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Launching in 30 markets across Europe and in the US, the company's private label offerings will ship directly to consumers, a model which aims to keep quality up and cost down. As CEO Jason Goldberg told Racked at the company's new Berlin headquarters last week, Hem—Swedish for "home"—is taking a cosmopolitan approach: "We're taking good European design and bringing it to the rest of the world."
Accordingly, the new company merges Fab's European operations with the furniture companies One Nordic (based in Helsinki) and MassivKonzept (a German startup), both recent Fab acquisitions. It worth noting that the company has long had Ikea in its sights.
Although Hem's global operations are based overseas, Goldberg says that the company expects a full 50 percent of its revenue to come from the US market initially. In addition to its consumer-direct business in the US and Europe, Hem has also built out relationships with retailers all over the world, in places like Korea, Japan, Australia, Turkey, and South Africa.
"The decision to split the brand and the focus up here in Europe really came about for a few reasons," said Goldberg. "Fab meant certain things to certain people. It had a wide range of products. It was much more about value play. What I see as the opportunity here is a little more high-end-made-easy. So really high-quality materials and finishes, and the 'made easy' part is easy to buy the entire collection online, easy to assemble, easy on the wallet. We want to really show people that it's not just about buying cheap stuff online, but getting high-quality products made more affordable and more effective because from the beginning they were designed to be sold online."
There's another important component to Hem's omni-channel strategy: a brick-and-mortar shop in Berlin's Mitte district, on the ground level of the company's headquarters. Though the store may offer some cash-and-carry options in the future, for now, it'll function more like a shoppable showroom, an extension of Hem's online operations. The retail space will allow shoppers to view and interact with products; purchases will then be processed onsite and shipped directly to the customer.
As an e-commerce product category, furniture has two apparent drawbacks. One, it's often big, bulky, and heavy, and therefore expensive to ship. And two, assembling furniture at home is a chore. Hem addresses both of these points: The brand designs its products to ensure ease of assembly—no tools required—and optimized shipping.
As Goldberg explains, this approach was first developed at One Nordic: "Their philosophy was working with some of the world's best designers and then helping them make their designs work for online shopping. They'll take a product and they'll say, 'How do we rethink it?' Not the design of it, but the construction of it, so that it'll fit in a box and you can ship parcel, or so that it's easy for customers to assemble so they don't have to fiddle with screws."
Three-year-old Fab has a turbulent history. The design-based digital retail site famously hit the one-million member mark just five months after pivoting from a gay social network in June 2011. By December the following year, the flash sale site had grown its membership to ten million, making it the darling of the e-commerce world. In addition to its astonishing member growth, Fab attracted buckets of venture capital money; by June 2013, it had raised over $310 million.
But in July 2013, Fab's upward trajectory took a turn. The company eliminated more than 100 positions in Berlin, explaining that the layoffs were the painful but necessary byproduct of yet another strategy shift: Fab.com was turning from flash sales to a more traditional retail model. In October, a second round of layoffs cut an additional 101 positions, including 84 in its New York City headquarters. The following month co-founder Bradford Shellhammer stepped down, and Goldberg came under further scrutiny.
Another round of downsizing occurred earlier this year: In May, Fab knocked out a third of its global staff when it eliminated an additional 80 to 90 positions in New York. At the time, a Fab spokesperson told BuzzFeed that the layoffs were "part of a broader business plan...which will continue to unfold in the weeks ahead."
At its height, Fab reportedly employed 700 full-time workers; today, the team consists of 25 staffers in New York City. "Fab is operating right now very efficiently," said Goldberg. "You know it's 25 people and a very loyal following. The business is doing really well." Meanwhile, he has put most of the company's resources into Hem.
"We've split the business into the Fab business and the Hem business," said Goldberg. "We have 25 people in New York working on Fab and everyone else in the company is working on Hem. So we have 50 in Berlin, five in Helsinki, five in Stockholm—that's 60. We have three in New York—63. We have about 25 in Poland—that's about 90. And then we have a technology team of about 80 people in India, so we have about 180 or so people working on this Hem launch right now. It's a pretty big operation."
Goldberg told Racked that the idea for Hem first came about in March of this year: "We did it very quietly between March and June, and then announced to the world on July 2nd that we were working on it. This has all come together within the past five months. We had certain things in place from certain operations. We had three years worth of manufacturing relationships that we had built up, and the One Nordic company that we had acquired had the R&D facility."
Although Hem is a separate, standalone brand, Goldberg expects its products to appeal to Fab's customer base. "Hem wasn't an idea that just came out of nowhere," he said. "It was really based on our learnings from Fab and observing our customer behavior."
According to Goldberg, a whole slew of people have already signed up for access to the site: "We decided not to target the people who bought teas or fashion or novelty items on Fab. Instead, we've really been focusing on getting the right customers to Hem. Over the last couple of months, we've sent them previews of what Hem's going to be all about and asked them to pre-sign up for a VIP program that gives them special benefits at launch. More than 100,000 of our best customers, representing tens of millions of purchases on Fab, have signed up, both in the US and in Europe."
The most striking difference between the two brands is visual. Fab's product offering revolves around funky, accessible designs that are can be quirky to a fault. Shellhammer admitted as much in a September 2013 interview with Dezeen: "Looking back, one of the things I'd like to take back is that, for a while, Fab did rely too heavily on kitsch and gimmick."
By contrast, Hem is all muted colors and Nordic minimalism. Earlier this month, the company previewed its first collection at prestigious European design trade shows like Maison et Object in Paris and DesignJunction in London, positioning itself as a serious design brand.
Both on its website and across its social media accounts, Hem prominently features sophisticated photography and videos which emphasize the brand's artisanal cred. The lead image on Hem's pre-launch page shows a craftsman polishing one of the brand's brassy Level lamps. He's wearing sturdy plaid and his brow is noticeably furrowed. On Instagram, a photo of someone sanding a smooth, pale piece of wood comes with the caption, "Finishing touches."
By putting design and transparency at the center of its brand, Hem emulates other notable direct-to-consumer startups like Everlane, Warby Parker, and Grovemade. (Goldberg mentioned the latter two, along with Bonobos, as influences.) For this new wave of digital retailers, a highly visual, content-rich approach to branding has become a hallmark.
When asked whether the shift to this style reflected evolving consumer tastes, Goldberg said that neither shoppers nor designers have changed much—what has changed is the internet's capacity to deliver a high caliber of design on a broader scale then ever before.
"What's changed is the distribution ability of the internet," he said. "So a designer making, say, a key side table. The designer could have designed this table five years ago. His distribution would have been going to a fair and hoping that some retailer says, 'I want to buy your table.' He had no way of reaching consumers directly. Now there's this ability to do that, if you have the resources that we are fortunate enough to have."
By bypassing middlemen, this model has the added benefit of being a "very healthy margin business" for Hem, a huge asset given Fab's very public troubles achieving profitability.
"Our focus is to build the brand and the trust of consumers," said Goldberg, "So they'll think these are beautiful products, love the price, are wowed by the quality—and do it again and again and again."