BeachMint announces Aldo partnership, aims to further remove manufacturing and distribution risk

By Michael Carney , written on November 27, 2013

From The News Desk

Over the last five months BeachMint has undergone the corporate equivalent of an extreme makeover. In an effort to find a sustainable business, the subscription ecommerce company has rightsized its team and shut down two of its six in-house brands, HomeMint and BeautyMint, with the goal of focusing on women’s fashion. The company subsequently de-emphasized several of its celebrity partnerships, while at the same time deepening its ties with Mary Kate and Ashley Olsen, the photogenic twins famous for their roles on “Full House” and then for building a teen fashion empire.

Most recently, BeachMint announced what it promised would be the first of several strategic partnerships aimed at reducing its inventory risk and improving unit economics – oh, and keeping the lights on. That partnership, saw the company bring Cosabella, a 30-year-old Italian lingerie brand, into the fold at its IntiMint brand.

Today, the company pulled back the next curtain in this multi-phase unveiling, announcing a similar partnership between ShoeMint and Aldo Group. The two companies have entered a long-term manufacturing and distribution partnership. This relationship aims to go deeper than the one ShoeMint had with its previous partner, Steve Madden. Aldo has taken an equity stake in BeachMint and will allow the company to distribute ShoeMint-branded product through the 1,600-location strong brick-and-mortar retail network.

"The beauty of ShoeMint is that it is a brand that is positioned in a very similar way to our Aldo brand - beautiful leather-based fashion footwear at mid level prices," says Aldo group retail and product services president David Bensadoun.

To this point, it’s worth noting that ShoeMint has always targeted a more sophisticate and less price-sensitive consumer than its fast fashion footwear competitors ShoeDazzle and JustFab. WIth that in mind, it is arguably the best fit of the three to enter such a tie-up.

Like with the IntiMint partnership, the ShoeMint brand will live on – but not much else. The company will rely heavily on Aldo for its design, manufacturing, and fulfillment expertise going forward. View it as a capitulation or as a savvy move, the company has enough cash to get through the end of next year and needs to make the most of this chance at a redo.

BeachMint founder and CEO Josh Berman adds that the new Aldo partnership will allow ShoeMint to triple the number of styles it carries in inventory, without assuming additional inventory and distribution risk. And as he predicted with the Cosabella partnership, Berman believes that this new deal will reduce the time it takes the company to break even on its cost of customer acquisition from about five sales down to two. If accurate, that would have a profound impact on ShoeMint’s financial outlook.

“The number one reason why customers aren’t purchasing again is we don’t have enough stuff,” Berman says.

Whatever your vantage point, this sounds like a dramatic oversimplification. Buyers make purchasing decisions based not only on selection, but on perceived quality and value. ShoeMint has been forced to establish both with the benefit of a tangible showroom. If anything, adding the brand credibility of Aldo should help more than simply expanding its shoe count.

ShoeMint currently releases eight to 10 new styles per month today, but expects that number to swell to as high as 30 as a result of Aldo’s involvement. The new styles will be available starting in the first quarter and will cost between $70 to $200 per pair, reflecting the company’s conscious effort to raise its average price point over the last half year – it previously charged $79 per pair, on average. Notably, this change came without a significant change in product quality.

We’ve chronicled BeachMint’s struggles exhaustively, many of which trace back to betting big on a business model that worked in the company’s early days, but which proved more difficult to maintain at scale. These partnerships are management and the board of directors’ attempt at reimagining BeachMint. Going forward, the company will be much more of a brand building and customer acquisition vehicle, than it will be a fashion house in the purest sense.

The company is still focused on building a family of consumer brands known as much for their quality and cool as they are for their value, Berman says. But the way that it gets its products from design, to manufacturing, and ultimately to the consumer’s doorstep needed to change. The scale and infrastructure of companies like Aldo and Cosabella should allow BeachMint to operate more efficiently than it could on its own, despite raising $86 million and growing as large at 150 employees at its 2012 heights.

By comparison, category leader JustFab has raised $149 million – and acquired its nearest competitor, ShoeDazzle  – on the way to a projected $400 million in 2014 revenue. On the other hand, Fab (no relation to JustFab, but that’s an entirely different trademark conversation) has raised $336 million in an effort to build the next ecommerce behemoth, but is facing mounting challenges along the way. So cash alone isn’t enough to succeed in this category.

The big question is what did BeachMint have to give up to get to this point. Berman declined to share details of the company’s financial arrangements with Aldo and Cosabella, other than to call Aldo's the "most meaningful," but neither company is running a non-profit. BeachMint presumably had to sacrifice a significant chunk of its equity in order to get these new, favorable manufacturing and distribution terms. Sure, the offline retailers stand to benefit by getting access to an online channel and the associated learnings, but BeachMint was hardly in a position to negotiate a hardline deal.

The company has burned through the majority of its cash – it had approximately $20 million remaining as of July – and will generate less than $30 million in revenue this year, while losing half as much. In the process of raising all that cash, the company commanded a valuation in the neighborhood of $200 million. Investors will be looking to get a return on their cash, and founders on their time, but both will have to content with additional dilution as a result of the addition of the additional strategic partners.

BeachMint isn’t the first company to discover that building an ecommerce business is harder than just getting consumers to sign up to receive your emails. These partnerships can be seen as a Hail Mary attempt at filling in the many holes in its operational expertise. We’ll know by next summer whether enough to turn things around.