(Timothy A. Clary/AFP/Getty Images)
US markets have had a great 15 months. The S&P 500 rallied 24% in 2023 and hit 22 new all-time highs in the first quarter of 2023.
But a rising tide does not necessarily lift all boats. Direct-to-consumer brands – household names like HelloFresh, Peloton, Allbirds, Stitch Fix, Warby Parker and Rent the Runway, which cut out traditional retailers, wholesalers and other middlemen – have been falling.
Shares of these companies' stocks have all dropped by at least 75% from their peak market prices, and many of them are 90% to 95% lower.
Some insiders don't think they'll be able to make a comeback.
What's happening: Economic downturns, real or perceived, tend to shift investor mentality away from greed and toward fear. Investors seek safety.
In 2022, near-constant predictions of recession, rising interest rates and sky-high inflation prompted that change of perspective. Investors shied away from high-growth stocks and retreated into companies with solid fundamentals and, most importantly, lots of profit.
The problem is that none of these direct-to-consumer (DTC) companies have managed to make the transition to profitability themselves.
"They just don't make money," said Ben Cogan, co-founder of Agora, a company that acquires small-to-medium direct-to-consumer brands.
Allbirds lost about $153 million last year. Warby Parker lost $63 million. Rent the Runway was down $114 million, and mattress company Purple lost about $121 million.
All of the companies said in their most recent earnings calls that they were making progress financially.
None immediately responded to a request for comment from CNN.
But this isn't a new problem.
Favoring growth: "A lot of these businesses were founded in the mid-2010s, and so they've been around for 10 or 15 years," said Cogan, who also co-founded DTC e-commerce company Hubble Contacts in 2016.
Back in the 2010s, venture funds exploded. Venture capital grew from $60 billion in 2012 to $643 billion in 2021, and funders pumped that money into startups with the goal of growing them as quickly as possible. And they did – which is at least partially why there were a record number of initial public offerings in 2021.
"Businesses spent a tremendous amount of money on marketing but didn't necessarily have their cost structure in place," said Cogan.
Companies' marginal costs were high, but they thought that they would figure it out when they got to scale. They built really big teams, and then the market turned and started rewarding profitability, he said.
"A lot of these businesses were really caught flat-footed. They weren't able to make the transition to profitability, because they weren't built for profitability play, they were built for growth."
Going private: But while low stock prices aren't attractive to investors, they can be to potential buyers.
Blue Apron was acquired and taken private by Wonder Group last November. The group paid $103 million for the the popular meal kit company. That's about 95% less than Blue Apron's 2017 IPO valuation of $1.89 billion.
Casper, the mattress company, was taken private in 2021 by private equity firm Durational Capital Management after a tepid year-and-a-half run on the stock market.
Other companies, like SmileDirectClub, which went public in 2019, and Winc, a wine subscription company that went public in 2021, have declared bankruptcy.
"There's a lot of costs to being public," said Cogan. "You have to have quarterly calls, you have to have a very beefed-up finance team. And it's very painful to make the restructurings needed as a public business. I think a lot of these businesses can and will survive, it's just going to be easier for them to survive as private companies."
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