and investors walk away with limited if any upside for their years of blood, sweat, and tears.