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Brandless Shuts Down: A Victim Of Outsized Expectations

News reports today indicate that Brandless, the SoftBank Vision Fund backed start-up, will shut down permanently. This news follows a tumultuous few years for the once promising start-up that offered high quality, “brandless” goods for a single fixed price point of $3.

Brandless was an e-commerce based company that I first wrote about a year or so ago when they opened (surprise!) a pop up store on Melrose Avenue in Los Angeles. At the time I commented that the store was an effective way to introduce consumers to this remarkable new brand, one that promised an extensive line of high quality products (with attributes such as organic, vegan, FSC, gluten free…) at remarkably low prices. The company even calculated the “brand tax” that consumers would have paid for the branded option.

The company received a reported $300 million in VC backed funding but that wasn’t enough to help them pivot to a profitable business model. A few observations:

  • Some business models are too good to be true. There was little wrong with Brandless from a consumer standpoint but the low price points and high cost of customer acquisition created a puzzling (and money losing operation).
  • Like most D2C brands, there was the recognition that brand awareness and customer acquisition is difficult to achieve. The pop-up store was wonderful, but not nearly enough. The company, just months ago, indicated that they might open Flagship stores and make deals with retailers to place product in their stores. While this was announced, I did not see it executed.
  • Price points are clearly an issue. It is difficult to profitably sell a product for $3 online. The company abandoned the $3 price point, added products at $6 and $9 and recently featured a wide variety of price points including CBD products at $60+. Their goal was to raise the average order size, but this likely occurred too late.

Undoubtedly, there will be value in the Brandless name, customer list and products they developed. As a standalone company, it appears that this might be the end of a very short three year run. It’s likely there will be a second life for Brandless in the future. For SoftBank, which has gained notoriety for funding high fliers (and crashers) like WeWork, this is another blemish on their record. Pouring money into a flawed business model is almost never the answer.

Neil Stern

Neil Stern is Partner Emeritus of McMillanDoolittle. During his career at McMillanDoolittle, Neil has developed strategies and new concepts for a diverse variety of clients across the retail industry. Neil currently serves as Chief Executive Officer for Good Food Holdings, which operates over 50 supermarkets on the West Coast of the United States under five different banners.

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