$240 Investment in Something Brandless

Steve’s breakdown: Brandies is actually the brand name but they sell about 300 items without a brand for $3 each. Sounds interesting, No? Tina Sharkey and Ido Leffler are the founders and it would be even more interesting to hear what they plan on doing with the cash. Advertising has to be in the mix and as far as we can see, there is no AOR.

SAN FRANCISCO, CA: It’s tough to wow Masayoshi Son with a bargain, but during a meeting this spring, Brandless left the SoftBank Group chief executive officer a bit flabbergasted. Yes, the startup’s founders assured the billionaire, every product he picked up from the table, from the extra-virgin olive oil to the carbon-steel eyelash curler, was just $3. The trick: It’s all store brand, and there’s no alternative. The site will sell only one kind of toothpaste, or coaster, or tree-free toilet paper. Hope you like it!

Inspired by Japan’s Muji, Brandless Inc. keeps things simple. It sells about 300 items on its website, all generic household staples, mostly for $3 a pop. Despite the understated packaging, the merchandise includes a reasonably wide range of upscale-sounding products (organic pasta sauce, nontoxic dish soap, gluten-free veggie chips) that usually cost less than their equivalents on Amazon and elsewhere. Going head-to-head with Amazon.com Inc.may sound like a suicide mission, but Brandless’s pitch was enough to win over Son. On July 31, Brandless announced that SoftBank’s $100 billion Vision Fund had invested $240 million; the deal values Brandless at a little over $500 million. Chief Executive Officer Tina Sharkey says she doesn’t see Amazon as a direct competitor. “Amazon is the everything store,” she says. “We’re a highly curated collection.”

Sharkey, who founded online media network iVillage and led parenting site BabyCenter, started Brandless in 2014 in San Francisco with Australian retail veteran Ido Leffler. (The site launched last year.) Sharkey had just spent three years as a venture partner at Sherpa Capital, a firm focused on consumer-oriented startups. She declined to comment on working with Sherpa co-founder Shervin Pishevar, who resigned in December following a series of sexual misconduct allegations. Sherpa is an investor in Brandless.

Brandless quickly attracted $51 million in three rounds of funding, including from NEA, Redpoint, GV, and NBA champions Steph Curry and Nick “Swaggy P” Young, but the SoftBank money marks a big step up. Sharkey, who wouldn’t provide revenue or customer data, says she’s focused on building a sense of community among buyers that would feel familiar to BabyCenter or iVillage aficionados. That means, for example, posting customer recipes that include its products on the website, or setting up the occasional pop-up store.

SoftBank managing partner Jeff Housenbold, one of two Son lieutenants joining Brandless’s board, says the company’s data focus and ability to generate buzz around ho-hum products were key selling points. Although SoftBank has major stakes in e-commerce companies abroad, including India’s Flipkart.com and one-third of Chinese leader Alibaba.com, Brandless is just its second such investment in the U.S. The first was $1 billion in Fanatics Inc., the sports-apparel vendor.

The buzz Brandless products generate isn’t always good. Amy Brantley, a writer and YouTuber in rural North Carolina, gave an emphatic thumbs-down to the company’s preservative-free chocolate chip cookies on her “A Girl Being Frugal” channel. But she enjoyed its gummy fish and had a good experience with its soap and counter wipes, so she’s placed two more orders since, for about $30 each. Converting on-the-bubble customers like Brantley is going to be essential, says Sucharita Kodali, an analyst at Forrester Research Inc., because Brandless’s commodity goods have low margins and can be expensive to ship.

“They need to get people to add lots of items to a cart to make things cost effective, or to have a chance at profitability,” Kodali says. “This is about volume, lots of repeat customers.”

And what about the $800 billion gorilla in Seattle? “It could crush them,” Kodali says, if Jeff Bezos truly wanted to compete product for product. For now,  resellers are hawking some of Brandless’s more popular items on Amazon at a hefty markup. At last check, the $3 two-pack of gluten-free pancake mix was going for $8.99 on the site. Ditto the vegan blueberry muffin mix.

Sharkey says she’s interested in working with other companies in SoftBank’s portfolio, which includes delivery services and vertical farms, but she doesn’t have any firm plans. In Asia, she and SoftBank are entering into a joint venture, date TBD. For now, she’s working to improve logistics and widen her delivery range beyond America’s lower 48. The 90-employee site is planning a not-so-radical expansion by yearend, she says: It’ll sell 400 products, including a fall-themed set of items—lentil crisps, cookie mix, lip balm—all flavored with cranberry.

BOTTOM LINE – SoftBank’s nine-figure investment will cover a lot of $3 cookies, but Brandless will have to build customer loyalty if it winds up facing Amazon in a sustained price war.

Type and press Enter to search