As much as “retail apocalypse” continues to show up in the headlines, by now most people that take the time to look at the facts know it’s nonsense. The truth is while much of retail is definitely different–in some cases radically–it’s far from dead. Physical retail continues to grow, lots of stores are opening and brands like Target and Best Buy, which were once thought to be made increasingly irrelevant by the massive growth of Amazon, are doing just fine, thank you. But shift happens, and to the extent we are seeing an end of times scenario it is largely concentrated among those retailers that got stuck in the boring, unremarkable middle and mostly watched the last 20 years happen to them.
Another popular narrative centers on the impact of disruptive retail brands. Many are the so-called “digitally-native vertical brands” like Warby Parker and Glossier. Others may not do their own product design and sourcing, but exploit the power of e-commerce and other new technologies to challenge legacy retailers asset intensive models (think Net-a-porter or ThreadUp).
There is no question that dozens of these brands continue to attract vast amounts of venture capital, with a growing number reaching unicorn status. They also garner significant consumer interest and generally wreak havoc with the sales and margins of the industry incumbents challenge. As such, it’s hard to argue that they haven’t been disruptive to most major retail categories. The incremental benefits consumers receive are also impressive. By and large, the most noteworthy disruptors deliver some meaningful combination of better product, improved service and lower prices. What’s not to like?
What’s coming into sharper relief–and should set off alarm bells–are the underlying drivers of many of these disruptors’ fortunes and real questions about whether they have an actual sustainable business model or not.
Wayfair is my favorite canary in the coal mine. Yesterday Wayfair reported its earnings, revealing yet another quarter of robust revenue and customer growth (35.9% and 37.6% respectively). The leading online retailer of home furnishings is well on its way to surpassing $10 billion in annual revenues next year. But they also managed to lose $272 million, a loss that was up a staggering 80% from last year. That’s not quite WeWork, Uber or Lyft levels of cash incineration, but for a company that has been at this since 2002 it might be time to ask just what the heck is going on?