JustFab Inc. and ShoeDazzle Inc. announced today that the subscription e-commerce companies would merge, bringing together two big names in an industry that has been a key part of Los Angeles’ tech scene.
A buoyant joint-release about the merger describes the move as “game-changing” for online fashion, with the new company becoming the largest subscription e-commerce company in the world. The combined firm, which will have 33 million members, is projected to generate $400 million in revenue next year and crack into profitability.
The specifics of how the combined company will be structured sheds light on the contrasting fortunes of these onetime rivals.
ShoeDazzle, which more or less created the subscription e-commerce category in 2009, will become a portfolio company under JustFab’s banner. Adam Goldenberg and Don Ressler, JustFab’s co-founders and co-chief executives, will retain their positions at the top; ShoeDazzle will be helmed by its current president, M. J. Eng. Brian Lee, ShoeDazzle’s chief executive since returning last year to the company founded, will transition to JustFab’s board of directors.
The all-stock deal leaves ShoeDazzle shareholders partial owners of the newly structured JustFab.
Goldenberg, who had approached Lee about acquiring his company in its early days, describes the merger as “four years in the making.”
“We talked very early in the company’s history and tried to put a deal together then, Goldenberg said. “This is something we’ve seen as a natural fit and it’s great to make it happen.”
The two companies share a business model that is essentially a fashion-centric update to the book-of-the-month club. Prospective members take a fashion quiz that helps the online stores make personalized fashion recommendations. Then, for a monthly $39.95 fee, subscribers receive a pair of shoes or another fashion accessory each period. It’s a model that’s been adopted by a number of e-commerce firms, including Santa Monica’s BeachMint Inc., which branched the concept off into home goods and other categories.
Although the companies have been considered fiercely competitive rivals in the subscription e-commerce space, both Lee and Goldenberg said the combined brands were complementary. Footwear accounts for 90 percent of ShoeDazzle’s revenue, Lee said. JustFab, meanwhile, has been branching into lifestyle brands, including kids clothing and, soon, athletic wear.
With a joined JustFab and ShoeDazzle, Lee said the company is setting its sights on the fast-fashion giants, such as H&M and Zara.
“It’s all about getting to scale in order to become a large profitable business,” Lee said. “The synergies between our companies will almost guarantee that we’ll be able to.”
Lee briefly left ShoeDazzle last year to head up Honest Co., a Santa Monica e-commerce firm he founded with actress Jessica Alba. But ShoeDazzle faltered in his absence and he returned to the company later that year while retaining his position at Honest.
There was ongoing speculation that Lee wouldn’t be able to keep up with the burden of being chief executive of two companies. Indeed, in the new setup, Lee says he will be vastly reducing his role at ShoeDazzle and instead focusing mostly on Honest.
But he insisted his decision to step back from the day-to-day at ShoeDazzle won’t let him start taking things easy. “I’m just as stressed out as I’ve ever been in my life.”
Lee also said it’s no letdown for him to see ShoeDazzle playing second fiddle to JustFab. On the contrary, this is how it was meant to be.
“I’m not disappointed at all. We’re now part of this larger entity and we’re going to be growing a multibillion dollar entity. That’s what I always envisioned for this subscription e-commerce model.”
