Faire on Wednesday announced it has raised US$150 million in venture capital. Lightspeed Venture Partners and Founders Fund jointly led the Series D funding round. Existing investors Forerunner Ventures, YC Continuity and Khosla Ventures also were involved.
Faire will use the money to expand into new markets, improve the Faire marketplace, and build more tools for its customers.
The latest round brings Faire’s total funding to date to $266 million and gives the company a valuation of $1 billion.
Launched two years ago as Indigo Fair, Faire is an online wholesale marketplace that lets retailers shop for new products to carry. It works directly with makers and takes back returns with no questions asked.
Faire’s sales reportedly exceed $1 million a day. It has more than 190 employees in offices in San Francisco, Ontario and Salt Lake City.
Faire works with 7,000 makers and 50,000 local retailers through its marketplace. It has sold more than 15 million products.
This year, it expanded to include makers from 39 countries, and it onboarded Canadian retailers earlier this month.
It also brought on its first CFO, Lauren Cooks Levitan, last month.
“The challenge with competing in these spaces is having the funding to support the coordination of inventory, logistics, warehouse management, transportation management, and vendor management,” observed Ray Wang, principal analyst at Constellation Research.
“However, at scale and in the right categories, there’s an opportunity to create a B2B marketplace version of Etsy,” he told the E-Commerce Times.
At present, Faire’s competition is mainly in India and China.
“This is a highly specialized market to crack, so I’m not sure we’d see a lot of new players in one market, but I’d expect geographical spinoffs to pop up in China or India, or EMEA or Latin America,” Wang said.
Faire is a wholesale play that caters to a niche market, so it’s “closer in spirit to Alibaba than it is to Amazon,” noted Mike Jude, research manager, digital health, at Frost & Sullivan.
Not All Smooth Sailing
Faire aims to simplify the wholesale buying process so makers and retailers find it easier to do business. However, it has run into snags, according to Lela Barker, president of Lucky Break Consulting.
For one thing, its rapid expansion has led to mistrust among makers.
“The fee structures, feature sets, and level of communication vary significantly among participants, which creates the perfect storm for mistrust when makers compare notes among themselves,” Barker pointed out.
Faire’s charges are “a significant downside,” she noted. “The rate for new makers onboarding in early 2019 is 25 percent on the first order from any buyer. It then becomes 15 percent on subsequent orders from the same buyer.”
Faire frequently extends net 60 terms to shopkeepers, and makers can elect to pay an additional 3 percent fee for immediate payment or wait 30 days for payment instead.
Further, Faire encourages buyers to brand hop. This nets it higher commissions but results in less loyalty to brand owners and cuts into their sales.
First time retail purchases from a specific brand typically come with net 60 terms, free shipping, and free returns on unsold merchandise — but most of those benefits don’t apply on subsequent orders, according to Barker.
“When the majority of orders delivered to Faire brands are from first-time buyers, brands are operating in the 25-28 percent commission zone more frequently than the 15-18 percent commission range,” she noted. “That’s painfully expensive.”
Sales reps typically charge a 15 percent commission in addition to the cost of samples and possible showroom fees, Barker pointed out. “While savvy brand owners bake marketing expenses into their products, they don’t often bake in 28 percent.”
Long-Term Prospects Up in the Air
Faire’s practices ultimately will pose a problem for the company, Jude warned.
“If a maker becomes popular enough, it will simply migrate away from Faire and conduct business directly with buyers,” he told the E-Commerce Times. “Ultimately this will make Faire a refuge for new or desperate makers.”
Faire controls which brands can play in their sandbox, which brands display for any given retailer, and how those brands transact, Barker said. “In a nutshell: Faire owns the buyers, not the brand.”
It also has “a startling amount of data about shopkeepers and brand owners” — what products stores stock, which products sell and at what rate, which products from a brand are returned and at what rate, how often a brand converts with shopkeepers, a brand’s pricing and policies, and even which brands a shop previews on its platform, she noted.
“Business data is the long-term value in the business model,” Wang said. The problem is that the digital feedback loops will be used against the makers for pricing, availability and competition.
Makers and product designers on Faire also are concerned that their brands will be subsumed under the company.
“It’s easy to say ‘We got this on Faire’ as opposed to ‘Oh, this is from Brand XYZ’,” Barker said, describing this as “the Etsy problem.”
“There is an issue about the superbrand that subsumes the makers,” said Wang.
Because Faire takes back all returns itself, some brands selling on its platform are concerned that this takes away their ability to control the distribution of their products.
Faire might be the victim of its own rapid growth rate.
“I spoke with more than 90 brand owners about their experience with Faire, and nearly one in four indicated a recent decrease in sales,” Barker said, likely due to the blitz of new makers coming onto the platform.
“If doing business with a particular online wholesalers destroys your existing business,” said Jude, “you will move to a competing wholesaler.”
Social MediaSee all Social Media