BeachMint's new Cosabella partnership runs deep, and management hints it's just the beginning
While many people have bet against BeachMint, the Santa Monica subscription fashion etailer believes that it has a second (third?) act coming up. Yesterday, the company announced the first in what it promises will be a series of strategic partnerships aimed at reinventing its product catalog and improving its economics.
The news this week was a partnership between intiMint, BeachMint’s in-house intimates brand, and Cosabella, a high-end, 30-plus-years-old Italian lingerie brand. The companies will create a new collection labeled “intiMint by Cosabella” – available in February 2014, just in time for Valentine’s Day.
Under the brand, the new partners plan to introduce 30 new items each month. Bottoms will start at $19.98, while sleep sets will range as high as $119.98. By comparison, Cosabella’s bottoms typically cost as much as $40, and sleep tops alone can run $172, according to Elle. The companies will also add activewear and swimwear to what was previously just an intimates collection. The news comes at a time when Brook Burke, the celebrity face of the intiMint brand, is launching an activewear brand of her own called Caelum.
What on the outside may look like a simple private label partnership, will in fact run much deeper. The Italian company will handle manufacturing and elements of both design and distribution on behalf of the partnership. IntiMint will also get favorable financing terms and ordering flexibility, according to BeachMint’s founders. In exchange, Cosabella will get an equity stake in intiMint, although the companies are not revealing the details of this arrangement, and a crash course in ecommerce.
“This is a very tight, five-year-long-plus type of agreement,” BeachMint co-founder and CEO Josh Berman says.
BeachMint’s executives hinted during an interview in early September that they would be making three major announcements before the end of the year. At the time, they emphasized that these announcements would be focused on reducing inventory risk and improving unit economics.
To that end, Berman says of the Cosabella deal, “This will reduce our break-even time [on the cost of customer acquisition] from five sales down to just two.” COO Greg Steiner adds, “Under the old model, if a product didn’t sell, we’d have a problem. Now, we have offset almost 100 percent of this risk. If a product doesn’t sell, it just goes back to their retail channel.”
As Steiner hints, one of the biggest obstacles to profitability in ecommerce can be the cost of merchandise returns and exchanges. In many cases, returned merchandise cannot be resold as new, and because online merchants don’t have outlet stores or other secondary channels through which to offload this product, it regularly ends up as almost a complete loss. If the Cosabella relationship allows the company to change this fact, it could have a very real impact on the economics of intiMint’s business. The same could be said of whatever manufacturing cost savings that the company will achieve through this partnership, which will give it the benefit of Cosabella’s considerable scale.
It’s possible that consumers may one day find intiMint by Cosabella products on the racks at Bloomingdale’s, Nordstrom, Neiman Marcus, or any of the dozens of other retailers that currently distribute the Cosabella brand. By comparison, Hautelook, Bonobos, and Sole Society have achieved similar supply chain and brick-and-mortar distribution benefits that through their respective relationships with Nordstrom. (Nordstrom acquired Hautelook in 2011 for $210 million and has invested millions into Bonobos and Sole Society, the latter of which spun out of Hautelook.)
BeachMint hopes to announce similar partnerships around its shoes (ShoeMint) and apparel (StyleMint) brands in the near future, Berman says. During our September conversation, management referenced having two such partnerships already finalized – one of them, presumably, being the Cosabella relationship announced yesterday – in addition to the recently announced addition of child actors turned style icons Mary-Kate and Ashley Olsen as advisory board members.
It’s not uncommon for traditional retailers to look toward partnerships with ecommerce businesses as a way to dip their toes in the digital waters. Nordstrom has obviously shown its proclivity toward this strategy, as has Target, with its March acquisition of Cooking.com and August acquisition of DermStore. Also, numerous traditional retailers were rumored to be interested in acquiring BeachMint competitor ShoeDazzle, before it was scooped up by category leader JustFab in September of this year.
Cosabella's VP Sales, Branding & Innovation Guido Campello commented on the intiMint partnership in a joint release by the companies, saying:
With BeachMint, we are bringing the fast-fashion tech world into the traditional fashion calendar. We wanted to be among the first to showcase how great products, seasonal collections and a new brand could be born and fully developed in the digital universe. BeachMint's technological expertise, especially in gathering members' preferences, made our partnership a natural choice as it allows us insight into our consumers' needs as we create the product.
As we’ve reported extensively in the past, BeachMint raced out to massive user growth and an even more massive valuation shortly after launch. But the company subsequently struggled to maintain this growth rate and to achieve sustainable unit economics. What followed was a period of missed growth projections, senior management turnover, layoffs, and the shuttering of two out of six vertical brands.
Out of this crucible, however has come a leaner, more focused BeachMint. That the company is still around to give this business another shot is a direct result of the massive amounts of cash it raised and the fact that it was wise enough to pump the brakes – slightly – when it became clear that the original model wasn’t working.
“It was working until it wasn’t,” President and co-founder Diego Berdakin said in September.
BeachMint’s new business model, it appears, centers around strategic partnerships for each of its remaining four women’s fashion brands: intiMint, ShoeMint, StyleMint, and JewelMint. We now know the plan for the lingerie vertical, and we can take some cues for how it plans to handle jewelry thanks to its previously announced JewelMint Collective “curated designer marketplace.” If things unfold according to management’s projections, we should see announcements around shoes and apparel by the end of the year.
There are still plenty of unknowns lurking behind the surface of the Cosabella partnership that will dictate how likely it is to result in a long-term sustainable future for intiMint – with similar questions applying to its other planned brand partnerships. For example, it is unclear how much equity Cosabella received, and at what valuation. This means that it is unclear how this deal relates to BeachMint’s one-time valuation of approximately $200 million and what kind of dilution the company’s existing investors suffered. This will matter greatly if BeachMint needs to raise new financing or looks to exit down the line.
To the same end, while it’s hard to argue against cost savings and more flexible manufacturing and distribution arrangements, it’s unclear whether these changes – if mirrored across each of the subsequent partnerships – will be enough to make BeachMint profitable at scale.
Berdakin told us in September, “We know we have a good business," adding later, "We’re as close to profitability as we’ve ever been.”
Today’s announcements are aimed squarely at pushing the company closer toward financial health and long term sustainability. It will be several quarters before we know how this bet plays out. However it shakes out though, the company appears to be in a better position today than it has been in recent memory.