Upstart scrubs producer Figs Inc, whose modern medical attire has disrupted the $66 billion international scrubs market, final month received a 4-year court docket battle towards a bigger competitor.
But it is not out of the authorized woods but, because the Santa Monica–primarily based firm faces investor lawsuits and a “sturdy promote” opinion from a monetary analyst leery of its future.
It’s all simply background noise for Figs’ legions of followers. Since the corporate’s founding in 2013, healthcare staff have change into more and more loyal prospects as they solid off conventional hospital-issued scrubs for stretchy, slim-fitting uniforms they are saying are much more snug.
The tales are rampant in on-line boards — conventional scrubs are boxy, scratchy, and outsized and are made from unforgiving textiles that really feel higher suited to low cost upholstery. So when co-founders Trina Spear and Heather Hasson started providing scrubs that extra carefully resembled energetic put on, it despatched a tremor by means of {the marketplace}.
“Your uniform tells the world who you might be and what you do. It is a logo of security, identification and unity,” Figs instructed healthcare staff because it marketed its cozy, sturdy materials embedded with antimicrobial and liquid-repelling compounds. Marketing on to customers, Figs swiftly tailored its merchandise to fulfill buyer requests, together with including zippered pockets.
Word unfold in clinics, hospitals, and medical colleges. As surgeons, nurses, and residents posted selfies of themselves on Instagram and different social media to indicate off their new look, the corporate rapidly partnered with medical social media “influencers” boasting tens of 1000’s of followers.
But as Figs’ gross sales exploded and the corporate attracted greater than $60 million in investor funding, old-school medical attire makers started to take a better take a look at the disruptive upstart.
Now Figs’ buyers are scrutinizing the corporate too, as pandemic-related provide chain issues have cratered the corporate’s share worth.
Legal Storm Clouds
Chief among the many rivals has been Careismatic Brands, which incorporates conventional names like Cherokee, Dickies, and Scrubstar. Formerly generally known as Strategic Partners Inc (SPI), the medical attire and uniform producer filed a federal lawsuit in 2019 accusing Figs of false promoting and deceptive enterprise practices and in search of greater than $120 million in misplaced income and punitive damages.
After almost 4 years of litigation, throughout which the court docket rejected a number of of Careismatic’s claims, a jury in November deliberated for a day earlier than rejecting all of the remaining claims as “not legitimate.” Careismatic executives say the corporate seemingly will attraction that verdict.
The swimsuit towards Figs wasn’t distinctive. SPI has additionally filed towards different rivals.
In 2016, the corporate misplaced a swimsuit towards Vestagen Protective Technologies Inc, which it had accused of false promoting concerning the efficiency of its scrubs. But SPI received a $5.3 million trademark infringement case towards scrubs maker Koi Design, which filed for chapter in 2019.
A Figs spokeswoman mentioned the Careismatic swimsuit was an try “to litigate FIGS out of the market quite than compete pretty.
“I simply assume it is a worth of success,” mentioned Figs Chief Legal Officer Todd Maron, who previously was Tesla’s high lawyer. “When you are profitable and modern and disruptive, individuals will attempt to take you down.”
“How Do We Attack Them?”
During the trial, Figs revealed an internet site outlining its protection and accusing Careismatic of utilizing the courts to harass an upstart competitor. Calling the lawsuit a fishing expedition, the location notes that Careismatic filed greater than 900 calls for for paperwork and took depositions from greater than 100 Figs witnesses — together with the ex-boyfriends of Figs’ two feminine co-founders/co-CEOs.
Internal Careismatic emails revealed on the location present that former CEO Mike Singer was decided to dam Figs’ advance in the market. In May 2016, an inner e-mail mentioned of Figs: “They’re already concentrating on each one in every of our manufacturers arduous,” to which Singer responded: “How will we assault them?”
As Figs ramped up a video advertising and marketing marketing campaign in 2017, Singer wrote in an e-mail: “We are getting our asses kicked. Where are our model and product movies for us and our retailers to share about product and match?”
Chief among the many lawsuit’s allegations have been that Figs scrubs didn’t have the antimicrobial properties that the corporate claimed. During the trial, nevertheless, proof was offered that each Figs and Careismatic have been utilizing the identical antimicrobial agent — Silvadur, which comprises molecules of silver.
A spokesman for Careismatic mentioned in an e-mail response to Medscape that the corporate now not makes use of Silvadur. He mentioned the lawsuits towards each Vestagen and Figs have been delivered to cease “false well being and security claims each firms made that deceived and endangered healthcare staff.
“Careismatic Brands takes its place as a frontrunner in the medical attire trade severely.” The firm filed swimsuit to “pressure FIGS to cease making false claims, and guarantee a good and clear market. We succeeded in this regard, and we’re happy that healthcare staff lastly have entry to the reality about FIGS scrubs. We will proceed to pursue all authorized choices accessible to us.”
Figs’ Maron celebrated the court docket win as full vindication.
“This verdict is a robust win, not just for Figs however for honest competitors,” he mentioned. “This marks the top of a nasty, four-year marketing campaign towards Figs, engineered by…Singer and primarily based on outright falsehoods. SPI has sued opponents at the least twice earlier than in related conditions, and we felt it was essential to face up for the reality when confronted with a baseless lawsuit.”
Shareholders Lawsuits Loom
But that is not the final authorized hurdle Figs should clear. Now the lawsuits are shifting from the corporate’s scrubs to how Figs conducts its enterprise.
Three days earlier than the jury’s verdict in the Careismatic case, shareholders filed a category motion lawsuit accusing Figs of deceptive buyers about its skill to fulfill buyer demand.
Then, on December 9, a second class motion swimsuit was filed alleging that Figs made false and deceptive statements in its providing paperwork, together with inflating its income, when it filed for its preliminary public providing in May 2021 and once more throughout its secondary public providing 4 months later.
The first swimsuit focuses on provide chain issues that started in 2021 in the course of the pandemic. In its IPO submitting, Figs assured buyers that, owing to its in-depth data of its on-line prospects, it might keep an environment friendly and regular provide chain by means of predictable gross sales regardless of the pandemic.
But, the swimsuit alleges, Figs needed to more and more use costly air freight as a substitute of the cheaper abroad transport on which it had beforehand relied. Despite saying that its use of air freight had peaked in the course of the fourth quarter of 2021, the swimsuit says, Figs as a substitute ramped up air freight shipments heading into 2022.
In May 2022, the corporate introduced disappointing monetary outcomes in half due to provide chain issues. “For the remainder of the yr, we plan to considerably enhance our use of air freight to scale back our publicity to those unpredictable transit occasions,” the corporate mentioned in its quarterly earnings name. Shares, which have been offered at $22 in the course of the IPO, since have plummeted into single digits.
The second swimsuit alleges that Figs intentionally overstated its skill to safe repeat prospects and did not disclose that the corporate was making selections “impartial of, and instantly at odds with, its purported data-driven stock strategy.”
Analyst Criticism
Adding extra stress, a New York–primarily based forensic analysis and short-selling agency in September issued a “sturdy promote” opinion towards Figs.
In its report, Spruce Point Capital Management mentioned that it believes Figs has developed a “share construction benefiting insiders” and that the corporate “has a historical past of exaggerating key monetary and enterprise claims, together with historic income figures by 82%, gross margins by 2,040 foundation factors, and its whole addressable market potential by 135%.” The agency additionally mentioned it has discovered proof at Figs of poor governance and a dysfunctional group resulting in worker distrust.
Citing ongoing litigation, Figs declined by means of a spokeswoman to remark.
During the corporate’s earnings name in November, nevertheless, co-founder and co-CEO Trina Spear briefly mentioned the SPI verdict, saying that “it is a profound feeling to lastly have our day in court docket.
“After three weeks of trial, the jury unanimously discovered in our favor on each single subject,” she famous. “They discovered that we did nothing incorrect. And as painful as this expertise was, I’m glad that justice was served…. [I]t confirmed us how a lot Figs has revolutionized this trade.”
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