The open office space of Beverly Hills subscription box company FabFitFun Inc. is packed – not with colorful boxes stuffed with full-size products – but people.
The company has managed to squeeze a staff of 60 in its small office, which sits above a nail and beauty salon off Robertson Boulevard.
As problems go, managing growth is not a bad one to have. Especially when it can be addressed by a move into a new space roughly three times as large.
Michael Broukhim, FabFitFun co-founder and co-chief executive, said its planned relocation to a building near the Beverly Center in Los Angeles would be the company’s second move since launching three years ago.
“We’ve overstayed our welcome here,” he said. “We literally don’t have places to meet.”
The physical move is just one manifestation of the company’s continued expansion. In three years, the company has seen its membership base rocket to more than 150,000 from 2,000. And it recently launched its own cosmetics line, ISH, in partnership with celebrity makeup artist Joey Maalouf with its recent spring box. The $32 contour kit that came with the box has already sold out online.
Yet despite its success, the company does not resemble what its co-founders envisioned when they launched the business as a women’s lifestyle website in 2010 with Editor-in-Chief Katie Ann Rosen Kitchens.
As they watched similar media companies struggle, co-founder Daniel Broukhim, Michael’s brother, said they eventually realized the business needed to pivot to stay relevant. Some competitors, such as daily newsletter site Daily Candy, folded. But others, such as men’s lifestyle site Thrillist, shifted into e-commerce.
That gave the FabFitFun founders an idea.
“In 2013, we were looking at the landscape and seeing sample-size box companies doing well. We thought if someone was selling a full-size version of this wouldn’t that be an interesting business?” said Daniel Broukhim. “No one was doing it across lifestyle categories. We thought quarterly was also interesting, in that it gave us flexibility to curate great items.”
Kitchens said initial items were sourced through relationships with public relations firms and close-out inventory from high-end labels such as cosmetics brand Butter London and Josie Maran.
“We had good contacts in PR,” she said. “And we leveraged those for the first couple boxes because the quantities were smaller. But it’s a different beast these days.”
FabFitFun’s quarterly boxes cost $50 each or $180 for a year subscription. Each box contains 8 to 12 products with a value of at least $200.
It made 2,000 boxes for its first run and sold all of them. It sold all 3,000 boxes it produced in summer 2013.
Boxed in
FabFitFun’s most common product categories include cosmetics and skin care, snacks, and accessories for fitness and home. Many items are purchased wholesale – or even provided for free by brands looking for exposure – to keep costs low. Some major brands, such as Unilever’s Vaseline, have paid to be included in the boxes as sponsored content.
The e-tailer has harnessed social media to help promote the brand with the help of online influencers such as bloggers Arika Sato and Amanda Stanton, each of whom have more than 500,000 Instagram followers.
The challenge for FabFitFun, and for many subscription box companies, is customer retention, which involves offering products that remain relevant in a saturated market.
David Fink, chief revenue officer at Santa Monica incubator Science Inc., which counts subscription firms Dollar Shave Club and Quarterly in its portfolio, said he doesn’t see subscription e-commerce as a standalone business model.
“It’s one specific selling channel that can be a really effective tool for rapidly scaling new businesses,” Fink said. “But what makes a business successful is going to be the traditional business mechanics.”
Special delivery
That’s why subscription e-tailers are expanding outside of their core business.
Michael Broukhim said ISH was introduced as an alternative to the more complicated contour kits offered by most brands. The beauty trend involves applying different shades to the face to enhance specific facial features.
“Our customer is not quite the YouTube generation,” he said. “We wanted to simplify the trend (and) make it accessible.”
FabFitFun plans to grow ISH into a full cosmetics line and will be releasing additional products this year such as a face primer.
Fink said FabFitFun’s in-house label makes strategic sense, but it does present a new set of costs including packaging, warehouse, and printing supplies.
“The more you do as business the harder it is to do all those things well,” Fink said. “When you get into product development, you have inventory risks and more sunk costs in the operations of the business.”
FabFitFun’s co-founders said they’ve been able to keep the business cash-flow positive with healthy profit margins on revenue of more than $26 million. The company raised its first outside capital in May of last year – a $3.5 million round led by New Enterprise Associates in Chevy Chase, Md., and Santa Monica’s Upfront Ventures.
Daniel Broukhim said the decision to take on additional capital came down to growing the business.
“At the time, we could only take moderate risks because we’d have to lay out cash for inventory,” he said. “In order to make bets further into the future, we need to have a balance sheet.”
