clock menu more-arrow no yes

How Honest Company's IPO Will Impact Other Retail Startups Like Warby Parker

Is Jessica Alba's startup an e-commerce company? A mainstream retailer? Or something in between?

etty Images Entertainment

Honest Company, the consumer products retailer from Jessica Alba that started by selling diapers online, is working with bankers on an IPO, according to a source familiar with the process. Whether the company makes it out into the public market, and how investors value it along the way, will likely be a barometer for what other mature digital-meets-physical retailers such as Warby Parker will face as they consider public offerings of their own.

The Santa Monica-based company was founded in 2011 by a group including Alba and CEO Brian Lee to build a baby, bath and body care product company that emphasized nontoxic, environmentally safe products. Last year it raised $100 million at a $1.7 billion valuation, according to a report.

The company started online, powered by monthly delivery subscriptions, but also sells its products now in big chains such as Whole Foods and Target. It’s a hybrid model, one that other digital retail startups such as Warby Parker, Bonobos and Nasty Gal have also employed.

The problem as some of these companies think about an IPO, however, is that there are few if any public companies with the same type of origins in digital with physical retail layered atop. Public online retailers such as Wayfair and Etsy don’t have significant brick-and-mortar sales to speak of. Hence, some investors may be unsure how to value Honest.

A year ago, Lee told Re/code that 30 percent of Honest’s revenue came from sales in brick-and-mortar chains such as Target and Whole Foods. The remainder comes from online sales, with 60 percent of that digital pie attributed to recurring monthly deliveries. The company registered sales of more than $150 million in 2014.

So is Honest Co. an e-commerce company? A mainstream retailer? Or something in between? How investors answer that question will play a big role in what public market company investors compare Honest Company’s numbers to and, in turn, how they value the young company. Lee, for one, didn’t know the answer when I asked him last February.

“We’ve been meeting with bankers of course and they don’t even know what teams to bring,” Lee said at the time. “Sometimes they’ll bring their luxury brand team. Sometimes they’ll bring their e-commerce team. Sometimes they’ll bring their retail team. It is hard to define, but we are a brand that’s born online.”

Translation: It’d be nice if you valued us more like a fast-growth digital company than a traditional brick-and-mortar one.

Bloomberg first reported the company’s hire of bankers to explore an IPO.

This article originally appeared on Recode.net.