Subscription-Based Startups Size Up Amazon, Brick-And-Mortar Stores

Xconomy Wisconsin — 

Amazon said it shipped more than one billion items worldwide this holiday season, marking another record-setting year for the Seattle-based online retailer. Sales figures tell part of the story, while Amazon’s (NASDAQ: AMZN) steadily expanding geographic footprint tells another. The upshot is that for a new company looking to break into e-commerce, Amazon is likely to be viewed as a competitor, partner, or a combination of the two.

That’s the landscape some startups in Wisconsin are navigating as they build businesses delivering goods to customers’ doorsteps each month under a subscription model. There are several key differences between the companies—Bright Cellars and Wantable, both based in Milwaukee, and PrettyLitter, which participated in the Gener8tor accelerator program in that city last year—but leaders at all three seem to relish, and see advantages in, playing the role of underdog in their effort to compete with incumbents, including Amazon.

These early-stage companies see opportunities to differentiate themselves through novel products, bespoke services, and educational experiences.

“Amazon’s going to take 20 to 30 percent right off the top, and then there’s the shipping fee,” says Daniel Rotman, founder of Los Angeles-based PrettyLitter, which sells cat litter that’s designed to change color if a cat is experiencing certain health issues. “Cat owners very much are a passionate community [and] effectively consider themselves parents.”

Rotman launched PrettyLitter in California in 2015, and returned to the West Coast in November after graduating from Gener8tor. While his startup is still relatively young, he points to other companies that he says have shown it’s possible to persuade potential buyers to start ordering items online that they previously purchased from a physical retailer.

He mentions two companies that ship razor blades to a mostly male clientele: Venice, CA-based Dollar Shave Club, which Unilever (NYSE: UL) bought in July for $1 billion, and Harry’s, which is based in New York. At first Harry’s only sold razors through its website, but several months ago the company said it had teamed up with Target (NYSE: TGT) to allow customers to purchase Harry’s razors offline as well. Rotman says he could see PrettyLitter taking that same route eventually.

“Given the fact that the majority of cat litter is still bought [offline], yeah, I’d love to see PrettyLitter in brick-and-mortar [stores],” he says. “But I want to make sure that it in no way undercuts the value or our ability to sell competitively online.”

Rotman envisions PrettyLitter expanding its product line in the future to include things like mats, scoopers, and liners for litter bins. Asked about Pets.com, a once-promising business that has come to represent a microcosm of the dot-com bubble bursting in the early 2000s, Rotman believes the company was a victim of poor timing. Today, consumers know they can buy virtually any product on the Web, he says, and there is a higher level of trust in most online retailers compared with 15 years ago.

Jalem Getz remembers Pets.com. Getz is a serial entrepreneur whose latest venture, Wantable, ships its customers boxes of goods each month that contain clothing, beauty products, and other accessories handpicked by a team of stylists. Previously Getz led BuySeasons, an online retailer and distributor of costumes and party supplies that he co-founded in 1999 and helped to grow to $170 million in yearly revenue.

Getz says he doesn’t foresee a bust in the technology sector on the scale of what happened in the early 2000s. He says that while there’s a “fear of Amazon” among some companies … Next Page »

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