Some consolidation in the world of fashion commerce: JustFab and ShoeDazzle, two sites from Southern California that both sell shoes, accessories and apparel, have just announced a merger, which they say will create the world’s biggest fashion subscription commerce player, with 33 million members and projected revenues of $400 million in 2014, with a 15% market share in online footwear sales in the 18-35 female demographic.
The news comes after a report in Pando Daily yesterday noted that they two were in talks, although it cast the deal as an acquisition by JustFab. At the same, time there have been murmurs of other competitors like Beachmint facing difficult times, although Beachmint has refuted the allegations.
Adam Goldenberg and Don Ressler will serve as co-CEOs with ShoeDazzle co-founder and President MJ Eng continuing to run ShoeDazzle, the companies said. Brian Lee will join the board of directors at JustFab.
“Today we are creating one of the world’s largest and fastest growing fashion e-commerce companies, with a clear path to creating a multi-billion dollar fashion company here in Los Angeles,” said Adam Goldenberg, co-CEO of JustFab in a statement. “By maintaining the distinct JustFab and ShoeDazzle brands, we will be able to significantly broaden our reach in the United States, and continue to take substantial market share from traditional footwear brands, retail players and e-commerce competitors.”
Brian Lee, co-founder and CEO of ShoeDazzle, played up the merits of the “synergies” in the two companies’ business models — which could mean some cost and staff cutting going ahead as they combined business strives for bigger scale and better margins (we’ll ask if we get to speak to him later).
“Both of our brands have seen high growth and success over the last three and a half years, and with the synergies between our complementary businesses, it made sense for us to combine our strengths,” he said in a statement. “This merger gives us the scale to create a truly global, multi-brand lifestyle fashion company.”
ShoeDazzle, which had raised $66 million from investors including Andreessen Horowitz, Lightspeed and Polaris Ventures, has seen a lot of ups and downs and management shuffles. The site, based in LA, plays up its Hollywood cred, with starlets like Kim Kardashian and celebrity stylists getting involved in selecting the catalog of items on offer. Still, it’s perhaps had a hard time finding the sweet spot with its target female audience, and earlier this year it moved back into offering a subscription commerce model, after previously dropping it.
For its part, JustFab — one of the champions of the subscription commerce model, which sees users pay a monthly fee to then get discounted prices on shoes and other clothes — has been on a bit of an acquisition spree after raising $76 million in 2012.
When I spoke to Goldenberg earlier this year, when the company was acquiring The Fab Shoes to expand further in France and Spain, he spoke of the difficulties for smaller e-commerce companies to raise money and how this was driving consolidation (at best; at worst companies simply going out of business).
“This is part of the reason why we raised such a big round last year,” Goldenberg told me. “Scale and infrastructure are key if you want to grow quickly in the fashion business,” Pablo Szefner, CEO of The Fab Shoes, noted in a statement at the time. JustFab has also been using some of its proceeds to strengthen its brand position in another way: it’s also in the middle of a trademark lawsuit against fashion and design site Fab.
Update: I’ve just gotten of the phone with Goldenberg and Lee, who talked in a bit more detail about the deal. He confirmed that one of the big reasons for the move was so that the combined company could have better economies of scale.
“This deal makes a tremendous amount of sense,” Goldenberg. “If you think about our busiess model, scale is incredibly important. It allows us to have the best deals with the best factories, and offer the best products to our consumers. We have created an LA powerhouse,” he added, referring to the fact that JustFab is in El Segundo and ShoeDazzle in Santa Monica.
Although Pando Daily’s story yesterday positioned ShoeDazzle as a far smaller company and this deal as “face saving”, Lee refuted this spin. “ShoeDazzle was doing great,” he says. “We’re still growing nicely, but when it comes to opportunity our investors took a look at it and it made sense to scale even faster. They are both doing great and 1+1=4.”
Asked why this was described as a merger rather than acquisition, Lee simply stated, “It’s absolutely a merger of two great business.” On the Pando Daily story, he noted he “wasn’t involved at all” in the reporting. “Their numbers were completely wrong and a lot of information was wrong, and the publication of that is what got us to expedite the deal even further, to bring out the truth.”
Lee says the two companies were in “serious discussions” for about three months. “It’s always complicated when you have large employee and investor bases. We’re excited to be at the finish line.” It wasn’t, in any case, the reason for why ShoeDazzle moved back to a hybrid subscription model earlier this year. “We were doing what was in the best interest of ShoeDazzle,” Lee said.
Although the coexistence of two separate companies was called the “shoe wars” by some, Goldenberg says that the combined company is peerless in terms of online competitors although traditional retailers are still offering them a run for their money. “If you look at the footwear industry we’re already taking a 15% share. That means the offline competitors are taking 85%,” he says. “But if you look at subscription commerce we are definitely alone in that. I think we have more revenue than all other subscription commerce companies combined. There isn’t a number three.”
And the idea of a number one and two is a key point: both brands will remain distinct and intact in the merger. “When you think about fashion women always want choice,” Goldenberg explains. “Two separate brands we appeal to a much wider membership base. That will not change.” What will change, it seems, is that we’ll see ShoeDazzle finally undergo some international expansion, following in the footsteps of JustFab.
Lee’s decision to join the board rather than take an executive role is because he says he “will remain focused on the Honest Company,” where he is still CEO. The companies do not anticipate any layoffs as part of the merger but will be evaluating everything over the next six to 12 months.
Going forward, Goldenberg declined to say what the next step might be, whether that would be an IPO or looking for another kind of exit. “Right now we’re focused on being a great company and getting to $1 billion in sales while being highly profitable. If we do that, the right liquidity path will come.”