Faire— Modernizing the Wholesale Market

Read time: 5 minutes

Good morning! It's Friday, March 29th. Today, we're looking at Faire, the company revolutionizing the wholesale model and generating $69M a year!

THE FEATURE

Faire— Modernizing the Wholesale Market

The rise in ecommerce we've seen since the early 2000s has left behind a trail of big-box retailer bankruptcies, like Circuit City in 2009 and Borders in 2011. But, from their ashes, millions of small independent retailers have risen to fill the void. 

While Amazon is a dominant force in the eccommerce space, with $575B in revenue last year, the 2.7M independent US retailers generated an estimated $3.5T!

Faire was founded in 2017 to cater to those independent retailers and hit a $12.6B valuation in 2022!

So, What's the Business?

Faire was founded by Max Rhodes, Marcelo Cortes, Daniele Perito, and Jeffrey Kolovson, all coworkers at Square from 2013 to 2016. 

Seeing the growth of online retail, they tried selling their own products, such as high-end umbrellas. 

However, it didn't work well. They had no problems getting into department stores but struggled to connect with small retail shops where their product sold best, finding it nearly impossible to reach mom-and-pop stores digitally. 

Realizing that so many independent retailers were stuck in the past, Faire's founders ditched the umbrellas and decided to build an online marketplace to fix that problem.

At its core, Faire is a B2B marketplace that connects its 700K retailers and 100,000 independent brands. Here's how it works:

Retailers

Faire attracts retailers by offering them a wide selection of wholesale brands while lowering the financial risk of experimenting with new products. Faire covers the upfront inventory cost, giving notoriously cash-strapped retailers time to generate revenue and pay it back within 60 days. 

Wholesale Brands

Wholesalers use Faire because it exposes them to an active market of retailers ready to purchase large shipments. Plus, Faire takes on the primary risk for its wholesalers: not getting paid. 

Faire's 60-day payment arrangement with retailers means it directly pays wholesalers. With this massive risk eliminated, wholesalers are disincentivized from moving off the platform and dealing with retailers directly. 

Fees

The majority of Farie's revenue comes from charging commissions on transactions made on its platform. Retailers pay a 15% take rate on standard orders, and wholesalers pay a $10 fee when they partner with a new retailer they found through Faire. 

How They Win: Leveraging Unsustainable Demand Boosts

Faire struggled to gain traction in its first year, which was expected as new marketplaces always face their toughest obstacle early on: "the chicken-and-egg problem."

The chicken and the egg problem refers to the inability to attract both buyers and sellers to a platform. Buyers won't come to a marketplace if there aren't enough sellers available, and vice versa. 

To artificially increase traffic to the platform, Faire introduced its "Net 60" terms. These terms not only let retailers pay for their orders within 60 days but also let them freely try new products and return unsold merchandise within that period. 

Independent retailers had never heard of such an opportunity and flocked to the platform. Within three months, Faire increased monthly gross merchandise value on its marketplace from $100K to $1M. 

There was a good reason retailers jumped on the Net 60 opportunity—it wasn't sustainable for Faire. By January 2018, Faire experienced a credit crisis, with retailers returning large amounts of purchased products and many defaulting. 

So, they dialed their Net 60 terms back, creating credit limits and a ranking system of wholesalers and products. This led to a 75% reduction in return rates within 6 months!

Despite the credit crisis, the strategy worked. The net 60 terms brought a flood of retailers into the market, and wholesalers followed right along. 

If startups can take a page from Faire's playbook, it's how to leverage unsustainable strategies to solve short-term problems successfully. 

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