Brandless shuts down operations, becoming SoftBank Vision Fund's first failure
The online retailer is stopping all orders and laying off 70 people.
Today direct-to-consumer retailer Brandless becomes the first SoftBank Vision Fund-backed startup to close down, as it stops taking orders and halts all business operations. The company will be laying off 70 people, or nearly 90% of its staff, according to a company spokesperson. The last 10 employees will stay to finish the remaining customer orders and evaluate any acquisition offers.
Brandless' closure marks the end of a turbulent, short run that began 2.5 years ago and was beset with a challenging business model from the start. In a statement, the company blamed a "fiercely competitive" retail market that was "unsustainable" for its business.
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"I'm proud of what we created at Brandless and the hard work and dedication of everyone on the team," said Brandless' CEO (former CFO) Evan Price in an email to Protocol. "Brandless set a new standard in the wellness and sustainable products industry, and while we weren't able to compete competitively in today's DTC market, I'm confident the next great brands of tomorrow will be built from this experience."
While many SoftBank companies have been facing layoffs and trimming costs, Brandless is the first to shutter its business operations entirely, a SoftBank Vision Fund representative confirmed to Protocol. (The Japanese conglomerate declined to comment further.)
In early January, SoftBank backed-Zume laid off half its staff, shut down its pizza delivery operations, and announced it was refocusing around sustainable packaging. Other troubled SoftBank companies are reworking their business models, as well, like car-leaser Fair, which announced it was no longer going to rent cars weekly to Uber drivers, citing the high insurance costs.
SoftBank pushed tech companies it invested in to grow huge fast, but many are now forced to face the limitations of that approach. "The era of growth at all costs are over," said Dara Khosrowshahi, CEO of SoftBank-Vision Fund-backed Uber, following his company's earnings report last week. SoftBank's Vision Fund itself is floundering, as key executives leave the firm, and its fund sequel, the $108 billion Vision Fund 2, is "far short" of its funding goal.
Brandless had been one of SoftBank's highest-profile companies. Launched in 2017, the online retailer had a big ambition: to sell "better for you" essential products at lower-than-name-brand prices, going toe-to-toe against Amazon and Walmart. But the economics were tricky from the start. Everything it sold was $3, a fact that reportedly "flabbergasted" and intrigued SoftBank founder Masayoshi Son. A year after its launch, SoftBank pledged a $240 million investment in the company at a valuation of over $500 million, a high bar for a year-old company. In total, the company raised around $290 million from investors, including Redpoint, NEA, GV and Slow Ventures, according to PitchBook.
Still, it was losing money from high shipping costs and was plagued with quality problems, according to a report from The Information. It had tried increasing prices to $9 on some products, but it wasn't enough. SoftBank had set up its investment in Brandless so that it would only deliver all of the cash when certain markers were hit. It never invested the full $240 million. Facing cash constraints, the company laid off 13% of its staff in March 2019.
That same month, Brandless CEO and co-founder Tina Sharkey resigned, after SoftBank pushed for someone with more retail experience. (It's a familiar playbook: Other SoftBank-backed companies would face CEO changes later, including dog-walking app Wag, Fair and WeWork.) John Rittenhouse, the former COO of Walmart.com, took the job a few months later in May 2019. His plan was to pivot Brandless' business into more high-ticket items (like CBD oil) and use his background to get Brandless' products into stores. He said at the time that he would get Brandless profitable by 2021 and that it would be a billion-dollar business by 2023. Still, he couldn't rule out layoffs in the future.
Six months later in December 2019, Rittenhouse stepped down as CEO and left the company. Sharkey, who had remained on the board, quietly left in the fall. After a month of meetings in the wake of Rittenhouse's departure, the Brandless board — which includes the CEO Price, Brandless co-founder Ido Leffler, SoftBank's Jeff Housenbold, Redpoint's Jeff Brody and NEA's Colin Bryant — decided it was better to shutter the company's business operations while it still had time to give employees severance packages, according to a spokesperson.
"Two years ago Brandless set out to create a new standard in the wellness and sustainable products industry, and we couldn't be more proud of what they created and the hundreds of thousands of customers served," the Brandless board said in a joint statement. "While the direct-to-consumer market is fiercely competitive and ultimately proved unsustainable for their business model, the work the Brandless team did to elevate better for you, better for the planet products has moved the entire industry forward."