Ebay works like this (and to a much lesser extent Amazon). Yet we still go to ebay to discover products and many people buy them on site.
Fab was selling what's cool, and creating a price incentive. But for their audience, cool is actually more important than cheap, so by promoting the makers of cool (all of whom also have their own e-commerce channel) they were eroding their own business.
I'm not suggesting that was what killed them. I'm just saying they didn't have a bulletproof model before they started taking crazy pills.