JustFab acquires The Fab Shoes in search of European domination, approaches $250M revenue rate
One year into its onslaught on Western Europe online women's fast fashion retailer JustFab has acquired The Fab Shoes (no relation) to accelerate its pace. The move will add 500,000 subscribers in France and Spain to its existing 1.5 million in Germany and UK, bringing its global total to more than 15 million members. More important will be the addition of an experienced team across both markets to further its continental buildout.All 12 of The Fab Shoes’ employees will be retained as part of the deal, with CEO Pablo Szefner taking the position of Managing Director for France and Spain, while COO Xisco de la Calle will pack up his logistics experience to become the VP of Operations, Europe based in the company’s Berlin headquarters. The Fab Shoes’ brand will be wound down beginning in July, with the company being integrated into JustFab’s technology, manufacturing, and fulfillment platforms at the same time. The companies declined to specify the terms of the transaction.
JustFab’s European operation did $2 million in revenue the second half of 2012, and is on pace to generate $30 million in 2013, according to co-CEO and founder Adam Goldenberg. The company’s global growth over the same time has been significant, with it surpassing a $100 million annual revenue run rate at the end of 2012, and currently on pace to reach a $250 million annualized rate by year’s end. At this rate, Goldenberg’s stated goal of reaching $500 million in revenue by 2015 is looking more realistic by the day.
As the company has expanded beyond its footwear roots, its revenue has diversified in step, with 30 percent of today’s sales coming from non-footwear categories including handbags, jewelry, accessories, and denim, according to Goldenberg – denim sales, in particular, are up 150 percent year to date. The company also recently acquired childrens’ fast fashion retailer Fab Kids and will complete the integration of that company – which will continue to operate as a stand alone brand – as of July 1.
Goldenberg believes that the Western Europe market as equal in size to that of North America, with each representing approximately $20 billion of annual fast fashion ecommerce sales. The difference is that customer acquisition costs are actually lower across the pond due to less competition, and thus operating margins are higher.
When JustFab first entered Europe last summer, there was several competitors, including StylistPick, Chic Chic Club, the Samwer brothers’ Namshi, The Fab Shoes and crosstown rival ShoeDazzle. Less than six months later, all had abandoned the market except JustFab and The Fab Shoes. With the year old European startup needing to raise additional capital to scale, and the US market leader having significantly more resources and reach, a tie up between the two made perfect sense.
As we have discussed ad naseum, ecommerce is a volume game, especially in the footwear vertical. Customer acquisition, manufacturing, and fulfillment, are all subject to economies of scale. According to Goldenberg, without $100 million in annual sales, it’s impossible for a company in this space to achieve the unit economics necessary to create a sustainable business. The company’s global expansion and recent M&A activity is simple darwinian selection. That's why many in the industry have said that an acquisition of struggling North American No. 2 Shoedazzle may make sense for both companies.
JustFab raised a massive $76 million Series B round of financing in July 2012 with the purpose of expanding globally and into new verticals. The plan at the time was to build, rather than buy, according to its founders. But both The Fab Shoes and Fab Kids represented opportunities to accelerate that growth at the same or less cost than building it organically. Plus each offered an uncanny naming synergy. I mean, seriously, apparently all you need to do to peak Goldenberg’s M&A interest is sell fashions and incorporate Fab into your name.
Despite JustFab's considerable lead, the fast fashion ecommerce wars are anything but settled. Traditional retailers continue to amp up their online presence and the category is being flooded with new upstarts and flavor-of-the-month business models seemingly daily. For Goldenberg and company to cement their status atop the industry will demand strong execution for a number of years to come. The company has seemed to make all the right moves over the last 18 months, but as others in the space have shown, the fall can be just as steep and infinitely more painful than the rise to the top.