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Monday
Jun102013

Direct Selling & Amazon.com Are Killing Off Retail Startups

Have you noticed all the empty retail spaces that are STILL out there?  Nowhere is this more apparent than a Mall.  With real estate and the economy coming back, it seems commercial real estate might be the last part of the equation to make a full recovery.  

I took a walk through a mall outside of Boston a month ago, only to pass several empty stores in order to arrive at an open one, and then repeated the process.  Even the anchor stores aren't anchoring like they used to.

The mall was once where you would do the majority of your shopping.  Now you go there for the "sale", or to the Food Court, and to see a movie if there's a cinema.  And every time a store like Borders goes out of existence, many Americans find a mall's value proposition less appealing to a broader demographic.

Today, instead of spending many thousands of dollars on renting physical space and hiring sales staff, entrepreneurs are opening an online shop on Main Street, USA, with radically reduced startup costs and ongoing overhead.  The benefits of doing business online have been touted for a long time now, and it has never been easier to start your own business.   

The End of Retail?

Marc Andreesen, of VC firm Andreesen Horowitz, has boldly predicted that we are still in the pre-stages of the death of traditional retail.  "Retail chains are a fundamentally implausible economic structure if there’s a viable alternative,” he says. “You combine the fixed cost of real estate with inventory, and it puts every retailer in a highly leveraged position. Few can survive a decline of 20 to 30 percent in revenues. It just doesn’t make any sense for all this stuff to sit on shelves. There is fundamentally a better model.”

I agree with that statement, except would like to add direct selling to his view.  Smart entrepreneurs that I've recently met with this year have all decided to bypass retail, and go straight into direct selling as their business model to start their companies.  

Gabrielle DeSantis-Cummings and Monica Hillman founded Gigi Hill, a privately owned direct sales company that designs and manufactures a unique line of high quality handbags and totes.  Gigi Hill raised $3M in a Series A round in June of 2011 from Maveron Partners.  Jason Stoffer, a partner, was kind enough to write on this blog one year ago.  

Hil Davis & Veeral Rathod raised $12.3M to start J. Hilburn, a men's fashion clothing company offering exclusive Italian shirting and trouser fabrics, luxury performance knits, and a top-shelf accessories line that marries the best in handmade designs and European quality.

Ana Zornosa and Deborah Uri raised $11.5M this year to start Ruby Ribbon, a fashion social commerce company that leverages social technology and direct-sale tactics.

Chantel Waterbury raised $11.8M to start Chloe & Isabel, a fashion jewelry direct selling company.  Users who sign up as Merchandisers receive a customized digital workplace to create their boutique shopping experience, and earn commission from every sale. 

After the '08 Recession hit, Corbin Church of Miche Bag turned to direct selling because he found their most valuable salespeople had direct selling experience, and were doing very profitable home shows.  The company is now fully behind the direct selling business model, and is a pending member of the DSA.  

And no one knows the perils of retail than LifeVantage.  After being stuck on shelves with its story untold, David Brown boldly removed the product from the shelves, and implemented a network marketing business model.  LifeVantage is on track to do $260M this year.  

The most important thing to note about those last five entrepreneurs, is that their strategic decisions were made post-recession.  I've met with more entrepreneurs this year that couldn't raise nearly as much money, but have all decided to start their businesses via direct selling.  Entrepreneurs are starting to understand the power of direct selling again.  

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