For the past decade, style startups with confusing business concern models—from directly-to-consumer brands to clothing-rental platforms—have taken the industry by storm. Now, many of these once-scrappy startups are going public.

This year lonely, ThredUp, Poshmark, and Warby Parker have gone public; Hire the Runway and Allbirds have filed for IPOs and are expected to go public soon. A look at these companies' financials reveals that none of them managed to create a profitable business concern while besides scaling fast enough to meet investors' expectations. And some of these companies's stock—including ThredUp and Poshmark—have stayed flat or tanked since their IPO. All of this prompts the question of whether the historic period of the fast-growing, VC-funded fashion startup might be coming to an end.

Why now?

While it might seem surprising that all of these companies are going public then close to one another, at that place are some bigger trends that help explain it. For starters, many of them launched around the same time, roughly ten years ago, says Dan Frommer, a veteran tech journalist and editor-in-chief of The New Consumer. They also received big amounts of capital from investors who treated them as if they were tech companies with the potential to scale quickly. (Hire the Runway, the oldest of the bunch, launched in 2009 and has received $500 meg in funding; Allbirds, the newest, which launched in 2015, has received $200 million.) But those investors are looking for a return on their upper-case letter—which means going public or getting acquired. "In the venture capital letter business model, companies are expected to prove returns on these funds somewhere between five [and] 15 years," Frommer says. "So the minute a company takes venture funding, they're on a ticking timer."

And 2021 happened to be a especially good year to go public, according to Sucharita Kodali, a principal analyst at Forrester Inquiry, who specializes in e-commerce and retail. There take been a record number of IPOs this yr, partly because companies put them off last twelvemonth when the pandemic acquired then much instability in the market. Now, investors are looking for places to put their money. "Among the wealthiest people, in that location is a ton of cash floating around," she says. "Last year, people couldn't travel, buy cars, or eat at restaurants. And so if your net worth went up and you don't have much to spend your money on, y'all might invest in an IPO."

Many of the brands going public now actually bucked the broader retail downturn and thrived during the pandemic, so it makes sense that they desire to capitalize on this success. In the example of ThredUp and Poshmark, at that place was already a growing demand for secondhand appurtenances; during the lockdowns, consumers turned to these platforms to buy these goods online. Warby Parker quickly pivoted from its retail stores to its existing eastward-commerce business, while Allbirds offerings of athleisure clothes and shoes were items people wanted in the pandemic.

Hire the Rails stands apart in this regard, because it didn't have a particularly potent year. The company congenital its business concern on renting apparel for fancy events and the office, but consumers didn't need formalwear for much of 2020 and weren't dressing for work. While the company says business organisation is starting time to return, the delta variant postponed many events and delayed the render to work. "I'one thousand scratching my caput at their decision to IPO," Kodali says. "Their numbers are down, and there is zero particularly compelling virtually their business correct now." According to the visitor's S-1, its active subscribers dropped from 133,572 in 2019 to 54,747 in 2020. This year, subscribers seem to exist coming back, just they're nowhere near pre-pandemic levels. Frommer suggests the reason for the IPO's timing might be that visitor needs to raise capital in order to keep the business going.

[Photos: White House Flickr (Archived), Sophie Backes/Unsplash]

The future of fashion

The procedure of going public reveal exactly how difficult information technology is to both plow a turn a profit and grow quickly as a fashion startup. Frommer says many of these companies were much more tech-frontward than their predecessors, so investors treated them like tech companies. Warby Parker and Allbirds, for instance, built digitally native brands that took advantage of everything the cyberspace had to offer, from social media to immersive websites. Some investors hoped that successful e-commerce brands like these could eventually take over the market. Simply it turned out that at that place were limits to their growth. Dissimilar software companies, these brands had to develop products, build supply chains, and eventually build retail stores, all of which are majuscule intensive. A decade later, Warby Parker has only 1% market share past revenue, co-ordinate to its SEC filing in August. For comparison, Lenscrafter'due south parent company, EssilorLuxottica, founded in 1961, dominates with 20% of the market.

For Rent the Runway and ThredUp, the challenges were even more complex. Both companies collected vast quantities of data near their consumers and created systems to digitally tag clothing. They likewise had robust online sites where customers could filter through clothes to rent and buy. But to make all of this piece of work, they had to create the physical infrastructure to process the garments. Hire the Rail famously built the largest dry-cleaning facility in the world, and ThredUp has congenital enormous warehouses to collect, photograph, and ship secondhand garments. Again, all of this requires a lot of capital.

Warby Parker had a successful straight listing final week, hitting a $6 billion market cap  on its first twenty-four hours of trading. It'southward also early to say how the company will do on the public market long term: Some analysts said the company was overvalued; others believed it was merited because the company has good margins, an engaging brand story, and is likely to keep growing. Poshmark'due south stock, on the other manus, has declined steadily since it went public in Jan. Its third quarter revenues were below estimates, which it partly attributed to Apple tree's new privacy policies that make it harder to track users and effectively market to them. ThredUp's stock price, meanwhile, is about to its public debut in March. While analysts believe the company has room to grow as the resale market picks up, its cyberspace losses grow every year equally it keeps building out new warehouses to process dress. These losses are typical for a company in growth fashion, but are something investors are watching closely.

The performance of these companies shows how hard it is to build a profitable, high-growth fashion concern. Venture capitalists have pumped hundreds of millions of dollars to help these companies calibration, merely much of this capital has gone toward expensive infrastructure, from warehouses to retail stores. And over the past decade, the market place has been crowded with other manner startups, which has meant steeper competition for a fixed number of consumers. Information technology's also increasingly expensive to acquire new customers on social media, cutting into their margins.  "None of these businesses seem like it's going to be the next Amazon," Kodali says.

Equally publicly traded companies, they volition no longer experience the pressure of venture capitalists, but in that location will be new concerns: They're at present beholden to shareholders with their own expectations when it comes to growth and profitability. And if they don't perform, founders risk being removed from their leadership positions by the lath of directors. In many ways, it's out of the frying pan and into the fire.

So what side by side?

In that location are other brands from this cohort of startups that might decide to jump on the IPO bandwagon, including Everlane, Away, and Glossier. These brands accept collectively raised upwardly of one-half a billion dollars in venture funding, so their investors may exist looking for a payday soon. But as a new generation of entrepreneurs begins to build fashion businesses, they may not be looking to publicly traded companies as inspiration. Kodali says that rather than going out to raise vast sums of VC funding and growing exponentially, today's startups might exist keener to grow slower, just piece of work toward profitability. They might take a folio from companies like menswear brand Buck Mason, fine jewelry brand Aurate, or womenswear brand Cuyana, which take taken much smaller funding rounds and take been more focused on edifice sustainable businesses.

Kodali points out that with the startups founded a decade ago, entrepreneurs were aiming to own a small-scale stake in a billion-dollar business concern. Simply today's entrepreneurs might exist more bang-up to own a larger stake in a hundred-million dollar business. "You lot have to work a lot less hard to be a hundred-million dollar business organization," she says. "There are fewer barriers to entry, you lot're nether the radar, and yous don't have a target on your back when you're smaller. And at the end of the mean solar day, you make merely as much money."