Why All the Warby Parker Clones Are Now Imploding

How venture capital became the most dangerous thing to happen to now-troubled DTCs like Outdoor Voices, Harry’s, and Casper

Even if you don’t know who Ty Haney is, if you’ve spent any time on Instagram you probably know her company by osmosis. Outdoor Voices, with its millennial branding and muted pastel athleisure-wear, is social-media bait. Searching the company’s hashtag, #DoingThings, surfaces images of young women, including Haney, breezily baring their midriffs while walking their dogs, hiking, or doing yoga, dressed in Outdoor Voices’ color-blocked leggings, skorts, and sports bras.

Haney, who co-founded the company in 2012 at the age of 24, found herself in charge of what appeared to be a rocket ship. Within four years, she raised $64 million in venture funding for her direct-to-consumer (DTC) startup, a then-newish breed of e-commerce company created in the image of Warby Parker—aiming to design a better version of an everyday product, selling it directly to consumers at a lower price, thereby retaining tight control over marketing, customer service, and a data feedback loop that would eventually enable it to usurp market share from legacy competitors. In Haney’s case, those competitors would be giants like Nike and Lululemon. She managed to woo J.Crew retail legend Mickey Drexler to be chairman of her board, and when she relocated Outdoor Voices from New York to Austin in 2017, she quickly became the face of the city’s hot, emerging startup scene, landing on the cover of Inc. magazine and the subject of a 10,000-word New Yorker profile. By all accounts, everything seemed perfect.

Ty Haney at the Outdoor Voices retail store in San Francisco.

Until a few weeks ago, when a very different picture emerged of Outdoor Voices. The Business of Fashion reported that for all of the startup’s apparent growth and cachet — including 11 stores in cities like Los Angeles and Nashville — the company “continues to lose money on customer acquisition.” According to BoF, Outdoor Voices was hemorrhaging up to $2 million per month last year on annual sales of around $40 million. Its executives also seemed to be bailing out on a company in a tailspin. The new president Haney had managed to lure last year from Nike lasted only a few months, and Drexler left the board. The startup was able to get a new cash infusion from the company’s investors, but at a lower valuation than previous rounds. On February 25, CEO Haney sent a Slack message to her hundreds of employees: “with heartbreak, I have tendered my resignation,” BuzzFeed News reported. In the wake of her departure, she wrote, there would also be layoffs, and Cliff Moskowitz, the president of a fashion-oriented private-equity firm, would take over as interim CEO.

The news could be interpreted simply as an unfortunate isolated incident — an inexperienced founder who mismanaged her way into overspending. But for anyone familiar with the harsh realities of the DTC model, it’s an affirmation of something much more fundamental: Once you get past all the shiny objects in the DTC category — the plump VC rounds, the sleek sans serif designs, the experiential storefronts in hot retail locations, the podcast ad blitzes — it turns out it’s extremely difficult to actually make the economics work.

Ever since the godfather of the DTCs, Warby Parker, emerged on the startup scene in 2010, venture firms have funded hundreds of startups trying to mimic that model — from makers of hearing aids and strollers to paint and erectile dysfunction medication. According to eMarketer there are now more than 400 DTC brands. Since 2012, consumer brands have raised more than $3 billion, Digiday reported last year, with about half of that capital raised in 2018 alone. VCs like Forerunner Ventures’s Kirsten Green have made names for themselves by betting big on early DTC success stories, including Dollar Shave Club, Glossier, and the original, Warby. Other investors like Nikki Quinn at Lightspeed Venture Partners and Caitlin Strandberg at Lerer Hippeau have also aggressively entered the DTC fray, funneling money that typically might go to a fast-growth software company into the next “Warby of X”— consumer startups like Allbirds, Everlane, and Rothy’s.

Perhaps the original mistake of the DTCs wasn’t in their vision, but in their decision to take the venture capital in the first place.

We’re now just starting to see how quixotic this boom has been all along. Even before the Outdoor Voices revelation, the past few months have exposed major cracks in the DTC business model, as several high-profile, venture-backed DTC startups have struggled and others have completely closed their doors. The investors bankrolling these companies are discovering one thing in common — that most of their money is going to expensive and ever-rising customer acquisition costs (CAC) via Google, Facebook, and Instagram. As one DTC investor has put it starkly before: “CAC is the new rent.” And even after these startups get on the treadmill of paying digital rent, they are then finding themselves also paying actual rent. After all, the most effective billboard is an outdoor L.A. luxury mall or an expensive SoHo storefront, which can cost some $60,000 a month.

Perhaps the original mistake of the DTCs wasn’t in their vision, but in their decision to take the venture capital in the first place. Now under pressure to grow even faster and at greater scale than they otherwise would have had to naturally, they are being confronted with what happens when growth slows down, the cash starts running out, and investors are expecting their returns.