Life’s getting real for Nasty Gal and the other digital darlings that have built devoted customer bases online, but are starting to feel some serious growing pains — and increasing pressure to turn a profit.
The Los Angeles-based Nasty Gal laid off 10 percent of its staff Thursday as part of a company-wide restructuring. The firm has raised $65 million to date, including $16 million in Series C funding in March, led by former Apple Inc. and J.C. Penney Co. Inc. executive Ron Johnson.
“Today we had to lay off 19 employees as part of a strategic restructuring,” said Sheree Waterson, Nasty Gal chief executive officer. “While this was a difficult decision to make, it is necessary and will allow us to continue to evolve as a company.”
In an internal e-mail, Waterson said the focus going forward would be on improving operations, brand building and strengthening the core business.
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“The market in which we operate is changing, both in retail broadly and apparel specifically,” Waterson said in the e-mail. “We have seen other tech and apparel brands make similar types of business decisions recently. It is imperative for us to be nimble and think strategically about the future of our brand.”
Last month, beauty box subscription service Birchbox cut 15 percent of its staff. And late last year, Rent the Runway came under the spotlight for changes in its executive team.
An employee at Nasty Gal told WWD under the condition of anonymity that the company’s layoffs were more course correction than big corporate shift.
“It’s really not a massive [change], but it’s obviously significant,” this person said, noting that there have been “components of the business that have been turned on less strategically” such as Nasty Gal’s transition from wholesale operation to one that also has an in-house collection.
The source said the goal is to build the brand and “create an operationally sound, profitable business.”
The 10-year-old company had at least three rounds of layoffs in 2014, the largest round taking place in August, when it was reported that about 20 people of the approximately 280-person staff were let go. At the time, the company was preparing to open its first retail flagship, which bowed on Melrose Avenue.
Amoruso stepped down as ceo in January 2015 and passed the reins on to Waterson, a former Lululemon Athletica Inc. executive.
Nasty Gal — like Birchbox, Rent the Runway and Bonobos and other digital-first fashion players — is maturing as a business and now searching for just the right configuration as layers physical stores onto its e-commerce base.
Rent the Runway has also been branching out and feeling some strains, seeing management turnover as it sought to grow beyond the special occasion business and poured energy and funds into building a service people use everyday.
The competition is also bearing down.
Valerie Davis, senior vice president of paid media at digital marketing and branding agency PM Digital, said these companies have led with innovation, and now other “market disruptors” have entered each of these categories.
“They spent without necessarily having an eye for profitability, in order to increase penetration and build up their customer base, which was the ultimate goal at that time,” Davis said. “Except now, the market has softened, and paired with other market disruptors, it’s ‘slowed the faucet’, and now these companies need to turn a profit.”
For Davis, the issue is less of a business model change and more that companies are facing increasingly competitive climates with a lot of innovation.
And a bigger focus on bricks and mortar.
Katia Beauchamp, Birchbox’s cofounder and ceo, brought on a group of seasoned retail executives to help expand the company’s physical presence. The beauty firm laid off 50 employees last week and stopped its service in Canada. The service has more than one million members.
A New-York based venture capitalist blamed Birchbox spending much of the money it raised on customer acquisition and paid channels — when ultimately, the brand doesn’t have a customer with a great lifetime value.
“Price points are low and it’s someone sampling [items] — it’s a lot of churn. My guess is that they were overpaying for their customer,” this person said.
Bonobos hasn’t cut its staff, but saw some C-suite turnover last year when founder Andy Dunn retook his role as ceo less than three months after naming Francine Della Badia to the top spot. Bonobos also spun off its women’s brand Ayr in December to become a standalone company.
Dunn on Thursday said Bonobos is “almost profitable” and that the brand’s full price business was up 75 percent last year.
“Our stores are profitable as a channel and doing great. We beat our [bottom line] goal for 2105 by $2 million,” Dunn said.
As for the decoupling of Ayr, Dunn said the women’s line needs a laser focus on building a stand-alone business and its own set of investors. “We don’t want to take from our balance sheet to give to Ayr,” he said.
Profit pressures appear to have finally come to bear on the digital first crowd.