(Bloomberg) — Brooklinen co-founder Rich Fulop says his company avoids the pitfalls of its direct-to-consumer peers for one big reason: It’s profitable.
The 36-year-old started the bedding company with his wife, Vicki, in 2014 and said it makes money and generates cash. That may help it stand out from other DTC companies that have gone public in recent years and disappointed investors.
The business model disrupted retail last decade when companies like Warby Parker pitched consumer goods at lower prices by cutting out retailers and selling directly to shoppers. But enthusiasm has waned because many of these businesses have struggled to keep growing without spending heavily on advertising and racking up losses.
Many have tried to offset marketing costs by opening stores to acquire customers and improve repeat purchases. Brooklinen went down that path in 2019, but with a focus on locations being profitable, Fulop said. The Brooklyn-based brand has two stores — both in New York — and will triple that in the coming months with locations in cities such as Philadelphia and Santa Monica, California. By the end of 2024, the company aims to have 30 stores.
Bloomberg recently interviewed Fulop about Brooklinen, brand building and the business topic of the moment — inflation.
What kind of mistakes have you seen in the DTC world when it comes to opening stores?
There’s a lot of sentiment out there that it’s random for some brands or not as well thought out — something that’s meant to cover deficiencies elsewhere.
It can serve as somewhat of a life raft for the business.
How does profitability play out when expanding locations?
We don’t pay for flagship stores that might be in the center of the city, but impossible to make profits due to high rents. The store should serve as a billboard to help marketing, but at the end of the day we need people to come in and transact.
What other missteps have you seen that you want to avoid?
Oh that’s an easy one. Wholesale is one that could be a mistake. It’s very, very tricky, and I’ve heard a lot of horror stories about the big retailers that you might partner with for wholesale — ‘they love you until they don’t love you.’
But to gain real scale, like billions in revenue, some brands are turning to retail partners. So what worries you about wholesale?
It’s hard to build a supply chain. In some cases, you get the inventory sent back to you if it doesn’t sell. You’re kind of at the mercy of another brand’s performance and marketing strategy. It’s one of those life raft approaches compared to a strategic one.
That’s not to say we’ll never do it. I don’t want to do it as a desperate move, and I don’t want to do it at the wrong time.
Brooklinen has raised a lot of money recently, including from private equity firms Summit Partners and Freeman Spogli & Co. (The company declined to disclose its funding and annual revenue or profit.) What is the big goal for the company?
Our goal is to go public. We have private equity investors, so we’re excited for their partnership with us and their expertise on that.
It’s a big part of the company as well. Everybody at Brooklinen has stock options, even our entry-level people and customer service. Everyone has skin in the game.
You’ve said that you currently don’t need to do an initial public offering for liquidity purposes. So what will be the catalyst?
Valuation is the honest answer. We would go when it makes economic sense for shareholders. It wouldn’t be a desperation move. We have cash. We’re profitable. We generate cash as a business.
And we have to talk about inflation. Does it keep you up at night?
It’s tough. Marketing costs have certainly risen. Supply chains have become more complicated and more expensive. Commodities like cotton that we deal with are very expensive. So there are a lot of things that are adding up.
We raised our prices on our site [earlier this month]. We were just honest with our customers about why — again — profitability is important to the business. I hope that customers somewhat understand that we need to charge what we need to charge in order to keep the lights on, keep our people employed and keep making good products.
Editor’s note: This interview has been edited and condensed.
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