JustFab buys FabKids

Mother and child reunion: JustFab buys FabKids
PandoDaily
By Michael Carney
January 18, 2013

The article was picked up by the following 5 media/blog outlets: RebelMouse, Twitter (sarahcuda), Business Insider, The Jane Dough, and Webmaster’s News.

Nearly a year ago, I was watching a panel of VCs discuss trends, and the sectors they were most interested in investing in. One of them said something to the effect of, “Give me moms and kids. Doesn’t matter the sector – education, entertainment, commerce – anything to do with moms and kids is incredibly hot right now.” The statement drew universal agreement from the rest of the panel.

A sign of that well-worn criticism that VCs are “me too” lemmings? Perhaps. But there’s one company in Los Angeles that has had the female demographic nailed for several years now. (Without stumbling, that is.) Today it’s making moves to begin selling to kids.

JustFab, one of the top the women’s footwear, apparel, and fashion accessory subscription etailers, has acquired its children’s counterpart FabKids – no association prior to today, despite the name similarities. The companies declined to discuss terms of the transaction.

San Francisco-based FabKids looks a lot like an LA ecommerce company. It was founded by actress and mom Christina Applegate and serial entrepreneur Andy Moss in August 2012. Like JustFab, it offers consumers personalized fashions delivered monthly at direct to consumer prices. In the case of the children’s retailer, parents select one full outfit for their child per month from a small collection personally assembled by one of the company’s brand stylists based on their tastes and past purchases. Each outfit costs $39.95.

The children’s fashion category, and the LA startup scene for that matter, already have another subscription retailer that moms love: Wittlebee. The company founded by former MySpace exec Sean Percival follows a slightly different model than FabKids’ outfit delivery service, instead sending members monthly boxes of apparel “basics,” like cotton t-shirts, onesies, and leggings in multiple colors.

Moss wouldn’t disclose membership figures on FabKids, but it’s fair to say that its in the thousands not millions. Given its short time since launch, I’d bet that Wittlebee is slightly larger, but either way, that’s splitting hairs compared to JustFab’s 10 million plus members. Along the same lines, moms, kids, and babies daily deals site Zulily may be the largest in the space, but is stuck with a model that hasn’t been cool since 2010. Given JustFab’s scale and resources, it’s likely Wittlebee that will be the most concerned by the latest change in the competitive landscape, rather than the other way around.

But what it lacks in size, Moss says FabKids makes up in charm right out of the box. Customers address the monthly delivery in the name of their child, making it one of the lone – and most exciting – pieces of mail they receive. In this way, unboxing becomes a monthly event that children and their parents look forward to, says Moss, who prior to FabKids was a co-founder of women’s content and commerce startup Sugar.

From the name, to the business model, to the company culture, FabKids is a perfect fit inside the larger LA acquirer, according to JustFab co-founder and co-CEO Adam Goldenberg. Combining the two companies will accelerate the 2013 and 2014 business roadmap of each.

“What we loved most about FabKids is that is has been very successful in a category that we were interested in and their business has many of the same great attributes as JustFab,” Goldenberg says. “FabKids has a high repeat purchasing pattern, a low attrition rate, and a passionate and engaged membership base.”

FabKids has, thus far, only offered girls fashions, though moms have been requesting boyswear incessantly. Through the acquisition, the young company will be able to accelerate its category expansion and address this remaining market in time for the Summer back to school season. It will also begin serving international markets, through JustFab’s Munich, Germany and United Kingdom, international operations.

JustFab has long seen kidswear as one of a very short list of follow-on categories to its existing core offering. Weighing the decision of whether to “build or buy” its way in, Goldenberg says that the former would have meant a 2014 rollout, while the latter allows for immediate expansion.

Approximately, 2.5 million of JustFab’s current 10 million plus members have children under 10-years-old. Similarly, some 15 percent of FabKids subscribers are already subscribers of JustFab. Goldenberg and Moss were not ready to discuss specifics of the cross promotions and incentive offers they’re bound to run between the two in-house brands, but expect there to be many.

“The opportunities for cross promotion among the brands are vast,” says Goldenberg’s JustFab co-CEO Don Ressler. “Many JustFab members have daughters who are mini-fashionistas and the mothers of the FabKids girls love to spoil themselves with a little glamour.”

Goldenberg and Moss were both adamant that the entire FabKids team will remain with the company post acquisition, including Applegate. FabKids will keep its brand – and really, why wouldn’t it, given the uncanny name similarity? – and will operate out of its current San Francisco offices. Fulfillment will be transitioned to JustFab’s sizeable Tennessee facility, which at present processes more than 250,000 packages per month. FabKids currently manufactures and private labels all of its own apparel overseas. Goldenberg and Moss expect this to continue, but anticipate significant economy of scale driven cost savings when the companies combine their production efforts.

Despite all the synergies, category expansions are never a sure bet. One need only look across town to subscription commerce competitor BeachMint, which has churned out six “Mint” vertical subsidiaries, in everything from apparel, to lingerie, to housewares. While each followed the same model and had access to many of the same cross-promotion and economy of scale advantages that FabKids will, few have found real traction. Goldenberg and Moss will need to call on every ounce of their considerable domain experience to avoid a similar fate.

FabKids raised $2.6 million in a February 2012 round led by Hillsven Capital, with participation by Sugar CEO Brian Sugar and other angel investors. JustFab has raised $109 million in venture capital including $76 million in July 2012 from Rho Ventures, Matrix Partners, Technology Crossover Ventures, and its parent company Intelligent Beauty.

When I spoke to Goldenberg at the time of the most recent funding announcement he said they company’s revenue goals were to reach a $100 million per year revenue run rate by the end of 2012. When we spoke earlier this week, he wouldn’t confirm explicitly whether this goal was met, only saying, “We hit all of our 2012 revenue goals and saw year over year sales in Q4 grow by 250 percent.”

Many in LA look to JustFab – and its Intelligent Beauty sister companies – as the best shot the ecosystem has for a massive exit, particularly in the choppy subscription commerce space. Successfully expanding into a new $100 billion per year category certainly couldn’t hurt.

http://pandodaily.com/2013/01/18/mother-and-child-reunion-justfab-buys-fabkids/