Can this startup succeed where Etsy Wholesale failed?
From L to R: Marcelo Cortes, co-founder and Chief Technical Officer; Daniele Perito, co-founder and Chief Data Officer; Max Rhodes, co-founder and CEO. Credit: Brian Flaherty for Faire
Jenny Lockton was in a tight spot. Like many small business owners, the 57-year-old entrepreneur wanted her business Bohemia Design, which sells handcrafted items — shibori scarves, tasseled straw bags, beaded jewelry, and other goods that would be right at home in a trendy Williamsburg boutique — to reach a wider audience of retailers, particularly in the United States. But flying to and from New York trade shows from her offices in Edinburgh, Scotland, was costly. And even when pitching potential buyers in New York, Lockton felt she was missing out on some smaller retailers from the West Coast and the rest of the country, who stick to trade shows closer to home. “We did look into other U.S. trade fairs, but the costs and risks of trying these are daunting for a business of our size,” explains Lockton, whose business employs six people, including herself.
To keep costs down and boost Bohemia Design’s visibility, last June Lockton joined Faire, an online marketplace that serves as a kind of Etsy for retailers. On Faire, makers and designers display their wares for buyers to peruse and purchase at wholesale prices. But where tradeshows can be messy, sprawling affairs jammed into convention halls, Faire’s website takes the opposite approach, serving up an online aesthetic that channels more the bougie looks of a C.O. Bigelow than a shambolic T.J. Maxx.
The results were impressive. “Immediately after we went live on Faire, we started to receive orders,” recalls Lockton. In just a few months, almost 50 retailers have purchased items from Bohemia Design through Faire.
Lockton’s story isn’t unique. In the two years since Faire launched, founders Max Rhodes, Marcelo Cortes, and Daniele Perito have created an always-on, online digital trade show frequented by more than 45,000 retail stores and 6,000 makers. This summer, the San Francisco-based wholesale site officially went global, adding products from nearly 370 small businesses like Lockton’s from countries around the world, including Uganda and Thailand. The company, which is on track to generate $100 million in annual revenue, has raised nearly $116 million so far from investors including Lightspeed Venture Partners, Y Combinator and Founders Fund, among others, who currently value the business at $535 million.
“We realized the wholesale market hasn’t really changed in several decades,” explains Rhodes, Faire’s CEO. Many makers have traditionally sold their wares by jetting to tradeshows or hiring salespeople to pitch buyers, with the holy grail being national or chain retailers like Target, Williams Sonoma, or Whole Foods picking up their goods. But getting onto those coveted store shelves — physical or virtual — can be extremely difficult.
Rhodes, Cortes, and Perito witnessed some of the challenges small businesses faced while working at Square, where Rhodes managed the strategy and development of products like Square Cash, an app for sending money. (Cortes was a software engineer on Square Cash; Perito worked on the company’s digital security team.)
The trio left their jobs in 2017 to try their hand at a startup of their own. They toyed with several ideas — reimagining healthcare payments, offering car insurance to low-income immigrants, even becoming dental drill salesmen (yes, really) — but they couldn’t stop thinking about an experience Rhodes had had earlier in his career.
Nearly a decade ago, Rhodes had the task of finding retailers in the United States who would sell the invention of a startup he advised: Blunt, makers of collapsible wind-proof umbrellas. It was a slog. The New Zealand company spent roughly $1 million flying to trade shows to show off the umbrella and hiring sales representatives, but retailers worried about getting stuck with unsold inventory. Eventually, the umbrellas were carried by more than 100 boutiques, 12 big-box retailers, and Amazon, but the uphill battle left a lasting impression on Rhodes.
“We sort of wandered in the wilderness for a few months, and it turned out the reason that we were struggling was we just didn’t have enough supply, and we didn’t have the right supply.”
Over the course of several months, the co-founders spoke to hundreds of sellers, in-person and over the phone, to learn about the challenges they faced pitching and selling their goods to retail buyers. They initially tried launching an online consignment market, where suppliers are paid after their goods are sold (and suppliers got back any items they didn’t sell). But the idea failed to take off. As they quickly learned, the word “consignment” conjured up negative images of discarded used goods. “We would be talking to customers about consignment, and they didn’t even want to talk to us,” explains Cortes, who is Faire’s CTO.
As a new marketplace, there was also an inventory problem. “We sort of wandered in the wilderness for a few months trying different value propositions, and it turned out the reason that we were struggling was we just didn’t have enough supply, and we didn’t have the right supply,” says Rhodes, explaining that Faire actively recruited more makers who specialized in popular categories, such as home decor and jewelry.
Equally as important: easing retailers’ fears of being saddled with unsold inventory. When retailers are stuck with unsold items, they’re left with few options.
“Our goal as a retailer is to bring new and unique products for our customers as much as possible, and we aren’t able to do that as often if we have to sit on unsold inventory,” explains Channing Martin, co-founder of the home gift shop Urban Block in Salem, Oregon. “Having unsold inventory forces us to sell it at a discount — typically at cost — which tends to lose us money.”
To assuage some of those concerns, Faire introduced a 60-day policy, in which the company covers the upfront costs of a brick and mortar shop’s order. The retailer isn’t charged for the items and can return unsold inventory, no questions asked, until 60 days after the order is placed. (Faire charges sellers on its platform a 25% commission for the first order and 15% for subsequent orders.)
While Faire has a sales team, the company credits a lot of Faire’s growth to referrals from makers who want their existing retail customers to use the platform — so that they can invoice, track order history, and view analytics all in one place. (There’s no commission fee when makers bring their own customers to Faire.)
Faire also uses data to make product recommendations to retailers based on their browsing behavior on the marketplace. This helped the company increase the average amount of inventory makers sell to retailers by 75% in 2018.
Faire has made buying easier for retailers like Holly Addi, who runs Arte Haus Collectif, a contemporary art gallery and boutique in Salt Lake City. She started shopping on Faire nearly two years ago, largely as a way to spend less time and money attending trade shows. Arte Haus Collectif has purchased roughly $20,000 in wares from Faire to date, including candles, aprons, scarves, bath salts, and jewelry. The business has also returned purchases — most recently, an entire batch of unsold sunglasses — within 60 days of ordering them. In each instance, Faire reimbursed Addi for the unsold items, which she has used to purchase other goods from makers on the platform.
While it may be relatively smooth sailing now, Faire could eventually face issues around quality and authenticity as the marketplace grows. Amazon and Etsy continue to be plagued by counterfeit goods. Amazon, in particular, suffers from an issue of fake books: xeroxed or plagiarized copies of the real-deal. Faire doesn’t have that sort of problem on its hands yet, but it seems inevitable for the quickly growing startup that some less scrupulous sellers could try to make a buck by serving up cheaper knock-offs of their peers’ products on the site. Faire’s founders declined to comment on this, however the company currently has some safety measures in place to combat this issue, including a risk team that reviews each application to make sure goods are authentic.
Rivals are also likely to pop up and challenge Faire, which isn’t the first notable attempt at introducing an online wholesale marketplace. In 2014, for instance, Etsy debuted Etsy Wholesale. But four years later, Etsy Wholesale shut down, with Etsy reporting at the time that just 5,000 out of nearly 2 million Etsy sellers were using the platform, with an even smaller fraction generating more than $10,000 in sales each year from Etsy Wholesale.
So far, no big retail chains are using Faire, and the company says it isn’t actively courting them. The majority of retailers on the marketplace have just one or two locations. Rhodes is content to focus on local retail for now, which the company claims is a $1 trillion opportunity (about a fourth of the entire retail market).
Martin credits Faire with introducing her and her business partner to goods from nearby makers she might not have discovered at larger trade shows. With Faire, Martin says there are fewer surprises. Faire items frequently arrive quicker than her other orders, she notes. The site also offers delivery estimates and notifies her when a shipment is delayed, which is not always the case with Urban Block’s other vendors.
Plus, says Martin, the quality of goods on Faire is excellent. “A lot of the time, you’re skeptical of ordering from some places because you haven’t seen it in person, you don’t know how their customer service is, you don’t know how fast the turnaround time is or when something will arrive,” she says. “That’s not the case with Faire.”
Trade shows, be warned.
This article was updated on September 10, 2019, to include additional information about the size of Faire’s retailers.
social experiment by Livio Acerbo #greengroundit #flipboard https://marker.medium.com/inside-the-platform-where-artisans-go-corporate-82e1ea6f7564?gi=ce1cfbfcf739