Flatpack sofa brands face uphill climb to direct-to-consumer glory

Burrow cofounders Stephen Kuhl and Kabeer Chopra went to business school with an interest in entrepreneurship, but not necessarily with the intention of launching a direct-to-consumer (DTC) flatpack sofa startup.

But when they moved to Philadelphia to begin school at the Wharton School of Business, they concluded that the process of buying a sofa is hard, and the consumer experience is less than enjoyable.

“We just thought there’s gotta be an easier way to do this,” Kuhl said.

Armed with a sleek new brand and the seemingly guaranteed venture capital funding that comes with getting a degree from Wharton, Kuhl and Chopra launched Burrow in 2016 hoping to use a direct-to-consumer business model to upend a stodgy furniture industry that they believe is ripe for “disruption.”

Since the smash success of DTC brands Warby Parker, Harry’s, and Casper in the early 2010s, Kuhl’s story has played out multiple times across practically every consumer product category—from bedding to vitamins to toothbrushes—as entrepreneurs hope to become the next Warby Parker of their industry.

But the success of Warby Parker and Harry’s came in consumer categories where single companies with near monopolies were charging an outsize premium for their products. Can flatpack sofa brands take over the highly fragmented and competitive $80 billion furniture industry, given those conditions aren’t present?

Despite the wave of new brands, the early success stories, and the flood of venture capital, there are reasons to be skeptical that any one flatpack sofa startup will take over furniture the way Harry’s has taken over razors—even if they do become sustainable or profitable businesses.

“I don’t think this is the space where one company’s gonna come in and dominate,” said Wharton professor Kartik Hosanagar. “In fact, I would worry about profitability for a lot of these players. The long-term economics are less clear.”

How flatpack sofas brands plan to thrive

While Warby Parker is often the first name mentioned among DTC success stories, the better comparison for flatpack-sofa and furniture brands is Casper. Casper’s success came after branding a product that previously was largely commoditized and by solving a pain point in the customer experience: going to a mattress store and trying out mattresses, a process that nobody likes.

The Casper playbook—which has been cynically summed up as “pick a product, then spend a bunch VC money on branding and subway ads”—has been replicated across a number of DTC goods. But the biggest favor Casper did for flatpack sofa and furniture startups was acclimating customers to buying a large, bulky product in the mail that they hadn’t seen or touched in person.

“Casper...started popping up on the market and [I thought], ‘this is brilliant,’” said Brad Sewell, founder of DTC furniture startup Campaign Living. “‘This is proving the concept here, that people are willing to buy sight unseen online, and the home industry can make a move online.’”

Cynicism aside, each of the furniture brands is being shaped by the unique background of their founders. Sewell, a mechanical engineer by trade who worked on Apple’s early iPhones under Jony Ive, has stripped the sofa down to its individual parts in hopes of making Campaign’s flatpack easier to put together than its competitors.

Article co-founder Aamir Baig, a Pakistani-Canadian, has a background in software engineering and has used digital marketing to quickly scale Article into a furniture brand with a robust product line.

“Use of data influences a lot of decisions across the organization,” Baig said. “Those attributes contribute a lot to how we went about building this company and designing the customer experience.”

As opposed to scaling up right away, Floyd founders Alex O’Dell and Kyle Hoff began with a Kickstarter campaign to sell a set of legs that could be attached to any solid surface to make a table. The legs were an unexpected hit, and Floyd has been slowly and iteratively adding to its product line; the company launched a flatpack sofa in August.

Petrus Palmér ran his own design studio prior to founding the Swedish furniture startup Hem. His company makes flatpack sofas at a higher price point, which he says is because they use higher quality materials.

Furniture industry veteran Edgar Blazona started DTC sofa company BenchMade Modern. With an emphasis on solid construction, he forgoes the flatpack concept in favor of custom furniture that can adapt to a customer’s specific needs and space.

It’s hard to know exactly how much of a foothold online brands currently have in the furniture space. The sources Curbed spoke with for this story estimated that anywhere from 7 to 15 percent of all furniture purchases are currently made online, with sofas being slightly less than that.

But because the furniture space is so big, it’s possible for a number of these brands to survive and thrive, even if they don’t take over. There are also multiple avenues they can take to expand their businesses—including penetration of hospitality, office furniture, outdoor furniture, and other home goods.

They’ve also already began introducing add-ons to their existing products. Campaign sells an upholstery-replacement kit so that customers can keep their sofa fresh after a few years of wear and tear. Floyd—which says it let its Instagram followers choose one of the colors of a new side table, a color that went on to be its highest seller—introduced a headboard after repeated requests from people who’d purchased their bed frame, they say.

While the companies make their plays to graduate from furniture startup to lifestyle brand, many of them believe the next step to gaining a competitive advantage is expedited delivery. Article recently launched an in-house delivery program, while in April Floyd began making same-day deliveries.

But in a space where personal taste often overrides everything else, many in the space believe the companies that flourish will be focused on one key thing: style. “Design always wins,” said Blazona.

Why flatpack sofa startups won’t be Warby Parker or Harry’s

When Warby Parker and Harry’s entered the eyeglasses and razors businesses, respectively, they were entering categories that were dominated by a single company—Gilette in the case of razors and Luxottica, which owns Ray-Ban and Oakley, in the case of glasses.

Gilette and Luxottica’s near monopolies in their spaces allowed them to price their products well above what it cost to produce them without worrying about a competitor gaining traction by selling a product at a lower price point, which afforded both companies artificially elevated profit margins.

But the maturation of e-commerce allowed Warby Parker and Harry’s to work around the big players and traditional distribution channels to sell directly to the customer, on the internet. They were also able to dramatically undercut the price while maintaining attractive profit margins—a magic combination for a startup. Consumers benefited as well, getting a cheaper product that maintained its quality.

There is a large player in furniture and sofa space—Ikea. But Ikea doesn’t use its market dominance to price its products artificially high. On the contrary, dirt-cheap furniture is part of how Ikea got so big in the first place, so startups don’t have any room to undercut their prices. If the product is something people buy often—like razors—the profit margins don’t need to be that high. But sofas and furniture are things you only buy every so often.

Even though the new brands sell sofas at similar or higher prices than the legacy players, what a lot of them say is that they’re able to cut their shipping and retail costs by selling DTC, and then they plow that money back into the quality of the sofa.

But without the traditional retail channel to sell their products, some or even all of those savings could be offset by having to acquire customers through ads on platforms like Google, Facebook, and—DTC startup darling—Instagram. When those platforms were new, the cost to buy ads on them was low. But since they’ve matured, the cost of buying gets more expensive with every new brand that jumps into the DTC sofa space.

“Everyone is paying for acquisition and everyone is driving [the cost for] each other up,” said Floyd’s O’Dell. “If you’re really dependent on that as your core channel, it’s gonna get more expensive, so you have to be getting lift from people coming back or you have to be getting lift from people having such a great experience that they’re sharing organically. You have to move off that singular mode.”

There’s also the issue that any money that’s put back into the quality of the sofa could be offset by a customer putting it together incorrectly, not to mention that the customer experience is interrupted by the added chore of having to put it together in the first place.

“Can you imagine getting a Prada bag that you had to partly sew?” said BenchMade Modern’s Blazona. “That’s just not a great experience.”

Still, in a large market where preference and taste play a large role, furniture startups are leading a “changing of the guard,” according to Blazona, where legacy players are losing their grip on the market with the entrance of DTC startups.

While the ceiling might not be Warby Parker, a company that has a particular design or brand that catches on can still find a niche in the sofa and furniture space.

The market is “massive,” said David Bell, founder of venture capital firm Idea Farm Ventures and an investor in Burrow. “With Ikea on one end [of the spectrum], there’s a lot of space for a number of companies.”