Update: Joymode announced it would be acquired by the New York City based retail investment firm, XRC Labs, on July 29, 2020. The terms of the deal were undisclosed.
If Joe Fernandez sounds a bit joyless lately, it's understandable.
The 42-year-old co-founder of Joymode, a subscription rental service for general merchandise, just laid off 80 percent of his staff and spent the month of January liquidating his company's massive inventory: a Mary Poppins-style 50,000-plus-item grab bag including (but not limited to) lawn chairs, Vitamix blenders, leaf blowers, movie projectors, and Nintendo Switches.
Inspired by the lack of space in urban dwellings, Fernandez launched Joymode in 2015 alongside co-founders Waynn Lue and Keith Walker. The company positioned itself as the post-consumerist alternative to Amazon, promising subscribers a way to rent random products and niche experiences--like a movie night, complete with theater-style popcorn machines--without accumulating more stuff.
In November 2017, when Joymode closed its Series A round, investors were enthusiastic about the rental business. In a press release at the time, Mike Katz, head of U.S. investing at Naspers Ventures, noted that renting represents a generational shift toward decluttering, calling Joymode's potential in the trillion-dollar recreational space "almost unlimited." And, in the years since, the rental industry has seen an explosion of growth.
At its height in 2018, Joymode catered to as many as 10,000 monthly customers. Subscribers paid between $22 and $29 a month, while à la carte customers paid a fee equal to 10 percent of an item's retail price. Each week, Joymode processed more than 30,000 rental products through its warehouse, and during the summers--its busiest season--took in as much as $300,000 a month.
But by November 1 of last year, the company had hit a low point. Joymode received notice that it was being evicted from its home of four years--a 30,000-square-foot warehouse in Culver City, California. The news wasn't entirely unexpected. The warehouse's location was perfect for serving Joymode's mostly L.A.-based subscribers, but a spate of new development in the rapidly gentrifying neighborhood had led the landlord to grant the company a provisional lease--which it pulled after making plans to demolish the warehouse and develop the site.
Warehouse woes only compounded an already dire situation: Joymode has struggled to build its customer base post-Series A, which Fernandez believes has scared off potential investors: "It's like you can feel their allergic reaction," he says, adding that WeWork's bungled August 2019 IPO hasn't helped him make his case. But WeWork may be a symptom rather than a cause of Joymode's struggle to find investment. Flameouts by similar rental companies, such as San Francisco's Omni, suggest that the sharing economy has its limits.
To date, Joymode has burned through $19 million, and it is fighting for survival. With just five employees and a little extra cash from its recent liquidation sales, Joymode decided to use its eviction to pivot away from a warehouse-based subscription model--which never grew beyond the L.A. area--and opened a store inside a Walmart in Temecula, California. The experiment lasted for only a few months, but Fernandez says that he had expansion deals contingent on fresh funding--which could have put Joymode in 10 to 15 other big-box stores by the end of 2020.
With few options remaining, Joymode is seeking a buyer--in an early-February emergency meeting, the board voted to sell the company. "I've always said from day one that this company is either huge or dead," remarked Fernandez after leaving the meeting. "We took money from people who rightfully expected exponential growth."
While the story of Joymode is dramatic, it's also emblematic of the struggle to adapt to a rapidly shifting economy. Consumers are trying to declutter their lives and patronize ecoconscious businesses. Rentals are a way to satisfy those requirements while also sating consumers' thirst for the next new thing. The same is true for thrift and secondhand clothing, which is expected to see industrywide sales jump 17 percent from 2019 levels to $32 billion in 2020, according to market researcher GlobalData.
But even though the sharing industry is taking off, only a limited number of rental categories can win, says Sucharita Kodali, a retail analyst at Forrester. She suggests that renters of limited-use or higher-priced products may find more success than those of frequently used or lower-priced items, adding that she doubts many customers would want to rent something inexpensive instead of buying it. Speaking of the customers of REI, which announced an expansion of its rental program last April, Kodali asks: "Does it make sense for them to rent a Yeti water bottle? No. Does it make sense for them to rent kayaks or tents? Yes, probably."
Kodali also notes that aggressive retail competitors could create headwinds for rentals. For instance, what's to stop a major player like Amazon from entering the rental market and blowing the whole thing up? That's a concern Fernandez shares, but only to a degree. "We have really good data and history around how much inventory to carry. We know how long these products last and how to price them," he says, adding: "I'm never going to say Amazon isn't smart enough to build this out, but they've got bigger fish to fry."
Competitors closer to home may be tougher to write off. Ari Mir, the co-founder and CEO of L.A.-based Clutter, an on-demand storage company with $300 million in funding from VC firms like Sequoia and SoftBank's Vision Fund, has said that the company could eventually get into peer-to-peer rentals. Since Clutter already inventories and stores millions of products for consumers, Mir says it could easily help users rent out their unused stuff.
So, yes, Joymode may be at a crossroads, but it's not the first time Fernandez has found himself there. Just days before selling his last startup, a San Francisco-based influence-measuring platform called Klout, he was reportedly on the verge of board upheaval over his company's direction.
The initial buzz around Klout was tantalizingly loud, in no small part because of its controversial Klout score, which ranked social media users by online influence. But as it focused on building out its enterprise product, Klout struggled to maintain momentum in its consumer advertising driven business. Its 2014 sale to social media marketing software maker Lithium Technologies for around $200 million came at the perfect time. Klout joined Lithium's existing suite of business tools, before being discontinued in 2018.
Joymode's story will probably end in similar fashion, but Fernandez is still hopeful that an investor might see Joymode's promise. He says that with the data gathered from the Walmart experiment and the expansion deals he was able to lasso during that trial run, Joymode could secure enough funding to avoid a sale.
Regardless of how it all shakes out, at least one investor is confident that Fernandez will land on his feet. "Joe is a founder who has an uncanny ability to see into the future," says Hunter Walk, partner at San Francisco-based Homebrew, a seed-stage venture firm and Joymode investor. "He was prescient with both Joymode and Klout. Not only that, but he also puts together stellar teams capable of taking big swings."
Seeing into the future is one thing, and monetizing it is another. But even if Fernandez can't save Joymode, he remains optimistic about rentals. "The idea of what Joymode is should exist in this world," he says. "We should be able to live a life that's not constrained by what we own."