Fab.com's Global Expansion Falls Into a Familiar Trap
(Updates with Fab's employee reassignments in 9th paragraph.)
In less than two years, Fab.com bought companies in Germany and the U.K., relocated the London employees to Berlin, and then cut more than 100 of the workers there. The New York-based startup now wants to focus on growing its business in Asia.
That decision came this summer when the company raised $150 million from investors such as China's Tencent Holdings at an eye-popping $1 billion valuation. Last week, CEO Jason Goldberg announced that Fab had raised another $10 million from the venture arm of Singapore Telecommunications.
Goldberg apparently came to the realization that he had been investing in the wrong global strategy. Fab declined to comment.
"When we were a flash sales website we essentially launched a new store every day -- and a different one in Europe than in the U.S.," Goldberg wrote in an e-mail to employees that was obtained by Bloomberg News. "The best global stores don’t operate like that. The way that stores operate and scale globally is to sell the same stuff everywhere. That’s what Ikea does. That’s what Urban Outfitters does. That’s what ASOS does. That’s what Fab needs to do."
Fab's change of heart underscores the difficulty of international expansion for a startup with a business plan still in flux. Groupon expanded aggressively overseas, partially motivated by copycat competitors. "The clones just completely lifted everything that we were doing," founder Andrew Mason lamented at a conference in 2011. Groupon's efforts suffered from sluggish growth and other existential challenges with the business. It ended up scaling back its ambitious Chinese operation and then initiated a merger of it last year with a local competitor.
Not every e-commerce company finds going global to be something of a disaster. Gilt Groupe, which hosts flash sales similar to the ones Fab popularized, is having some success by teaming up with SoftBank in Japan. But some executives are cautious about moving abroad too soon or without the right partners. For example, New York-based ZocDoc, which makes a tool for scheduling doctor's appointments, is waiting until it becomes large enough in the U.S. before trying to go overseas, CEO Cyrus Massoumi told me last week.
Fab may have fallen into the Groupon trap. Goldberg's motivations for taking Fab into Germany appeared to center around crushing a copycat, started by the Samwer brothers' clone factory, Rocket Internet. When that was accomplished, Goldberg's goals for Europe shifted dramatically. The company decided to have just one online store, operated out of New York, and this conflicted with the outfit Fab established in Berlin.
Goldberg said in the internal memo that his decision to cut employees in Europe was "personally painful but strategically sound and, critically, not a result of any financial difficulties or a change in commitment to Berlin, Germany, the U.K., the broader EU or our overall growth."
Fifteen employees will remain in Berlin working on Fab's site there; 35 will be able to stay in that office to develop the company's new "Designed by You" line; and 36 will be asked to move to New York, according to the memo. The changes were preceded by a string of departures that included a co-founder of the company acquired in London and the CEO of the company it acquired in Germany. The person Goldberg hired to lead Europe, Maria Molland, resigned in June.
Goldberg plans to build a billion-dollar business in Europe over time, he wrote to employees. Time will tell.