Sometimes disruptive players change the status quo, but, in some cases, they prove why the status quo existed in the first place.
Digital-first companies have struggled in areas of business where it makes sense to actually interact with customers. Some have failed, while others have adjusted their operating model.
Related: Popular women's clothing retailer files bankruptcy, closes stores
Furniture stores, for example, exist because people don't like to spend thousands of dollars on a bed or a sofa without actually sitting or lying on it. Yes, the internet makes buying these things more efficient and cuts down on overhead, but that does not make up for the lack of being able to touch certain products or see them in person.
That's why we've seen popular direct-to-consumer brands like Warby Parker and Third Love expand their brick-and-mortar presence. It's not a great experience to buy glasses and lingerie without touching them (and realistically, both need to be tried on).
The idea of shaking up brick-and-mortar chains with online-only models seems great until you have to return a lumpy bed or look lumpy due to ill-fitting clothes. We've learned that telemedicine too has its limits. A virtual doctor's visit is great when you know what's wrong, but less useful when you need to be diagnosed.
It seems that the same might be true of dentistry as SmileDirectClub, a popular alternative to braces, has filed for bankruptcy.
Image source: Getty Images
SmileDirectClub files Chapter 11 bankruptcy
One of the better-known DTC companies, SmileDirectClub spent millions educating consumers on its products. It advertises a lot and has a very catchy jingle that raised awareness of the tooth aligners that serve as an alternative to traditional braces.
Now, the company has filed for a Chapter 11 reorganization, but it enters the proceedings with a plan to emerge from it.
"SmileDirectClub will seek to recapitalize through a transaction where the company’s founders have committed to invest at least $20 million to bolster the company’s balance sheet and to protect its near- and long-term financial health," the company shared in a press release.
The company will have access to up to $60 million in additional funds if certain conditions are met "including the favorable conclusion of a marketing process."
"The founders’ investment in the Company reflects their commitment to SmileDirectClub’s mission of democratizing access to premium oral care, as well their conviction in the success of the recently launched SmileMaker Platform and CarePlus growth initiatives," the company added.
SmileDirectClub's filing was voluntary and was designed to clear the decks for the cash infusion. Both the U.S. Bankruptcy Court for the Southern District of Texas and the company's creditors will have to sign off on the deal.
SmileDirectClub services will continue (for now)
SmileDirectClub's core product involves the company steadily sending customers new dental aligners. If it stopped doing that, it would leave tens of thousands of patients in the middle of their treatment.
"During this restructuring process, SmileDirectClub intends to continue to provide affordable and accessible oral care to its customers without disruption. The additional liquidity the company received from its founders, coupled with its normal operating cash flows, is intended to ensure SmileDirectClub is able to continue meeting commitments to stakeholders without disruption throughout this process," the company shared.
A positive outcome is not assured. The company described the $20 million in funding as a "lifeline," in the bankruptcy filing. If the company does not meet the standards set by the debtor-in-possession (DIP) agreement, "the DIP Facility provides for an orderly and expeditious liquidation of the business through a Chapter 11 plan."
SmileDirectClub had approximately $890.6 million of funded debt as of the petition date, with more than $1 billion in liabilities and over $500 million in assets, Retail Dive reported.
