Birchbox in talks for sale with several retailers, including Walmart

Birchbox has recently been discussing a potential sale with a few retailers, many sources told Recode. The beauty subscription startup has already received a $15 million lifeline from investors in 2016.

The most interesting fact in these talks is that one potential buyer who has already spoken with the startup is Walmart. The negotiation took place between Walmart’s U.S. e-commerce chief Marc Lore and Birchbox co-founder and CEO Katia Beauchamp.

It is still not clear if there is any final decision and how far along any of the talks are. Birchbox and Walmart declined to give any comments about this deal.

Birchbox has raised more than $80 million from investors since 2010 when it was found. Additionally, it has before undisclosed venture debt that the startup secured in 2015. That debt is coming in early 2018, but Birchbox has multiple offers to restructure it, which is expected to alleviate any pressure to sell that may have been related to the debt.

The discussions come as Birchbox has been working to steady its business this year following a rough 2016. There has been an explosion in the subscription box market since Birchbox launched seven years ago, and its $10 a month competitor, Ipsy, has actually overtaken Birchbox, with 68 per cent of the market. The company had two rounds of layoffs and angered some customers by drastically changing its system of rewarding customers for reviews.

The startup, which generates about $200 million in annual sales, had previously been prioritizing growth over profitability, like many e-commerce startups. It ended up getting a $15 million lifeline from its existing investors last summer.

Birchbox has been profitable on an Ebitda basis — a measure of operating profit that excludes items like interest and taxes — in 2017, told a person familiar with the company’s finances. It is not clear if Birchbox includes stock-based compensation in its calculation.

Birchbox’s executive team led by Beauchamp believes the company’s move toward profitability, coupled with the debt restructuring, gives it a good shot at remaining independent and potentially raising more capital, according to sources. Several people close to the company told Recode that they believe a sale is more likely.

Birchbox became a pioneer in subscription commerce when it launched its service in 2010. The idea was that women would pay $10 per box to discover several new beauty products, and hopefully go on to make a full-priced purchase from the startup.

Today, around 35 per cent of Birchbox’s revenue comes from full-priced sales on its website and in its two brick-and-mortar stores, and the startup has added a men’s box to its offering, too.

Over time, dozens of clones have popped up to challenge Birchbox’s model. One competitor in particular, Ipsy, has significantly overtaken Birchbox in head-to-head market share in the U.S., according to data from Second Measure, a startup that analyses anonymised debit and credit card data.

Some Birchbox boosters would likely counter these stats by saying that the two services are going after different customers: Ipsy for the beauty-product lover and Birchbox for the person who is not obsessed with beauty. That, in a way, is part of Birchbox’s pitch to brand clients: We are connecting you with incremental, new customers, not ones that are already your biggest fans.

Walmart’s Jet.com has been acquiring retailers including sporting goods retailer Moosejaw, women’s clothing site Modcloth, men’s clothing site Bonobos, and continues to meet with other startups in the space – all of which sell higher-end merchandise than Walmart.

Fashion and beauty products are two categories that Amazon has not yet taken over, though Amazon is making a big fashion push, even marketing a special version of the Echo smart speaker that doubles as an outfit camera that judges what you are wearing.

 

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