The Inevitable Downside of Faire
As part of my ongoing blog series about emerging wholesale marketplaces, I’ve been exploring the potential of Faire (formerly Indigo Fair). While there’s certainly a lot to love about working with this wholesale platform for artisans, we don’t often hear much about the disadvantages. I’ve spent weeks studying this wholesale platform and speaking to retailers and brand owners who have a stake in the marketplace. I’m eager to share what I’ve learned about the disadvantages of Faire so that you can make an informed decision for your business.
The Inevitable Downside of Faire
Faire executives have agreed to address my concerns, and I look forward to sharing their response in an upcoming blog.
FAIRE CHARGES A HEFTY COMMISSION, ESPECIALLY ON FIRST ORDERS
A significant downside of Faire wholesale is their fee structure, which has evolved over time. The rate for new makers onboarding in early 2019 is 25% on the first order from any buyer. It then becomes 15% on subsequent orders from the same buyer. Faire frequently extends net 60 terms to shopkeepers, and makers can elect to pay an additional 3% fee for immediate payment. You can also choose to wait thirty days for payment and skip the 3% fee.
That translates to a substantial commission of up to 28% on Faire orders. As a consultant who’s had the privilege of coaching hundreds of brands through the mechanics of product pricing, those margins make me cringe. Let’s explore how that breaks down for a product that retails for $30.
DOING THE MATH ON FAIRE COMMISSIONS
Assuming a traditional keystone markup of 100%, a candle that sells for $30 online and in stores will wholesale for $15. I would advise the maker to limit the cost of creation (inclusive of raw materials, packaging, labor, and overhead) to between $5 and $6 so that their $15 wholesale target is 2.5-3x their cost.
When the candle sells for $15, Faire collects a $3.75 (25%) commission, assuming it’s the first time this buyer has purchased the brand. If the maker opts for immediate payment upon shipment, Faire will collect another 3% for a total of $4.20 of each unit sold.
That’s a handsome piece of the pie for Faire and a frighteningly slim margin for the artisan. To be clear: We should all expect to pay marketing expenses. Sales reps typically charge a 15% commission, in addition to the cost of samples and possible showroom fees. A single trade show appearance can easily tally $10,000.
While savvy brand owners bake marketing expenses into their products, they don’t often bake in 28%. And as someone that’s had the opportunity to peek inside the financials of hundreds of maker businesses (jewelers, ceramists, stationers, chandlers, apothecary brands, apparel brands, etc.), I’m keenly aware that a 28% commission isn’t sustainable for the vast majority of Lucky Break clients.
CAN YOU SELL FOR LESS THAN KEYSTONE ON FAIRE?
It’s also worth noting that Faire prohibits inflated wholesale pricing structures on the platform. While you’re allowed to sell at less that keystone (50% of your own retail), those products will be flagged for buyers. In all instances, your wholesale prices on Faire must match your wholesale prices elsewhere.
Faire’s policies make clear that their “Maker Success Team” regular performs pricing and content audits. “We review for wholesale and retail price consistency between your sites and when such discrepancies are identified through our audits or communicated to us from retailers, we may reach out and require action be taken to realign price consistency. Non-response and/or continued discrepancies may ultimately result in the temporary or permanent suspension of your account.”
Makers who joined the platform early enjoy a lower commission structure on Faire, often as low as 15%. Commission structures have been a bit all over the place, evolving as Faire fine-tunes its models and scales in proportion to the venture capital pouring into their effort. I have no information from Faire about whether they’ll be honoring the original commission structures indefinitely. However, they’re certainly honoring them at the moment.
FAIRE INCENTIVIZES FIRST ORDERS, RESULTING IN HIGHER COMMISSIONS
Another downside of Faire is that buyers are continually encouraged to “brand hop,” which results in higher commissions for Faire and less loyalty to brand owners. The first time a retailer buys from a specific brand, they enjoy net 60 terms, free shipping, and free returns on unsold merchandise. The majority of those benefits evaporate on second and subsequent orders from the same brand.
While perpetually being fed new brands and compelling order incentives is a buyer’s dream, it’s problematic for brand owners. When the majority of orders delivered to Faire brands are from first-time buyers, brands are operating in the 25-28% commission zone more frequently than the 15-18% commission range. That’s painfully expensive.
The fact that brand profiles on Faire automatically suggest a curated selection of competitive brands doesn’t exactly inspire loyalty among shopkeepers. While discovering your brand, the marketplace feeds shopkeepers other options for purchase from within the same product category. Inserting those “other brands” into the conversation when a buyer returns to your Faire page to place a reorder doesn’t bode well for the original brand of interest.
FAIRE “OWNS” THE BUYER + CONTROLS THE COMMUNICATION
At its core, Faire is a connector- a matchmaking service between brands and buyers that facilitates discovery. Naturally, it’s in the best interest of Faire to continue managing that relationship to reap the benefit of a commission. The nature of the relationship between retailers, brand owners, and Faire has some interesting implications.
According to the Faire guidelines, brand owners must keep first (and subsequent) transactions on the platform. Additionally, brands may not contact shops directly. They’re directed to utilize Faire’s messenger system to facilitate communication with retailers. That system enables conversations with buyers without revealing their contact information.
Interestingly, some brand owners can actually see the email addresses associated with their orders. I recently spoke with Julia Gold of Whispering Willow, an early adopter of the Faire platform and a moderator for the unofficial Facebook group for Faire makers. “We have full access to buyer’s email addresses and phone numbers. Some people seem to have access to this information while others do not. There are other programs (for example, the ability to invoice buyers directly) that others have access to and we do not. Some of these programs are in beta and have only released to small groups.”
Because Faire is ever-evolving, I’m not sure whether the display of buyer contact information is a beta program or if Faire previously displayed the contacts and then phased out that feature over time.
FAIRE IS THE KEEPER OF A STARTLING AMOUNT OF POWER
Regardless, it’s clear that Faire sits in the power position. They establish the parameters around the flow of communication and maintain the power to influence decision making. Faire controls which brands can play in their sandbox, which brands display for any given retailer, and how those brands transact. In a nutshell: Faire owns the buyers, not the brand.
None of that is surprising, but it’s an essential piece of the puzzle that I’ve noticed is often overlooked. Thanks to the simplified onboarding process and the sizable audience that they’ve accumulated in a short period, Faire has quickly become an easy avenue for additional revenue among the maker community.
But I’m always a bit hesitant about becoming dependent on any one platform. I coach the small businesses that I work with to be aware of their vulnerabilities and build plan B’s whenever possible. What I’ve found is that consolidations of power are rarely beneficial in the long term, and short-term gains often come back to bite. I’ve borne witness to these sorts of symbiotic relationships thanks to artisan’s dependence on Etsy, Etsy Wholesale, and Amazon. Most of my clients who have put the majority of their eggs in those baskets have been disappointed by either the results, the imbalance of power, or both.
A key component of Faire’s pitch to investors was their aim to become the Amazon of wholesale, and that brings the inevitable comparison. What will Faire’s next steps look like now that they have $116 million of venture capital behind them? What other services and features might they launch? How will they further monetize the power they’re rapidly accumulating? What will product designers do once they’re dependent on the platform and Faire ups the ante?
WHAT’S THE FUTURE OF FAIRE?
Full disclosure: I’m married to a whip-smart engineer who has spent decades immersed in the tech world as a product architect. We regularly chat about the societal impacts of technology over Sunday brunches. His career, wisdom, and perspective sometimes give me pause about the direction society is pursuing. Not the kind of pause that calls for accumulating stockpiles of canned beans or the installation of survival shelters. But the sort of pause that means I’m not voluntarily putting my DNA on file with 23 & Me or installing listening devices around my house (a la the Amazon Echo). So while my inherent skepticism isn’t anywhere near “911 was an inside job” levels, I’ll cop to a certain degree of pessimism and caution. And Faire raises red flags on several fronts.
Max Rhodes, Faire’s co-founder and CEO, has made no secret of his plans to expand their reach and rack up profits. I question the broader implications of reinventing the world of wholesale, courtesy of a single company that’s well-funded and decidedly ambitious. Even at the current scale, Faire tilts heavily in favor of buyers over brand owners. And I wonder how additional opportunities to monetize the platform will affect the artisan community. It’s important to ensure that we’re not crawling into bed with a hot new paramour who later turns out to be perpetually self-interested and motivated by different ideals. It’s of no long term benefit to be drawn deep into a relationship that eventually results in our co-dependence.
I have additional reservations about working with Faire (specifically around their return policy, data collection, and the potential for brand dilution) and I highlight those in the next blog in this series. I invite you to read my additional thoughts about the pros and cons of Faire.
DO YOU HAVE EXPERIENCE WITH THE FAIRE WHOLESALE MARKETPLACE?
This blog is the fourth in a series about Indigo Fair/ Faire. As this series continues, I’ll explore:
• What is Faire?
• How to sell on Faire.
• What Makers & Buyers Love About Faire.
• An interview with Faire executives. They’ll share some of their future plans while addressing a few of my concerns about the platform.
• How makers in the Lucky Break community feels about their experiences with Faire, plus the hard data about how much and how often they’re selling.
What are your concerns about Faire? I’d love to hear your experience with the platform. Please drop a comment below!