What’s a Unicorn?
A Unicorn is any start-up that reaches a US$1 billion market valuation, as determined by investment. The term, coined by Aileen Lee, founder of Cowboy Ventures, describes the statistical rarity of such businesses. They continue to be strong indicators of where the world’s savviest investors see the greatest growth potential.
It’s important to understand the criteria influencing investors and driving these soaring valuations. While they may differ from one sector to another, these are the top eight criteria we see for retail start-ups:
User adoption: Is the business solving a genuine customer or market problem? And is it evident through adoption?
Traction: Is revenue growing rapidly and sustainably?
Scalability: Is the operating model well-honed and scalable to drive growth across geographies, channels or categories?
Capability: Is the business led by an experienced team with the ability to keep innovating?
Brand awareness: Is the business buzz-worthy? Has it already begun to generate comment in the press, on social media or through word-of-mouth?
FOMO (or ‘fear of missing out’): How many other investors are circling or have already invested?
Exit scenarios: Is there a clear potential pathway for triggering an exit event like an IPO or trade sale?
Profitability: Do the P&L metrics stack up?
And the best-dressed Unicorns are…
CrunchBase’s Unicorn Leaderboard estimates that there are currently 594 Unicorns in the world, up from 452 one year ago. A growing number of them are e-commerce or marketplace platforms – in fact they make up 16 of the new entries. They join the other retail ventures admitted to the Unicorn club over the last few years, like Warby Parker, Gilt Groupe, Allbirds, Flipkart, Farfetch and Letgo.
E-commerce and marketplace platforms are among the fastest growing category of Unicorns. According to Fleximise.com, retail was the fourth-fastest category. Retail Unicorns take on average four years to reach their billion-dollar valuation.
But what is most interesting about this year’s 16 new entries is the subcategories of retail they fall into. We’ve divided them into six key groups:
2019 saw three classic, multi-brand e-commerce platforms reach billion-dollar valuations.
San Francisco-based Grove Collaborative is a purpose-led business with B Corp certification. It focuses on making it easy for customers to find natural and sustainable home essentials.
Musinsa is a Korean fashion commerce venture that combines four key elements: a fashion magazine, a fashion distribution platform, an online shopping mall and online promotion services.
And Miaoshou Doctor is a Chinese pharmaceutical e-commerce business that has received funding from big-name investors, including Sequoia Capital China and Tencent.
Defining traits: Grove Collaborative and Miaoshou Doctor solve tangible customer problems in non-discretionary product categories (home cleaning and pharmaceuticals) while Musinsa is distinctive for the breadth of complementary content it brings together under a single umbrella.
Key takeaway: As excess consumption continues to contract in a post-COVID-19 economy, retailers must rebalance their offering of discretionary versus non-discretionary products, and show greater value around those categories which may be deemed unnecessary.
Direct-to-consumer is the most crowded category. Four of the new entries are from the US and one is from India.
High-end luggage maker Away has generated major hype with customers (and the investor community). It’s built its brand around stylish design and quality. Away competes with traditional multi-channel brands like Samsonite and Delsey, but at present faces little D2C competition.
But mattress manufacturer Casper has had to work hard in a crowded market. Similar US brands like Tuft & Needle and Leesa also offer “mattress in a box” products with 100-day at-home trial periods. Australian versions of this model include Koala, Ecosa and Sleeping Duck.
Glossier is a beauty brand founded by Instagram star and blogger Emily Weiss. The photogenic Weiss successfully transformed her followers into customers. The brand’s distinctive “millennial-pink” branding and packaging has helped it establish a unique and aspirational identity.
Hims (and sister site Hers) call themselves a telemedicine company, selling men’s and women’s personal care products. Their brand is all about destigmatising conditions that customers shy away from discussing. In fact, their product range covers everything from erectile dysfunction to hair loss.
And finally, there is Indian start-up Lenskart which sells prescription eyeglasses, contact lenses and accessories online. Their meteoric rise has shown that the model pioneered by
Warby Parker is applicable in other markets, albeit with some key differences.
Defining traits: Away, Glossier and Hims are all built on distinctive and aspirational brand positioning. They also strongly leverage social media and have an enduring relationship with their customers through content. Casper and Lenskart, on the other hand, have needed to be more aggressive with paid customer acquisition. This is due to the more crowded marketplace they compete in and the less distinctive nature of their brands.
Key takeaway: The best D2C ventures prove that having a distinctive brand personality and image is a strong advantage. It enables the building of a customer base who will serve as advocates for continued growth.
The three ventures in this category all hail from the US.
Faire is an online wholesale marketplace that helps independent retailers find and buy interesting stock for their stores. Many of the brands they stock are hand-crafted, eco-friendly or locally made – and not stocked on Amazon.
Another B2B marketplace is ezCater, which allows businesses to place online orders with caterers. They can order food for anything from a team meeting to a company conference.
And finally, there is ACV Auctions. Its mobile platform helps used-car dealerships source their inventory through online auctions.
Defining traits: All three platforms solve customer problems by removing pain-points. They add tangible value to the process of sourcing products and services.
Key takeaways: Wholesale is not dead; it has evolved into online services that add value. The benefits are in making the discovery and purchase process faster, cheaper or more targeted. In a post-pandemic world, where business travel may never return to previous levels, online wholesale will be key. It may, to some extent, replace trade shows and showroom buying.
Investors find this category hot. They see environmentally conscious millennials shifting away from disposable fast fashion and moving towards second-hand purchases of covetable products that will hold their value over time. This year saw three resale ventures become Unicorns.
The global market for sneaker resale is worth a mind-blowing US$6 billion annually, and Detroit’s StockX is now regarded as the leader in that space. Close on its heels is Chinese sneaker resale site Poizon, which is also very close to a US$1 billion valuation.
In 2019, Vinted became Lithuania’s first tech unicorn. The platform enables users to buy and sell second-hand clothes. It boasts over 25 million members across 11 European countries, and makes money by taking a clip on the over €1.3 billion transacted on the site this year.
Vroom is a US online used car marketplace that offers users an easier way to buy and sell. Its end-to-end platform covers logistics, reconditioning, car acquisition, front-end e-commerce and everything in between. Category extensions include financing and at home pick-up and delivery.
Defining traits: StockX and Vinted tap into communities of passionate, product-obsessed customers. StockX and Vroom are also distinctive for the value-added services included in the buying experience.
Key takeaway: The time is now for resale. COVID-19 recessionary spending and growing environmental consciousness are dovetailing perfectly to change behaviours. Further opportunities exist for ventures to become “the eBay of…”. They must start by identifying the leading categories with sound resale value.
Rent the Runway appears to be the first rental platform to make the Unicorn list. But based on evolving consumer behaviours around conscious consumption, it certainly won’t be the last. It started out as a site to rent a special-occasion dress. It played on the notion that renting a ball gown for $200 was smarter (and kinder to the planet) than having a $1000 one hanging in your wardrobe that would only ever be worn once or twice. Rent the Runway has since expanded to also provide monthly subscription boxes of corporate and weekend clothes.
Australian businesses which have adapted the model include GlamCorner and The Volte.
Defining traits: This category addresses the customer’s need for guilt-free variety in their wardrobes. Rental delivers on savings, a smaller environmental footprint and access to usually unaffordable products.
Key takeaway: With the number of key trends this model taps into, there is opportunity for it to extend to other consumer goods categories. This presents exciting potential to maverick retail entrepreneurs.
Online to offline
The final category is online-to-offline, also known as O2O, and the model hails from China. It refers to businesses that were born digital and expanded into bricks-and-mortar stores. This is different from e-commerce or D2C players with guide or beacon stores. In their case, the store’s function is to support and supplement online sales. O2O entails a more significant investment into offline sales after the concept has been proven online. The model also leverages online data to drive offline success.
The one venture belonging to this Unicorn subcategory is KK Group, headquartered in Guangdong, China. The marketplace sells products in categories such as snacks, beauty and personal care.
Defining traits: What makes the O2O model most unique is that they remain digital-first in the running of their offline operations. They rely heavily on technology and data to drive success.
Key takeaway: This model provides retailers a glimpse into the future of omnichannel retailing. We may see more e-commerce and marketplace ventures expand with intention to offline, particularly when they see opportunities to use their online edge to disrupt offline. They will look to leverage their data capability as an unbeatable competitive advantage over old-world retailers.
Unicorn school is out
The key lessons for retailers are many. First and foremost, these ventures provide insights into where the entire retail category may be shifting. What is clear is that the best new ventures in the sector are doing the following:
Solving tangible customer problems with their products.
Delivering value in terms of more effective, economical or time-efficient transactions.
Tapping into key macro-trends (like environmentalism or buying “small and local”) that will impact consumer behaviours.
Investing in the creation of distinctive and aspirational brands.
Building and nurturing engaged audiences through compelling content.
Taking a digital-first approach to omnichannel retailing, leveraging online insights to offline.
One further hugely significant lesson is that only one of the 16 ventures has a strong bricks-and-mortar presence. Thud! Let that one sink in. While VC-funding is heavily tech-biased, it is still an indicator of where investors see future value. And that is squarely in digital-first businesses with a distinctive edge.
COVID-19 has certainly forced many traditional retailers into the future with new technologies. The ongoing need to keep shoppers and employees safe will require the introduction of even more technology. But retailers will need to go beyond technology as a hygiene factor. They must take a leaf from the Unicorn textbook to create new value in the customer experience. Their survival in the new world order will depend on it.
Rosanna Iacono has over 25 years’ experience in retail and consumer goods, including global leadership roles with multinationals Nike and Levi’s, and C-Level roles with some of Australia’s leading brands. Rosanna is the managing partner of strategy consultancy The Growth Activists. Contact: firstname.lastname@example.org .