Further detailed information is contained in the Information Memorandum (IM)Download IM
Fashion is one of the largest selling e-commerce categories worldwide. In New Zealand and Australia, over $3.4bn is spent online on fashion annually. In the last year, online spending on clothing and accessories in New Zealand increased by over 21%.
Designer Wardrobe is an online fashion community of like-minded individuals who love to buy, sell and rent designer items to and from each other. Originally a popular Facebook group, it quickly grew into a premium standalone web and app platform with members trading their favourite preloved designer labels.
It’s a thriving community too, with a rapidly growing base of over 87,000 members, a returning visitor rate of 70%, over 26,000 live listings, and more than 1.2 million page views per month.
The platform’s sell-through rate on clothing is over 5 times that of Trade Me’s currently reported sell-through of Women’s Clothing, which until recently was one of the only options for selling clothing online. The technology behind Designer Wardrobe’s platform has been built from the ground up specifically for fashion. The platform utilises a high degree of curation, as well as superior filtering functionality and automation, and this has allowed the company to achieve superior metrics when compared to Trade Me’s generalised marketplace.
The success of marketplaces designed specifically for fashion, as opposed to generalised marketplaces such as Trade Me and eBay, is evidenced by the substantial traction these fashion focused marketplaces have exhibited overseas. Rent the Runway, the market leader in the US was forecasting US$121 million in rental revenue for 2016.
At present, Designer Wardrobe is focused on Women’s fashion, and although there is still plenty of room for growth in this category, there is a significant opportunity to expand into other categories such as Menswear and Kidswear.
Today, Designer Wardrobe is a fashion-tech company focused on creating a great peer-to-peer experience for its members, while also being a mutually beneficial sales channel for designers and retail partners. The core services offered through Designer Wardrobe are as follows:
Designer Wardrobe is the only online peer-to-peer fashion marketplace in Australasia with a focus on high-end fashion, and this has allowed the company to gain a strong foothold. Designer Wardrobe is now looking to develop and grow the business further in order to fully own the market. To achieve this, the following initiatives are in development:
In order to execute these initiatives, Designer Wardrobe is now raising a targeted $1.2m through Snowball Effect on a pre-money valuation of $4m. The Company will also consider over-subscriptions up to a total of $1.7m.
Designer Wardrobe benefits from excellent governance, with investor Simon Moutter (Spark) as chair and the active involvement of internet entrepreneur Shane Bradley who is an investor/director.
The rapid growth of the platform since inception is evidence that Designer Wardrobe has built a marketplace that their users want. With further investment, Designer Wardrobe can grow at a faster rate and own the online pre-loved fashion trading space in Australasia.
Donielle created the Designer Wardrobe Facebook Group as a community proof of concept, before developing it with Aidan and Jarrod as a standalone platform. The Designer Wardrobe team has a broad mix of creative, technical and business skills. Key team members include:
Recent studies reveal that most women only tend to wear about 20% of the clothing they own, and this figure may be even higher for women who buy premium, designer clothing. In New Zealand, an unworn clothing rate of 80% equates to roughly $1.8bn worth of clothes that don’t get worn, year on year. This may explain the global rise of a new breed of second hand clothing retailers with a focus on a more premium offering.
Up until recently, there were no dedicated online resale channels in New Zealand for high end fashion. Limited online options existed for selling used clothing, and sell-through-rates were typically low, with little focus on premium clothing.
Buyers were also looking for an accessible platform to easily discover and purchase designer items at great prices. Facebook groups and online auction sites are available, but these are sub-optimal platforms through which to buy high-end clothing.
Enter Designer Wardrobe to fill the gap and solve the problem of what to do with unworn designer clothing.
Designer Wardrobe is an online fashion marketplace for buying, selling and renting “preloved” and more recently, brand new clothing and accessories. With clothing from Ruby, Lonely Hearts, Karen Walker and others frequently available both new and used, it’s a platform for people looking for the best brands at excellent prices. The platform is highly curated and items can only be listed if the brand is included on the “white list” of designer or high street premium fashion brands.
The platform is available on the web and as an app available on iOS and Android.
The typical Designer Wardrobe user is a female aged between 18 - 38, based in Australasia.
This member is typically a smartphone owning fashion forward individual who spends at least $2k a year on fashion, but prides herself in being a smart shopper by reselling up to 80% of her items that end up unworn.
Designer Wardrobe is the perfect channel for this market segment, not only because it is a great channel for selling pre-loved fashion items, but it is a great way to discover value by purchasing items from other like-minded members.
Why Users Love Designer Wardrobe:
Here's how it works:
The peer to peer trading system is anchored around confidence and safety. Buyers pay Designer Wardrobe first, with money released to the seller once it’s clear that the Buyer is happy with their item. The item is not seen by the company and everything is automated, meaning it’s also a “low-touch” system in regard to Designer Wardrobe resources.
Designer Wardrobe charges Sellers 6.9% of the sale price - compared to Trade Me’s current rate of 7.9%. Buyers are also charged an additional 2.9% credit card and administration fee. Trade Me charges an additional credit card fee of 1.65% - 1.95%.
With such a small proportion of wardrobes actually worn, and buying new clothing to maintain a fresh and fashionable look being an expensive pursuit, there is a growing number of people regularly renting their clothing, especially for important social events.
Designer Wardrobe connects lender and renters of premium clothing:
Designer Wardrobe retains 20% of all rental sale proceeds.
DW Valet is a premium service aimed at people that don’t have time to list individual items themselves. When completing initial market validation work, Designer Wardrobe identified two primary pain points facing people selling clothing online:
DW Valet Sellers are sent a prepaid Shipping Kit free of charge and send all items to Designer Wardrobe. The Designer Wardrobe team then take care of the rest: pricing, photographing and listing the item, then answering any member questions.
Designer Wardrobe have spent 15 months improving the service and capturing data from the many thousands of items processed. As a result, DW Valet is highly automated and uses an advanced algorithm to optimise initial pricing based on quality and brand (using data from past sales). Sell-through is improved by utilising algorithmic discounting based on an items time on platform (items will only remain on the platform for a maximum of 6 weeks). As a result, DW Valet has a high sell-through-rate of over 60%, with the average item being sold in less than 14 days of consignment.
The data Designer Wardrobe collects through its platform not only strengthens the proposition for customers, it also makes it harder for potential competitors to replicate the marketplace without this historical information.
DW Valet is an exciting service with exceptional growth averaging 18% month-on-month since the initial launch in February 2016. Designer Wardrobe views DW Valet as a reinvention of the traditional consignment/second-hand store model, with a number of key advantages:
DW Valet is a higher touch service and Designer Wardrobe therefore charge a higher commission than the commission charged on standard peer-to-peer trades. The commission charged is scaled based on the “net selling price”. When compared to a typical consignment store, the fees are considerably lower and the service is more convenient.
Designer Wardrobe do not house Valet items themselves. Instead they’ve teamed up with a professional and experienced logistics company to safely and carefully handle the inventory that is sent by Sellers. This outsourced logistics model allows Designer Wardrobe to scale as demand for the service continues to grow. The partnership with this logistics company is explained in greater detail below.
DW Stores is a recently launched concept from Designer Wardrobe, offering a ‘second home’ for selected brands and retailers while bringing even greater choice for members at exclusive, discount prices.
It’s a seamless channel where full-priced items obtain a new audience, and is a perfect avenue for retailers to expedite the clearance of sale/outlet stock. With Designer Wardrobe’s large and growing user base, it’s also a great PR channel for brands.
All brands selling through DW Stores are carefully selected according to Designer Wardrobe’s strict brand guidelines. Current DW Store brands include a range of well-known and high-end fashion boutiques across New Zealand.
DW Stores is currently in “Pilot” mode, with retailers to be charged a monthly fee ranging from $69-$129 depending on size, along with commission on goods sold in or around Q3 this year (FY18).
Designer Wardrobe have partnered with Boutique Logistics, a specialist third party logistics company based in Pukekohe, Auckland. Their current services include storage of Valet items, as well as picking/packing and shipping. All items are stored under secure conditions and adequately insured.
Designer Wardrobe pay a per-unit cost for picking and packing, and a flat rate for storage (this will reasonably scale up or down based on demand for space). Boutique Logistics have confirmed that they have adequate resource and space for Designer Wardrobe to scale as expected. The rates are favourable and are a significant cost-saving against Designer Wardrobe storing and picking up items themselves. The arrangement also provides better transparency of per-unit costs. Pick up times are very quick, with items ordered before 3pm likely to be dispatched the same day.
While Designer Wardrobe has a strong relationship with Boutique Logistics, there is no “deep integration”. This means Designer Wardrobe does not leverage any technology on their end to provide services. This provides flexibility in case Designer Wardrobe need to utilise another logistics provider for any reason, making the transition seamless. There are a multitude of “third party” logistic providers that the Company could partner with, without disruption.
Over time Designer Wardrobe aim to use Boutique Logistics for further services, such as the management and dispatch of Rental items.
Fashion is the highest selling e-commerce category globally (beating electronics in 2015). Online fashion spending also shows no sign of slowing down, with online spending on clothing and accessories growing circa 22% from Oct–Jan 2017 versus the same period last year in New Zealand. Across Australasia, over $3.4bn per annum is spent online on female fashion alone.
It’s not just online fashion that’s on the rise though. While many brick and mortar fashion stores and chains worldwide are experiencing reduced sales, second hand clothing stores have been enjoying 7% annual growth fuelled by ethical buying and the desire of consumers to de-clutter. Apparel resale is currently an US$18bn global industry, with the market expected to grow to USD$33bn by 2021.
“Years ago, during the era of ‘conspicuous consumption’, some liked to boast about how much they paid for something. Today’s consumer brags about how little they paid. Today’s shoppers are also environmentally conscious, making recycled clothing a hot commodity.” - The Association of Resale Professionals - 2017
With growth in both online fashion, recycled clothing and renting, a number of online used-clothing marketplaces and platforms have emerged in the US and Europe. Online resale overall (including antiques, representing 13% of the market) is estimated to be a USD$34bn industry, and growing at 10% annually. Venture capital is fuelling the sector’s growth, with investors pouring hundreds of millions of dollars into fashion resale marketplaces and renting platforms in 2015 alone. Total funding over the past five years has now passed the USD$450 million mark.
Designer Wardrobe does not currently have any direct competitors in Australasia although there a handful of online fashion renting platforms operating in Australia. Designer Wardrobe defines a direct competitor as another vertically integrated consumer-to-consumer trading marketplace that caters solely for pre-loved and high end fashion. This places Designer Wardrobe at a significant advantage. Being first to market is critical to the winner-takes-all economy of online marketplaces (as was the case with Trade Me, eBay and other more vertical platforms such as Etsy that focus on a particular niche).
There are, however, identifiable indirect competitors:
Trade Me (and Generalised Marketplaces)
Trade Me is a great platform for buying and selling used goods. However, it is not tailored to the way people want to buy and sell fashion, which is demonstrated by the low sell-through-rate of 6%, with female fashion having the highest sell-through-rate of all clothing categories on the platform. Trade Me is a “horizontal” marketplace, meaning it needs to cater for a vast amount of categories (and this is where it excels). Fashion is still however a core category for Trade Me, with the “Karen Walker” fashion brand notably being a top 10 search.
Designer Wardrobe is a “vertical” marketplace, offering a service that is purely crafted around buying, selling and renting fashion across Australasia. Search capabilities are tailored to fashion, with focus on the many variables within different brands and sizes. As a result, the sell-through-rate is 32.9%. Designer Wardrobe also has the following differentiating peripheral services:
Facebook Groups & Facebook Marketplace
Designer Wardrobe was born out of a Facebook Group. Today there are a number of Facebook Groups in Australasia focused on selling second hand goods. While these are a great platform for building a community, there are some obvious drawbacks for both buyers and sellers focused on premium fashion:
Shedd Marketplace (Australia only)
Shedd is an iOS-only fashion marketplace, originally started in Dubai and now available in Australia (launched mid 2016). Shedd is focused on lower value “fast fashion” items, which is not Designer Wardrobe’s focus market. The app also has limited discovery functionality, with users unable to search according to size or brand. Despite this, the platform has gained some traction in Australia.
We consider this validation that the fashion marketplace model is well received in Australia, and that there is a current gap in the market for a marketplace focused on high end fashion.
I’ve always loved having a rotating wardrobe - being able to sell off pieces to buy new ones to take their place! DW is amazing because it’s so easy and with the community of like minded people, it means giving the clothes I don’t wear anymore a new home, and me the room for my next buy! - Larissa
I run a business my own designer hire business, but often list my rental items through designer wardrobe’s platform as it is so easy to use and so secure! Thanks so much for the great service guys! - Lucy
Designer Wardrobe is a guilt-free way to shop my fav brands!! I’ve bought from other members and also have used Valet (the shipping was super quick btw). Love it! - Kate
The platform has seen exceptional growth since launch, with over 87,000 members currently signed up to Designer Wardrobe, and a returning visitor rate of 70% per month (as reported via Google Analytics). Charging of commissions commenced in February 2016, with consistent positive growth since then and around $2.5m in Gross Merchandise Value (GMV) traded in the last 12 months.
What we have learnt so far
In order to grow the number of users while maintaining a careful balance between Buyers and Sellers, Designer Wardrobe has taken a very methodical, data-driven approach to marketing and the company tightly manages cost per-acquisition.
Designer Wardrobe have found that the best value and user growth has been derived from social media channels, primarily Facebook and Instagram. The ubiquity and granular nature of social media advertising lends itself to being able to target Designer Wardrobe’s core audience with ease, and the company does not foresee any change in this being an optimal channel for user growth. Designer Wardrobe also leverages its 40k social media followers (30k Facebook, 10k Instagram).
Over the next 12 months Designer Wardrobe plan to use other targeted channels to expand the age range of its core demographic. These channels may include strategic partnerships (Designer Wardrobe is currently in talks with some prominent brands that align well), Pinterest (most users are over 35) and more traditional media routes such as print advertising in brand-aligned magazines. By putting a heavier focus on acquiring more customers in the 35+ demographic, being typically time-poor means these users are more likely to sell their higher-value items via the Valet service, creating a supply of high-margin product to the marketplace.
With Designer Wardrobe being a social community, the company also plans to launch a referral reward service. Referral programmes have proven to be successful on platform marketplaces, with high rates of conversion and retention. According to a Forbes study, customers recommended to a business by their peers were 18% more likely to stay.
While there remains room for considerable growth from the current female target market, Designer Wardrobe also believes the platform is ready to start offering new categories that are contextual to the Designer Wardrobe brand. These categories include high end Menswear and Kidswear/Babywear.
Men provide an estimated 33% of the total online fashion spend in Australasia, with research firm IbisWorld finding that growth of men’s clothing sales online are surpassing computers, beer and groceries, with 14% annual growth predicted through to 2020.
Offshore, the VC-backed U.S. platforms like Poshmark and TheRealReal have recently shifted into Menswear, which has become a source of substantial growth for these businesses. Designer Wardrobe expect this to be no different for them, especially considering second hand Menswear is an underserved market in Australasia, both online and at brick and mortar level.
While Kidswear is a smaller proportion of the fashion market, global sales growth has been out-pacing both Women’s and Menswear for the last five years. Over the last few years there’s also been growth in high end Kids and Babywear brands. With children and babies quickly moving through sizes, there are a number of Facebook Groups dedicated to resale of used children’s clothing. Designer Wardrobe therefore see a strong opportunity to replicate what they’ve already achieved with female fashion and become the go-to marketplace for selling and buying pre-loved high end Kids and Babywear.
Category expansion will require minimal development to implement, while positively driving daily revenues and expanding the Designer Wardrobe user base. Designer Wardrobe aim for this expansion to not only apply to peer to peer sales, but also DW Stores.
Designer Wardrobe have recently soft-launched in Australia. Per capita, Australia spends more money on clothes than anyone else in the world. Although Designer Wardrobe has invested minimal marketing spend in Australia to date, this has generated around $23k of sales from users located there. Around 600 listings have been created across approximately 4,300 Australian users, suggesting clear interest in the platform. The platform became available in beta mid last year, and since Designer Wardrobe have begun to place more focus on the territory, 4,000 Australian members have joined the platform since mid March 2017.
There is a sizeable opportunity in Australia, with no clear competitors in online high-end consumer-to-consumer fashion resale. Designer Wardrobe therefore aims to increase its presence in Australia over the coming months. Designer Wardrobe has started working with the coordinators of a growing Facebook Group with 55,000 members in Australia, showing a lot of similarities to the Group that Designer Wardrobe evolved from.
Designer Wardrobe plans to spend around $200k in marketing over the next 12 months and aims to onboard 35,000 users by Q2, 2018 and generate revenue of approximately $20k per month by this time.
Having successfully validated the demand for the rental service, Designer Wardrobe now aims to be New Zealand’s leading and largest fashion rental company. Renting is currently seeing exceptional growth overseas. Rent the Runway, the market leader in the US is forecasting US$121 million in revenue for 2016. This is up by US$44 million since 2014. In New Zealand, renting as a service is fragmented with no clear winners or significant rental companies in the space.
Australia also serves as excellent validation for renting, with around 6 rental companies operating in the space, among them the venture-backed Glamcorner has raised AUD$1.3m to date.
Around $100k will be spent on stock for directly renting to Designer Wardrobe’s user-base. With the current peer-to-peer model, Designer Wardrobe are able to make data driven decisions on items to purchase based on demand.
Direct renting provides a higher margin per rental, in addition to greater control of the user experience. Designer Wardrobe is also exploring separating Rentals into its own website (based on the same platform), providing enhanced development flexibility and a refined user experience. Direct Rental items will be stored with Designer Wardrobe’s logistics partners, and Designer Wardrobe has also partnered with a dry-cleaner who will receive items directly via post.
Peer to peer renting will remain a service and area of focus, and Designer Wardrobe expect further growth in this service.
Designer Wardrobe are developing additional listing features focused on allowing Sellers to internally promote their listing on the platform, providing additional automated revenue at very little cost. These features are similar to Trade Me’s “bold” listings, or “Gallery” features. Designer Wardrobe is currently exploring the following:
The medium term intention for Designer Wardrobe is to use new capital to accelerate development and capabilities, with the underlying goal of reaching a cash flow positive position in late 2018. As Designer Wardrobe continues to increase revenues and solidify its position as the leading marketplace in Australasia, a medium to long-term exit opportunity for shareholders may come in the form of a trade sale, with the most likely acquisition being from a large New Zealand or Australian ecommerce platform, or an outside vertical marketplace entering Australasia.
Vertical fashion marketplaces are in their infancy, with the majority of large platforms still raising capital for growth. However, a notable recent acquisition was the purchase of “Twice” (a second hand fashion marketplace) by eBay for an undisclosed amount in 2015. This sale demonstrated clear synergies between horizontal and vertical marketplaces that are able to leverage agile technology, incremental services and a highly engaged audience and community.Notable other marketplace transactions and capital raising:
At this stage Designer Wardrobe has no plans to pay a dividend and instead prefers to reinvest pro ts into ongoing acceleration of the business’s growth. The board will review this position and the dividend policy options on a periodic basis.
Key person risk
Key staff hold equity in Designer Wardrobe, and are extremely motivated and committed to seeing the platform reach forecasted targets. However, it is important to note that no one on the team is irreplaceable - and through Designer Wardrobe’s wide exposure to the New Zealand startup ecosystem (as well as the company’s Investor Director’s own networks) Designer Wardrobe have a solid network of talent (both in managerial and platform development resource) that they can pull from.
As with any successful platform, Designer Wardrobe is likely to see competition enter the market eventually. Designer Wardrobe are front-footing this by focusing on creating a large user base and a robust sticky platform. Designer Wardrobe are first to market in New Zealand which provides a substantial competitive advantage that can be leveraged for Australia, where the industry has not been catered for properly. Without in-house expertise/resource/cost, competitors will not be able to offer the same deeply integrated services Designer Wardrobe offers (e.g. DW Valet).
Marketplaces require a complex supply chain, and Designer Wardrobe are conscious of this when outlining expansion initiatives. Since launch Designer Wardrobe have focused on making the platform and business model scalable, and have spent considerable resource automating tasks across the DW Valet service, customer service and Trans-Tasman transactions.
There is a risk that the market for pre-loved fashion items falls out of favour in Australasia, however this risk is considered low given the trends seen in this market and overseas. Designer Wardrobe will continue to focus on its core market in New Zealand where it has first mover advantage, whilst continuing to grow in Australia where the market is more developed. In order to mitigate market risk, the board will regularly review financial performance in each of these markets and implement adequate changes in strategy where necessary.
Technology and fraud/cyber risk
Designer Wardrobe have completed several audits of their backend infrastructure to make sure it is as robust as possible and not prone to data leakage or fraud. These tests have included network firewall testing, Server security and permission testing, Application code review, Application penetration testing and Database security testing. Much of this has been done by independent experts.
Any identified issues have been immediately remedied. Designer Wardrobe plan to undertake an independent technology infrastructure audit periodically and as required (e.g. following a major platform update).
Designer Wardrobe have DDoS Protection via Cloudflare to prevent malicious attacks attempting to take the website offline. Payments are secure (Powered by Paypal’s Braintree), and Designer Wardrobe does not store Credit Card details on their servers.
Designer Wardrobe uses “Kount” to minimise fraudulent transactions. Kount is a world-class product and can be described as an all-in-one fraud and risk management solution that detects and prevents ecommerce and credit card fraud for online and card-not-present merchants.
Designer Wardrobe also have Cyber Liability Insurance, giving adequate cover in the case of data leakage or business interruption loss due to cyber interruption.
Designer Wardrobe are con dent that forecasts portray a realistic picture of the potential of the platform over the next 3 years. However, Designer Wardrobe regularly review performance against forecasts in order to identify and mitigate any potential budgeting issues, and the board has also sought the expert guidance of Struan MacLeod (see details above in Team Overview)”.
Struan has helped the company establish high quality financial management, KPI reporting and accounting systems and processes over the last year.
Designer Wardrobe will need to ensure that they continue to have appropriate governance controls in place. They currently have strong governance, with the Board Chaired by Simon Moutter, an individual with significant governance experience. Designer Wardrobe will continue to have bi-monthly Board meetings.
* Gross Merchandise Value (GMV) is reflected for P2P Sales, P2P Rentals, DW Stores and DW Valet.
The financial forecasts reflect a marketplace with its existing user base continuing to grow at the current healthy rate. Revenue growth is attributed to the ongoing success of existing services and the commencement of Australian expansion and category expansion.
All financial forecasts and projections included below are based on the company’s best assessment for future potential financial performance. That said, this is a young company seeking to build a business in a rapidly evolving online world. Accordingly, the assumptions on which the forecasts and projections are made may prove to be incorrect, and actual results may differ significantly.
The following forecasts set out two scenarios. The first being where a target level raise of $1.2m is achieved and the full expansion plan is implemented. The second where a minimum level $600k raise is achieved.
Readers will note that the principle difference in the forecasts arising from these scenarios shows up in the aspirations for expansion in Australia. Under the minimum raise scenario, the company would apply the new funding to advancing the NZ expansion as the available funding would be insufficient to make any material progress with growth in the large Australian market. Therefore, for the sake of conservatism, under this minimum raise scenario, the forecasts contemplate an effective withdrawal from Australia and accordingly there are no forecast revenues from that market.
The company’s financial year runs from 1st April to 31st March.
User Base: In New Zealand it is assumed that Designer Wardrobe’s current monthly user growth rate of 3-4% continues through to FY20, with increased marketing activity driving further awareness.
Although Designer Wardrobe is working with a popular Australian Facebook group to employ a user acquisition strategy in Australia similar to the strategy utilised in New Zealand, for the sake of conservatism it has been assumed that a much lower user growth rate will be observed in Australia versus New Zealand when at a similar user base level.
Forecast Number of Users
It is assumed that Designer Wardrobe’s user base will vary in the frequency with which they use Designer Wardrobe. According to Google Analytics, the current overall usage rate indicates a 70% return rate from the user base, which Designer Wardrobe assumes will remain relatively constant over the forecast period, as it has done to date.
Peer-to-Peer: 6.9% commission (+ 2.9% credit card and admin fee) is charged on all P2P sales, with an average sale price of $72. It is expected that Designer Wardrobe’s P2P sell-through-rate will remain constant while the number of listings will increase in accordance with the growing user base. This is considered realistic, as the Company’s sell-through rate has increased over time as more users onboard to the platform.
Rentals: 20% commission is charged on all Rentals, with an average rental price of $62 per item. Other income is gained through rentals through renter insurance ($7.95 per item) and return bag sales ($9.95 per rental).
DW Valet: Due to the automated pricing system utilised, DW Valet has a significantly higher sell-through-rate (60%) and therefore higher commission (from 20-45%, averaging 38% depending on the “Net Selling Price”).
Around 3% of all items sent to DW Valet for processing are returned due to quality of the item or the item not being on the accepted brand list, resulting in an average cost of $8 per return. Designer Wardrobe are exploring alternative avenues for returns - potentially by charging a return fee for unaccepted items, reselling or donating via an alternative channel.
DW Stores: DW Stores is currently in Pilot mode, with a number of stores currently selling through the platform. Retailers will be charged a monthly fee ranging from $69-$129 depending on size, along with commission on goods sold in or around Q3 this year (FY18). The number of high end boutique Stores across Australasia is assumed to grow to over 100 by the start of 2020. An average 12% commission is charged on all DW Store sales.
Seller Add-Ons: Paid listing promotion options for Sellers will be available in Q3 of the current year. It is assumed that the average add-on sale will be $1.30 per listing, with an average uptake of 5-7% of all listings.
Menswear and Kidswear: It is expected that P2P Menswear and Kidswear sales will commence in Q3 of the current year, with a sell-through-rate of 25% and average sale price of $55 per item.
Australian Sales: Sales have only just commenced in Australia, and the sell-through-rates and listing growth rates are initially assumed to be lower than existing rates in New Zealand. However, over the course of the next 12 months it is expected that in reality Australian rates will be on par with New Zealand. Menswear and Kidswear sales will commence in early 2018 in Australia.
Customer Acquisition Costs: The typical cost of a registered user as a result of a paid acquisition sits at around $4-6. This signifies encouraging engagement of our acquisition methods (mainly via social media). For the sake of conservatism, we anticipate that the CPM (Cost per 1000 views) will gradually increase over time, and as a result our customer acquisition costs will rise in line with this. We have reflected this in the forecast, with the CAC reaching $9 in 2020.
Other Costs: Gross margin percentage will remain relatively consistent as the marketplace continues to scale. Increased volume will be used to re-negotiate some direct costs (such as freight and payment processing costs), which has been conservatively reflected in the projections.
Staffing: The most significant operational cost for Designer Wardrobe is human resources. As Designer Wardrobe continues to grow, the majority of new hires will be focused on platform development and customer service.
Designer Wardrobe currently employs one full-time customer service representative. Like most e-commerce businesses, as the company grows further hires in this department are likely. However, it is likely that continuous improvement in automation of repetitive customer service tasks will make customer service more scalable over time.
To meet the feature-intensive growth plans over the next 3 years, it is assumed that 4-5 FTE developers will be hired by 2020.
Fundraising: The forecasts assume the target raise amount of $1.2m is raised in the current round.
(Unaudited 31 March 2017 provisional)
Commentary on Balance Sheet: The majority of current liabilities is customer funds held by Designer Wardrobe (as an intermediary) while peer to peer transactions are being completed.
Early 2015: Received $20k in funding as part of the 2015 Lightning Lab Accelerator cohort. Capital was used to develop and launch beta product with 10,000 members.
Mid 2015: $700k invested by Simon Moutter, Shane Bradley and a small group of private investors. Capital was used to grow user base to 45,000, and release the iOS product. Capital was raised at a post money valuation of $1.56m.
Mid 2016: $500k raised from existing investors. Round led by Shane Bradley. Capital was used for Android release, growing the user base to 87,000 members, ~$30,000/month in commissions, and soft launch in Australia. Capital was raised at a post money valuation of $2.75m.
The pre-money valuation agreed by the Designer Wardrobe Board and existing shareholders is $4m (share price of $1.80). The company is offering up to 23.08% equity if $1.2m is raised. The Company will also consider oversubscriptions up to $1.7m.
The valuation is supported by Shane Bradley and Simon Moutter, who are committing ~$300k to the round at this share price. It is also anticipated other existing investors will participate in this round.
The valuation reflects a fair balance between the early stage nature of the business versus the scale of the opportunity, combined with the initial track record and the fact that Designer Wardrobe holds first mover advantage in New Zealand. This represents a modest uplift in valuation over the last round, which is justified by the strong growth achieved since then.
In the period between the previous round and now, the business has hit a number of significant milestones, including:
Pre IPO marketplaces such as Designer Wardrobe are typically valued off a multiple of run-rate Gross Merchandise Value (GMV). In the case of Designer Wardrobe, GMV represents the value of fashion items sold and rented on the platform. According to Forbes, the average marketplace GMV multiple in the US is 1.4x, with a median of 1.3x. Having generated around $300k of monthly GMV in March 2017, this would suggest a valuation for Designer Wardrobe of $4.5m - 5.0m on an annualised GMV basis, indicating significant value for investors.
Valuation of the company before funds are invested
Amount required for the offer to be deemed successful
The maximum amount the company is looking to raise
Percentage of the company offered at the minimum target
Percentage of the company offered at the maximum target
The cost of each share
The minimum investment amount for this offer
See the Subscription Agreement for details
The company may have rights to shorten or extend this period
The company may have rights to shorten or extend this end date
Note: The company may consider oversubscriptions up to $1.7m.
Type of Shares on Offer
We are offering Ordinary B Shares, as non-voting shares, to prevent the company from becoming a “Code Company” for the purposes of the Takeovers Code. In broad terms, a company becomes a Code Company when it has 50 or more (voting) shareholders and share parcels, and shareholders of Code Companies can be restricted in how and when they are able to transfer their shares. Due to Designer Wardrobe's size, our advisors and the board do not believe it is in the best interests of the company, its existing shareholders, or investors for Designer Wardrobe to become a Code Company and bear increased compliance costs.
Ordinary B Shares give the holders:
The Ordinary B Shares do not give the holder the right to vote in relation to any resolution of Designer Wardrobe, other than to vote on a proposal or resolution that affects the rights attaching to the Ordinary B Shares, or to receive notice of and attend meetings of shareholders.
Recipients of Ordinary Shares (being investors subscribing NZ$100,000 or more) will have all the rights of Ordinary B Share holders, as well as rights to receive notice of and attend meetings of shareholders and to vote on any resolution of Designer Wardrobe.
Investor Shares are on issue to some existing shareholders who invested in previous rounds. Investor Shares are preference shares which have a preference to other share classes on liquidation and which have anti-dilution value protection in the event that shares are issued for less than what they paid. All Investor Shares will automatically convert to Ordinary Shares on 30 June 2019 if not previously converted in other circumstances.
Investor Shares and Ordinary Shares are subject to preemptive rights on transfer in favour of other holders of Investor Shares and Ordinary Shares. Ordinary B Shares are exempt from preemptive rights on transfer, so may be traded freely.
Any new shares to be issued must be offered to existing shareholders first regardless of the class of shares held, except if the issue:
Therefore, investors may not always be eligible to participate in future investment rounds.
The Constitution of the company sets out further details relating to all share classes. You should read the Constitution before subscribing for any shares under this offer.
The remuneration of the Shareholder Executives is paid at fair value as determined by the Company. The remuneration of Aidan Bartlett (CEO) is set by the Board. The CEO is responsible for the remuneration of all other staff with the assistance of the Board as appropriate.
All current Directors are shareholders and/or employees and are not paid for services as Directors. There are no intentions to pay Directors at this point in time, with either cash or equity.
Related Party Transactions
Designer Wardrobe uses the SEO services of Pure SEO. Richard Conway, Pure SEO’s CEO, is a trustee of a trust that is a shareholder of Designer Wardrobe. Pure SEO’s services are provided at standard market rates.
Snowball Effect co-founder Simeon Burnett is an investor in Designer Wardrobe.
Designer Wardrobe Limited - Capitalisation Table
Donielle Brooke and Aidan Bartlett invested an estimated ~$30k during the launch of Designer Wardrobe. Directors Shane Bradley and Simon Moutter have invested over $800,000 into the business to date, plus an additional $150,000 acquiring shares from Donielle Brooke and Aidan Bartlett to enable them to retire personal debts.
The Designer Wardrobe Board holds bi-monthly meetings. The composition of the Board is:
No further fundraising is planned at this current time. However, future fundraising is very dependent on the success of the Australian expansion following this round. The Board will actively consider new sources of investment should the opportunity arise and further capital is required to accelerate growth, particularly in Australia, where a large strategic investor could provide a lot of support.
Share Registry Management
Designer Wardrobe intend to use Snowball Effect to manage their share registry.
Designer Wardrobe intends to keep investors updated through:
Third Party Advisors
Snowball Effect Fees
Snowball Effect charges an initial fee of $5,000 and a fee if a company successfully reaches its funding target. The latter fee is the larger of $25,000 or 7.5% of funds raised. Snowball Effect may amend this fee in discussions with the company before an offer is listed on Snowball Effect.
The distribution of this offer outside of New Zealand may be restricted by law. This is not intended to, and does not, constitute an offer of securities in any place which, or to any person to whom, the making of such offer would not be lawful under the laws of any jurisdiction outside New Zealand. This includes, but is not in any way limited to, Australia and the United States. It is the responsibility of any Snowball Investor to ensure compliance with all laws of any country outside New Zealand relevant to their subscription, and any such Snowball Investor should consult their professional advisers as to whether any governmental or other consents are required, or other formalities need to be observed to enable them to apply for securities pursuant to each offer. The failure to comply with any applicable restrictions may constitute a violation of securities law in those jurisdictions. The securities in each offer have not been and will not be registered under the US Securities Act or the securities laws of any state of the United States.
It's crucial for you to understand the characteristics and risks of this investment opportunity. New Zealand law normally requires people who offer financial products to provide in-depth information to investors before they invest. The usual rules do not apply to offers by companies through Snowball Effect. As a result, you may not be given all the information you need to make an informed decision. Investing is risky. Some of the key risks include loss of capital, illiquidity, lack of returns, dilution, loss of key people and customers, and lack of control. You should only invest money that you can afford to lose.