From hyper-growth to hyper-support, how online wholesaler Faire retooled its business in a pandemic
"It doesn't help if we survive it if our customers don't survive it," said Faire co-founder Marcelo Cortes.
It was inching close to the end of February when Marcelo Cortes started to realize just how bad things were going to get. His company, Faire, had just scored a $1 billion valuation a few months before for its online wholesale business that helps local stores compete against giants like Amazon — a plan that, up until the pandemic, had been working. But then coronavirus crept into the U.S., and local retailers — Faire's customer base — closed overnight as states shut down.
"It was definitely a scary time for us," Cortes, Faire's co-founder and CTO, told Protocol. "As a company, we are generally well-funded, and it's easier for us to deal with something like this. But it doesn't help if we survive it if our customers don't survive it."
For a startup that had been experiencing textbook rocket ship growth going into the new year, the pandemic made Faire — and much of the industry that supports retailers — slam on the brakes and regroup. Faire had operated as an online wholesale marketplace that helped give local businesses an edge on Amazon: They sold items largely made in the U.S. from bespoke brands rather than mass-produced goods found online from big retailers. It was an idea inspired by co-founder and CEO Max Rhodes' experience selling umbrellas at trade shows before his career took off in tech at companies including Square. Rhodes, along with Cortes and other founders from Square, started Faire in 2017 to help bring the wholesale process online with terms that were advantageous and reduced risk for retailers, such as its policies to not charge retailers for 60 days after an order is placed and offer free returns if items don't sell in that window.
That risk-reduced policy became critical in the pandemic. By early March, Faire's team realized it would not be business as usual. The first step was taking care of its own employees and sending home its 300-person workforce in the U.S. and Canada. But the harder problem that Faire's been working on since March has been how to help local retailers survive the pandemic, especially as buyers turn to Amazon and local retailers face so much uncertainty when it comes to regulations.
"It's very weird for a company like ours, [which] has been on this hyper-growth trajectory," Cortes said. "Everything we were doing was usually to keep this growth; you keep onboarding more customers and making their lives better and helping them buy more. All of a sudden, we had to change into this mode of like, 'OK, we need to stop this growth and let's help our customers do as well as possible.'"
The engineering roadmap was retooled so that one of the first things Faire released included a financial calculator to help stores calculate what would happen if they had to shut down for months on end. (Unsurprisingly, the answer for most was that their business would not make it.) Faire started sharing info with shops on how to build an online storefront to get some sales or how to negotiate rent. It redirected its customer support team, which had been focused on helping customers grow their orders and business, to now assist those same businesses with filling out government grants.
At the onset, Faire's customers saw their sales drop by 60% to 70% — a drop that had a knock-on effect to Faire's own revenues, since stores were not buying new inventory. But compared to other marketplaces, Faire didn't have as many supply chain problems because it has almost exclusively focused on U.S. suppliers that aren't mass manufacturers, but smaller businesses that source locally. It also switched its policies so that it would pay out to suppliers the next day for no fee after they shipped an order so they could get cash faster.
Helping businesses move online worked. Going into the pandemic, less than 30% of Faire's retailer customers had an online store presence. That's jumped up to now over 70%. The move online has benefited Faire's initial vision, too, which was bringing the wholesale marketplace from being a laborious offline network of trade shows into an online world. It even launched its first virtual trade show in August — "think of it like Twitch.tv but for wholesalers," Cortes said — and plans to continue the online events even post-pandemic.
"Our challenge has always been to bring this online and show [customers] there is a more efficient way to do this. And I think with everything that has happened this year, this process has accelerated it to some extent," he said.
Sales began to rebound, too, as retailers adjusted. The main difference, Cortes said, is that retailers are working harder to persevere and keep the sales numbers up. "Maybe it's like [5%] to 10% lower than last year. Some weeks, maybe it's actually above last year, but they are working 10 times harder than ever to be able to get those sales," he said.
Even though Faire had to pull out of hyper-growth mode to focus on triaging its customers to survive this time, it's actually ended up attracting more mom-and-pop shops that were looking for new ways to buy online. For example, Faire's line of "essentials" like face masks grew to as much as 10% of the site's GMV at one point and is still "stupidly high," Cortes said.
Faire's customer base of retailers and its brand suppliers also doubled in the last year, and the amount of goods customers are ordering has tripled. As a bit of a vanity metric, it claims that the retailers it works with have more store locations in North America than Walmart, Walgreens, Nordstrom, Target, Sephora and Starbucks combined.
"For us, it was a period of growth as well for all of this, which is really surprising," Cortes said.
Investors noticed, too. In October, Faire announced that it had raised another $170 million in a series E funding round led by Sequoia, which drove its valuation up to $2.5 billion. Cortes said the company plans to use the money to expand into new areas, like the U.K. and Europe (pandemic-pending).
In the meantime, Cortes and the company are focused on the holiday season and helping their local retail customers continue to grow, even as a third wave of coronavirus uncertainty sets in.
"Thinking back [to] all the possible outcomes throughout this pandemic, with whatever could happen with the recession or how bad it would be for customers, I think, overall, it was not the worst, by far," he said. "There's definitely a new normal coming, but whatever that is, I think our customers are going to be in a better way to be more successful going forward."