Fab Lays Off More Than 100 Employees in Europe, as It Continues Retreat From Flash Sales
Fab has just made significant cuts to its European staff, laying off more than 100 employees at its headquarters in Berlin. The reason for the cuts, the company said, is a transition away from a flash-sale business model to one that will see the online retailer largely hold its own inventory and operate as one global storefront.
The layoffs come at an unusual time — just a month after Fab announced that it had raised $150 million in the first part of a Series D round, with another large chunk of funding expected soon.
The cuts will eliminate around 15 percent of the company’s 696 employees.
Nearly 70 of the employees are being laid off immediately, while the remainder have been asked to stay on for a few months through a transition period. Another 36 employees are being asked to relocate to New York from Berlin.
In an interview with AllThingsD, CEO Jason Goldberg positioned the action as a way to eliminate duplicate positions created as a result of Fab essentially operating two separate flash-sale companies, one in Europe and one in the U.S.
In addition, he said, Fab is moving to distance itself from flash sales, with the goal of becoming a giant online store that sells the same goods worldwide. With the shift, Goldberg said it made sense to centralize critical functions such as merchandising and marketing in New York City.
“Just the nature of the flash-sale business is that basically every single day you’re opening a new store with hundreds, if not thousands, of products,” Goldberg said. “Because of that, we had to replicate the exact same operation in Europe. But the best stores buy once, sell everywhere, or make once, sell everywhere. Our aspiration is to be an amazing global store, and so we need to start operating as a global store.”
Critics are likely to contend that the company’s aggressive international expansion, marked by acquisitions of German site Casacanda and U.K. site Llustre, set it up for this fate.
But Goldberg argued that growth was necessary to fend off competition from European-based operators, although he admitted that Fab managers have been thinking about the potential of layoffs in Europe for some time. The delay was due to a determination that the company’s private-label business wasn’t mature enough until now to support the beginnings of a retreat from flash sales, he said.
Goldberg also stressed that the company will continue to sell to Europe and source products from there, just with a much smaller sourcing team remaining in the market. A European customer service team will remain in Berlin, as will finance, HR and IT employees, and Fab’s custom furniture staff.
The cuts also shine a light on a realization across the industry that it is incredibly difficult to build a lasting, huge and profitable business solely focused on flash sales — no matter how much money you raise. On one hand, a dependence on that model is the reason for today’s layoffs. On the other, who knows whether Fab would have the brand recognition it does today if it had chosen a different e-commerce path.
“We don’t consider this to be a failure,” Goldberg insisted. “It’s a sad day for people who are affected … but we also think it’s exactly the right thing to do for the business, long-term.”
Despite the layoffs, Fab is currently hiring for more than 70 open positions, the company said.
Goldberg said investors in the Fab’s current Series D round were aware of the potential for layoffs before they signed on. Andreessen Horowitz’s Jeff Jordan, a member of Fab’s board, said the company’s directors are fully behind Goldberg’s strategy.
“Jason is making a case that this is in the best interest of the business, other employees and investors, and it’s a pretty compelling case,” he said.