Why are lingerie startups suddenly a hot VC investment? – Crunchbase news

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Underwear brands are having a moment in the world of venture capital.

Globally, VC-backed underwear and lingerie companies raised $ 457 million in funding last year, the highest amount in at least five years, according to data from Crunchbase. Kim Kardashianthe modeling clothing brand MONKEY And Rihannathe lingerie brand Wild X Fenty were among the largest funding rounds. Other notable increases last year include ParadeThe Serie A and Serie B, which together totaled $ 30 million, and based in Canada Knix clothingis $ 53 million Series B.

Underwear companies aren’t exactly reinventing the wheel. But there is a great market opportunity, especially after the dominant player in the women’s underwear market –Victoria’s secret– failed to adapt to changing tastes and fell out of favor with many consumers. The lingerie giant’s market share dropped from 32% in 2015 to 19% in December 2020, according to Women’s clothing every day.

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Victoria’s Secret, known for its supermodel spokespersons and provocative ads, has spent most of a decade advertising millennials that underwear should be sexy, prioritizing looks over comfort, according to Caitlin Strandberg, a partner at Lerer Hippea, which has invested in underwear brands such as Parade and CUP.

“The most important thing is actually this notion that the consumer has changed, and indeed many retailers are far, far, far behind the curve,” he said. Paola Rosenblum, co-founder of the retail consulting firm RSR search. “They don’t realize that, yes, all types of women want to feel sexy. They don’t want to worry about hitting the limit of the size barrier, large or small. Sustainability is really important. The social good is really important “.

The next generation, Gen Z, appreciates other qualities.

“They appreciate inclusivity, they value self-expression, they appreciate, I would say, diversity and inclusion, but they are looking for products that they are proud to wear,” said Strandberg.

The largest funding rounds for VC-backed underwear startups in 2021 went to:

Market timing is also an important part, according to Strandberg. Five years ago it would have been much harder for a Gen Z-focused underwear brand to be successful as the generation was still made up of young teens with less discretionary money to spend.

Parade, he added, has just arrived at a demographic transition for its consumers. And it has incorporated elements of social good into its business (buyers can donate 1% of their order to nonprofits focused on issues like sex education and reproductive rights), something Gen Z appreciates.

In the case of Parade, Strandberg noted, the Gen Z consumer was underserved by incumbents, creating an opening for companies like Parade and CUUP to relocate.

The economy of underwear

Underwear is something that (almost) everyone wears. It’s also a category with high customer loyalty – once a consumer finds the underwear they really love, they tend to keep buying it, according to Strandberg.

“Candidly, you’re looking for a big market, it’s like any other risk bet where consumers spend and spend often,” Strandberg said. “This is a space where repeat purchases and repeat purchases are fairly consistent.”

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Underwear is one of the easiest garments to take down the direct-to-consumer route, Rosenblum said, because once a customer knows the sizes, they can continue ordering online.

Additionally, DTC underwear brands tend not to deal with high return rates, which helps their bottom line, because underwear is relatively cheap and many consumers won’t bother returning it. It also doesn’t have to fit snugly, as long as it’s comfortable, Rosenblum added.

“(Investors) like the idea of ​​having no stores if they can get away with it, they still have the misconception that you can have a successful retailer with no stores,” Rosenblum said. “But of all spaces, underwear can get away with it.”

Some VC-backed underwear brands have established a physical presence. Parade opened its first store last month and shoppers can now shop SKIMS on Nordstrom, For instance. But DTC underwear brands can also market their products online fairly cheaply during a time when many consumers are more comfortable shopping online than in person.

Generation Z and millennial shoppers were already spending more time online, behavior that was “overpowered” during the pandemic, Strandberg said.

This, combined with new players more in touch with diversity, inclusion and comfort, has allowed DTC underwear brands to be successful.

“It’s the wrong time to ‘become the prettiest woman in the room,'” Rosenblum said. “It’s so much more than ‘we become the most beautiful women we I am.'”

Illustration: Dom Guzman

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