As of Monday night, 250 of the company’s retail workers have been furloughed, amid layoffs and pay cuts to corporate staff.
The four-year-old retail-as-a-service provider partners with direct-to-consumer brands to carry everything from bags and smart apparel to gadgets across a chain of more than 20 locations. But as a “nonessential” brick-and-mortar store, the start-up is buckling under the weight of the health crisis, stay-at-home orders in 16 states and a slew of state orders that have slammed shut innumerable shop doors to discourage public gathering.
“Nobody knows when things can reopen,” Norby told WWD. “This is unlike any other type of financial crisis, where it’s maybe more momentary or systemic. We’re basically assuming that all of Q2 is going to be gone. Even if we could reopen some stores in that time period, it’s not like people are going to be rushing back to malls to put their hands on merchandise, once the store is open.”
In the face of retail calamity, B8ta executives had to make some painful personnel decisions. In a letter to retail employees on Monday night, Norby described physical retail in general as “a fragile part of our economy. While we believe that our model makes us more resilient than other retailers, it wasn’t designed for a situation like the one we face today.”
The company previously closed its stores to the public on March 16, intending to return to operation on March 27, and laid off some corporate staffers and issued pay cuts. The goal was to stem the bleed of expenses and losses. But as time wears on, it appears the health emergency driving the scenario hasn’t abated, but, rather, is still climbing.
New York, the hardest-hit state dealing with COVID-19, looks like a glimpse of what’s about to come for the rest of the country: On Monday, New York confirmed more than 20,000 cases, with an “attack rate” that doubles every three days.
While Congress fights over stimulus bills, President Trump appears anxious to return Americans to work, reportedly weighing the cost of dampening the social mandates in order to bolster the economy.
At press time, neither a new stimulus bill nor executive order has been passed or issued. Only dire warnings, including that as many as four million retail workers may be cut loose this year, according to the National Retail Federation.
Physical retailers, including those in apparel, accessories and related categories, have been in crisis mode, moving to suspension of operations, permanent closures, layoffs or, often, a combination.
According to Norby, the unyielding pressure of payroll and lease obligations, without the flow of brick-and-mortar sales, has proved to be a devastating mix. While the company maintains some online sales — its selection of items like bidets and sanitizing products have sold out, for instance — it’s not enough to sustain the business.
“No one ever would have imagined a situation where there’d be no opportunity to produce revenues, and you’d also be staring all of your costs all at once — rent, payroll, etc. I don’t think most people understand the cash flow issue this causes for most businesses,” Norby explained.
“I don’t think a single store retailer can really survive a month, and for a venture-backed retailer like us, we have a single quarter. But that’s not enough runway to sit back and wait for things to reopen again. Because we don’t know how long it’s going to take.”
The ceo expects that retail layoffs and furloughs will accelerate across the sector over the next week or so, based on conversations he’s had with peers in the industry. Given the circumstances, he said, “it’s also the only humane thing to do. Hopefully our government gets things in order, so there will be some relief for for hourly workers and associates.”
And so B8ta executives agonized over the decision, but ultimately cut its store employees. Company representatives emphasize that these are furloughs, not layoffs, signaling its intention to intention to rehire them when the business stabilizes.
Having previously guaranteed paychecks from March 15 through March 28, the company is adding a onetime payment for retail workers — $1,000 for full-timers and $500 for part-timers — which was funded by the corporate pay cuts. The company will also continue paying health-care premiums for furloughed employees, as well as offer online learning opportunities for professional development.
The changes extend to the executive team as well. President Phil Raub decided to step down from his role, choosing instead to move into a board position. “As B8ta transitions through this difficult time, I saw an opportunity to be supportive through my continued role on the board of directors, but also reduce the financial burden on the organization,” he said in a statement provided to WWD.
“Over the last five years, I had an opportunity to help build an amazing brand and transform the retail industry; I am excited to move onto my next project,” he added.
The fall for companies like B8ta may seem especially steep. Until recently, it had been riding high as a successful startup attracting intense interest from heavy-hitting investors and opening locations across the country.
As both a retail tech platform and a store — which carries everything from bags, sunglasses, watches and tailored shirts, to smart apparel, techified jewelry and loads of other tech goods — it stood out as a unique proposition in the shifting world of modern retail.
The company would act as a tech-fueled bridge between online brands and the brick-and-mortar experience. By fine-tuning a subscription model instead of a lease, sub-lease or percentage of sales, as other marketplaces do, it offered young, hot, e-commerce brands rare access to a physical retail environment.
In a pre-COVID-19 world, the company encouraged consumers to come in and play with the products. That was essential, as B8ta deployed cameras and sensors to understand how shoppers interact with the items and provide insights to partner brands.
The premise caught the eye of Macy’s, which acquired a minority equity stake in the company in 2018 and used its tech platform to power its Market @ Macy’s. The department store invested again during B8ta’s $50 million series C in November, along with Khosla Ventures, Peak State Ventures and others.
Now the very things that made B8ta stand out make it especially vulnerable — as it may for any store that hinges on interaction with products that dozens or even hundreds of others have touched. The scenario seems chilling.
“We literally have, on some of the walls of our stores, like, ‘Touch, Try, Buy,’ and we actually scrubbed our whole website and our marketing for the words ‘touch’ and ‘hands on’ in the first week of March,” Norby said. “We knew really quickly that this is the worst case scenario for us, and it just kept getting worse every single day. And then the dam broke.”
The full text of B8ta’s letter to employees follows.
To Our Retail Team,
Physical retail is a fragile part of our economy. While we believe that our model makes us more resilient than other retailers, it wasn’t designed for a situation like the one we face today.
We’ve had to take some really difficult steps to give B8ta the possibility to reopen, provide employment to you and others in the future, and ultimately thrive. I believe we will get through this, but doing so requires many sacrifices.
Last week, we took the first step by laying off more than half of our corporate employees, and mandating pay cuts across the board for those that remain.
Today, we are taking the second step, which is furloughing our retail employees. We agonized over this decision over the last week, but ultimately there were no other options that gave us a chance to make it through this.
We’ve previously guaranteed pay from March 15th through March 28th, and we are now also including a one-time relief check of $1,000 for every full-time B8ta tester and $500 for every part-time B8ta tester, subject to normal tax withholdings. This is directly funded by our corporate employees’ pay cuts.
As a furloughed employee, you will not receive a paycheck, but you will maintain your health-care coverage with B8ta, and we will pay for your employee premiums during this time. You will be eligible for unemployment assistance, and we expect you will qualify for any additional relief related to COVID-19. We will alert you to new relief legislation as we learn about them. A detailed explanation of furloughs is attached.
Lastly, we are funding two options for you to learn new skills during your furlough to provide you a potential path to employment outside of our stores. We are incredibly grateful to these two companies for providing us steep discounts to make this possible:
• A Pro account at Codeacademy.com, to learn how to code
• A subscription to MasterClass, to learn from 80+ instructors from many fields
Should you be interested in either of these, please fill out this form. [Link removed.]
Over the next few months, we will be able to open our stores, and bring the b8ta family back together. We believe that we can make it through this, and emerge a strong company, and I am very thankful for what we’ve been able to build together so far, and for your understanding.