Houzz, the home decorating startup backed by Sequoia Capital, has scrapped a plan that would have seen the company design and sell its own houseware.
The plan, a pilot program called Private Label, was still in progress within the company, but given current market conditions, Houzz has set aside its hopes of getting into the manufacturing space. If Houzz were to start creating its own furniture, it would have to rely on suppliers, designers, manufacturers and a slew of other process-orientated jobs. It could also put the company at odds with all of those parties, as the coronavirus pandemic clogs up business processes around the world.
A manufacturing arm also takes a good chunk of capital and requires heavy upfront costs on equipment, space, contractors, and more. Excessive spend and bets on supply chain processes are always a risk, especially during a time of uncertainty. So Houzz’s decision makes sense.
“At Houzz, we continually review our strategic investments, such as Private Label, to ensure that they are aligned to the current needs of our business and optimized for our continued growth,” the company said in a statement to TechCrunch. “As a result of this process, we have made the difficult decision to discontinue our investment in Private Label at this time.”
As a result of the decision, Houzz laid off 10 people across three locations, the UK, Germany, and China.
Growth initiatives flip (and most certainly flop) in startups all the time. But this move comes as startups react to the pandemic and historical market lows through layoffs and pivots.
Houzz sells services to help with home improvement projects by connecting users to products from third-party retailers as well as services from architects, designers, or contractors. In addition, it also offers a marketplace that sells products like glass blown lights or convertible sofa beds.
This worked so far, as the home design company has grown to 40 million users and, based on its last financing round, has amassed roughly $4 billion in value. But Houzz, which was prepping for an IPO before that window was slammed shut by the market downturn, was likely looking to generate additional revenue by bringing its high-value products in-house.
It makes sense that the company was eyeing making products in-house: exclusivity sells, and there are higher margins from selling your own goods versus a third-party retailer. Think about this with Amazon, Walmart or Target. All these companies put their own products right alongside those of third-party retailers. And they often offer their private label goods at a cheaper price, too, and use them to edge out competitor sites and bring more cash in-house. One study, for example, shows that Amazon’s private label sales are expected to get to $25 billion by 2022.
Houzz was trying to scratch at a similar concept, and could even leverage customer data to see when it is worth manufacturing a string of bathroom renovation projects or, ahem, work from home setups.
As Houzz has scrapped the plan, it will now need to find new ways to get customers to lean into its core business: the idea of a bougie dream home, guilty pleasures, and a couple of nuts and bolt home renovation projects.