The Future is Local
Opening up Indigo Fair and Partnering with Khosla, Forerunner and Sequoia to Accelerate the Shop Local Movement
With the bankruptcy of Toys R Us last month, the retail apocalypse has been dominating the headlines once again. Cyber Monday earlier this week brought yet another batch of stories going on about how Amazon has doomed brick and mortar retail.
Ironically, we couldn’t imagine a better time to announce that after reaching $10M in annualized sales during our invite-based pilot, Indigo Fair has opened up our wholesale marketplace to let any independent retailer in the US try products in their stores with free returns. We are excited to be making this announcement with $3.4M in new seed funding, led by Keith Rabois from Khosla Ventures and Alfred Lin from Sequoia Capital, with participation from Kirsten Green at Forerunner Ventures.
Indigo Fair started because we believe the future of retail is local, and we have never felt more confident in that vision. Small in size but not in number, the 1M independent retailers in the US are far better equipped to survive in this post-apocalyptic world than their big-box counterparts, and Indigo Fair is helping them thrive.
Why local?
First, the closure of big-box competitors is creating an opening for smaller stores. Lack of demand from offline shoppers isn’t what is killing chain stores. It’s over-expansion and too much debt in the face of stiffer competition. As these chains collapse under their own weight, more nimble independents are swooping in to meet the unabated demand for offline shopping. Since the Borders bankruptcy in 2011, the number of independent bookstores in the US has increased every year by an average of almost 10%.
Second, shoppers are craving the authenticity and personalized service only local businesses can provide. Shop Small isn’t just an American Express marketing slogan; it’s a movement. For the first time in decades, independent restaurants outgrew their chain competitors last year. Local hardware stores are winning back customers from Home Depot and Lowes. According to purchase data collected by Mastercard, spending growth at mom-and-pop businesses has outpaced that of the big chains overall the past two years. With lower prices and larger assortments available online, big-box has little to offer consumers. Meanwhile, mom-and-pops have spent the past 50 years learning to craft in-store experiences to draw people away from bigger low-cost competitors. Now, that hard work is paying off.
“After a century of consolidation and concentration in retail, smaller, more nimble players are stealing share from larger, more traditional, at-scale retailers.” — Deloitte Retail Volatility Index, 2016
Finally and most importantly, technology is leveling the playing field for small businesses across all industries. Working at Square for five years, my co-founders and I saw how the intuitive interfaces and lower upfront costs of cloud-based software could enable SMBs to adopt Point-of-Sale (POS) systems that were once only available to businesses who could afford IT departments and their own server. Launching Square Capital, we used machine learning to power automated underwriting processes and extend credit to businesses too small to justify the manual underwriting processes of traditional lenders.
At Indigo Fair, we are applying the democratizing power of technology to retail. Stores working with us have access to capabilities previously available only to the biggest chains.
Big-box stores have analysts constantly pulling together data across all their locations to identify trends and optimize inventory. Indigo Fair integrates with the POS systems of our retailers so we can leverage sales data from hundreds of stores to help all of them make more informed buying decisions.
Big-box companies use teams of buyers to scour the earth for the latest and greatest products that will fit the style of their stores. We’ve built our own AI-powered image recognition software to automatically surface new products to stores that match the aesthetic and category of their website and Instagram. For instance, our algorithm can match a retailer carrying a colorful line of stationery…
with a similarly colorful line of stationery:
And we can match a retailer that carries hipster baby shirts…
With trendiest new hipster baby shirts around:
It’s difficult to overstate the importance of this breakthrough. We can take a database of hundreds of thousands of products and automatically show retailers the subset that matches their store most perfectly, saving them countless hours traveling to trade shows or wading through paper product catalogues.
Finally, we are using machine learning to extend generous payment terms that allow stores to carry a wider assortment of products that only bigger stores could once afford, and we let them return unsold merchandise, superpower big-box stores have used their leverage with suppliers to do for decades.
The scary stories the media keeps repeating are true. The retail apocalypse is here for big-box stores. However, with consumer preferences shifting and technology eliminating the advantages big-box stores once had, Indigo Fair and our local retail partners are more than ready to pick up the pieces.
The future is local.
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