This post originally appeared in my newsletter Digital Culture where I discuss the evolution of commerce.
On Monday, Fab, the biggest thing that happened to e-commerce since Zappos, will unveil its 3rd pivot, a shift in business model, in 24 months of existence. In parallel, there are growing rumors that they are raising another round of funding at a $1Bn valuation.
Fab’s foundation and growth is one of those fascinating stories that the Internet has made possible. They originally started as a social network for gay men known as Fabulis before launching a flash sales website focused on design. Since the launch of their flash sales website, they have progressively evolved from a drop ship model to an inventory model becoming a demand fulfillment website just like Amazon. In the meantime, they acquired 12Mio members across 26 countries. In 2012, their sales grew by 500% and they now generate more than $200,000 per day. They are selling a product every 7 seconds. Two years ago, Fab had just launched.
Now in three days, they will reveal the next iteration to their business model with the objective to get one step closer to “becoming the world’s alternative to Walmart & Amazon” according to co-founder Bradford Shellhammer. While Fab CEO, Jason Goldberg, says that there will be 5 major announcements, it is widely expected that Fab will announce that they are going to start designing and manufacturing in-house a large of their products. Basically, they will become a vertically-integrated retailer.
From both a strategic and economic perspective, this move would make a lot of sense. Strategically, online retailers know that the best way to compete with Amazon’s scale is to sell products they don’t have. Economically, vertically integrated online retailers enjoy much healthier margin than flash sales websites. Moreover, by taking control over their sourcing, they can also make sure that they will continue to surprise and delight their community with quirky products.
There are of course multiples factors that explain how Fab managed to build such a fast-growing and flexible business in less than 24 months. A large part of their success is due to an incredible ability to execute fast and well. They also made the wise decision to not compete on prices but to focus on sourcing unique products. However, I think that Fab’s success is firstly a great reminder of the value of a brand in today’s flat e-commerce world. Before they even launched their website, the founders started building a brand that was aimed at being bigger than the products they would sell. Many start-ups wait to have a business before they build a brand. Fab’s founders did the opposite: they used the brand to build the business. Thanks to their brand, independent designers were happy to work with them and it helped Fab to source exclusive products. They also collaborated with the Andy Warhol foundation to sell a version of the Brillo box as a pouf. Designing their own products and selling them under the Fab label is the natural next step.
A few weeks ago, another event acted as a reminder of the value of a brand: On April 3rd, Moleskine, the famous Italian maker of cardboard-bound notebooks made its debut on the Milan stock exchange at a valuation whose multiples can easily compare those of luxury brands. Moleskine bankers justified the high valuation with the high margins and…the brand. As Quartz reported, Moleskine actually acknowledges itself in its IPO prospectus that they sell more than notebooks: they sell an identity and culture.
Building a brand is probably one of the strongest assets a company can have. As Seth Godin explains: “Do work and get paid once. Build an asset and get paid for as long as it lasts”.This is exactly what Fab did from day 1, they didn’t just “do the work” of a flash sales website (selling goods at a high discount). They built an asset and it looks like on Monday they will start to capitalize on this asset more aggressively.
Smile Fab team, you seem designed to succeed*
*Paraphrasing Fab CEO