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Comment by headmelted | Hacker News Reader

The most interesting part of this to me is the purchase by Boohoo.com, itself capitalising on legendary dotcom failure boo.com's branding.

It sounds very much like the parent is running a business model very similar to the "one last draw" model Warren Buffet was so successful with earlier in his career.

It might make a lot of sense for the right type of investor, too. The growth won't likely be there in the long term (minus an unlikely resurgence), but revenue will come early, meaning a fast if limited return.

I'd be interested to know what kind of revenue Nasty Gal is doing now, obviously it's not anything like $85m on a price of $20m.

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As someone who worked at Boo.com - escaping in Feb 2000 as its death become obvious to anyone, I don't think boohoo.com capitalises on boo.com - most people have never heard of boo.com..

Were I local to you (Northern Ireland, so I'm almost certainly not), I'd love to buy you a coffee and pick your brains about what that was like.

I have to say though, boohoo.com quite clearly capitalises on boo's branding and history.

In fact, if I'm not mistaken it originally mimicked the typeface and name of Ernst Malmsten's book about the boo.com story, which is kind of ironic given the circumstances.

Book:

http://t1.gstatic.com/images?q=tbn:ANd9GcTPf1rQbytroVo7SYUhV...

Boohoo logo (now):

http://www.boohoo.com/content/ebiz/boohoo/resources/images/l...

(To be fair, Boohoo have altered their branding over time but the similarities are still recognisable I think?).

I mean, yes it may have a lot of references to Boo.com but as I've never heard of Boo.com I think that your parent comment probably has some validity.

Revenue is vanity. Profit is reality.

Selling $85MM in 2014 is nifty, but fashion industry is hard. Average EBITA is maybe 10%: http://www.mckinsey.com/industries/retail/our-insights/the-s... to realize how brutal it is.

Let's piece this together...

She had 280 FTE at 2013 and got into a lease for 500k sqft warehouse: http://www.inc.com/30under30/donna-fenn/nasty-gal-sophia-amo...

At ~$60k/yr avg and we'll pretend a killer deal on the space at ~$30/sqft, half off the avg ask that year in KY http://www.loopnet.com/Louisville_Kentucky_Market-Trends, her bill was probably $31.8MM.

She also got into manufacturing. And with how much she was willing to spend, I would imagine she threw maybe $1MM here and $1MM there for that. Probably another few millions on the two B&M.

Boom, that's $40MM gone, just like that.

Smart VCs don't invest in ecommerce. The investors bought into Sophia Amoruso's narrative. The second she took the money she had to spend the money so can't blame her for that.

That warehouse must have been albatross around the neck. She thought they could repeat the $85MM high score but clearly that didn't happen; they never mentioned revenue numbers ever again.

Next year she asked for another $24MM, prob to cover for the lease and half the head count. But again, another bad year.

All the while she got distracted writing her vanity book, going on her vanity tour, rationalizing what's good for her must be good for the brand.

So 3 years in they lost $64MM just like that chasing after the dragon.

Crazy ride.

Who's got next?

Your cost, ~$60/sqft, on industrial warehouse space is off by a factor of about 10. http://www.kcrea.com/cre/louisville-ky-industrial-space-for-...

It goes for around $5-$6/SF annually.

No, in commercial real estate when you say $30/sqft it's already annualized. That's 30 / 12 = $2.5/sqft/mo. Also you're looking at listings for 10k or less, at 500k space it's a very very very different game.

Wouldn't you get a break on larger warehouses versus smaller ones?

Also, as a comparable, I'm checking out this:

https://www.houston.org/newgen/17_Commercial_Real_Estate/17C...

San Francisco (highest I could find) - is $34.32/sq foot/annually. So, applying your rule, one would pay $34/sq/foot/month. So - a typical 1500 square foot commercial office would be $51,000/month? Seems high even for San Francisco. If we instead divided by 12, $2.86/sf/month, then $4300/month for 1500 square feet seems within the realm of reason.

How certain are you that these rates are already converted into monthly values?

I found one monthly rate for Kentucky, 2,500 - 8,432 SF, $1,016 - 5,578 (Monthly).

That would be $0.40/month - $0.66/month, or, multiplied by 12, $4.80-$8/year. Right within the expected range.

Here's good comparable with monthly and annual rates (it's big, modern):

http://www.kcrea.com/listing/29969851/9101-Minor-Ln-Louisvil...

324,730 sq feet. $3.95 PSF/Annual or $106,890/month.

$106,890 * 12 = $1,282,680/year / 324730 sq feet = $3.95/year/sq foot.

And you get 35 Docks on 21 acres to boot.

I appreciate you taking the time to do this research. A great HN conttibution.

Great work. Do note that this is an NNN lease, though, which means the tenant pays property tax and operating expenses. For a new warehouse like this one, this site says these fees average 58% of the base rent: http://fgpcl.com/what-to-expect-with-triple-net

Revenue is often used as a vanity metric. On the other hand... revenue is tangible, profit is an accounting construct.

Would you elaborate? It seems the pile of money you have after paying expenses is tangible in the same way as the pile of money you receive.

In small companies 'profit' vs. the salary you pay yourself is a fuzzy concept. Pamen profitable often means everyone is taking a pay cut, but they are also not going broke.

Revenue is relatively well defined in accounting terms, although it can be fiddled with some, by booking revenue for sales that aren't going to be completed until later (which, specifically, would be illegal).

Profit is much easier to adjust in accounting terms, by delaying or advancing liabilities from the future. A common example is, if you are going to post a loss for the quarter, go ahead and throw every possible expense you can on it so that next quarter will look much better.

I recommend How to Read a Financial Report by John Tracey.

https://www.amazon.com/gp/aw/d/1118735846/ref=dbs_a_w_dp_111...

Revenue is absolute. Money either came in or it didn't. Profit is fungible because the accountants and business principals decide what counts as a cost and what counts as a surplus.

An infamous example of this is "Hollywood accounting" [0], whereby major studios spin off independent LLCs for each film project they pursue, charge these LLCs exorbitant fees for marketing, distribution, etc., and then the LLCs never post a profit. As I understand it, such structures have been used on some of the most successful film franchises of all time, including Lord of the Rings and Harry Potter. This tactic is commonly believed to be a mechanism to avoid paying royalties.

[0] https://en.wikipedia.org/wiki/Hollywood_accounting

> Revenue is absolute. Money either came in or it didn't.

That's actually quite incorrect. The way you recognize revenue and the timelines over which you recognize them are different.

Two example. One is groupon, another is more universally applicable.

So for Groupon, if you as a customer pay 10 dollars, groupon gets 5 dollars and the merchant gets 5 dollars. Groupon was recognizing 10 dollars as revenue and five dollars as cost, even though it knew it would have to pay out the 5 dollars immediately. It could have just booked 5 dollars as revenue, but chose to book 10 dollars as revenue and 5 dollars as a cost, because it made its revenue growth more impressive. (https://dealbook.nytimes.com/2011/09/23/groupon-changes-its-...).

Another example is recognizing recurring revenue. If you sign a deal for a maintenance contract for 200 bucks over 2 years, you could recognize 25 dollars every quarter, or 200 bucks in the first quarter and none for the rest.

In summary, revenue is far from absolute and can be played with like profit.

You're both right. Revenue growth within a market is absolute for a growth stage company. Profit, revenue, and profit growth are nearly meaningless until the company has stabilized.

> Revenue is absolute. Money either came in or it didn't.

Sadly nothing is that absolute. Plenty of revenue scandals out there.

A typical example of this: a large supermarket hasn't made enough money for the year, and asks its suppliers to book future sales that (very likely) will come next year as real sales now. The suppliers do this, and actually pay up, because they want to stay on good terms with the big supermarket. So the supermarket has the "absolute revenue" now, but has a hidden liability behind it.

It's not theoretical:

http://www.bbc.co.uk/news/business-37536538

"Auditors found that the inflated profit figure was the result of Tesco booking payments from suppliers before the company had been due the money."

How do supermarkets get payments from suppliers?

I thought they got paid by customers and they paid suppliers.

Shelf space, warehouse space, priority placements. The modern supermarket is like Amazon: anyone can get space, if they pay the price and hit sales numbers.

The profit is not the pile of money remaining at the end of the year. Other accounting measures (https://en.m.wikipedia.org/wiki/Cash_flow_statement) are closer to what you're thinking, but are not without issues.

They're both tangible. Another is costs. Revenue - Costs That Are Absolutely Necessary = Profit in most honest way of doing accounting. Unless it's very inefficient, profit is one of better ways of measuring one's business success. It's what you keep after all. Alternatively, if in a growth stage, it's obviously revenue and customer growth with profit sacrificed for that. Still better to be profitable most of the time.

Money in the bank is tangible. Revenue and profit are both accounting constructs.

Anyone who wants more revenue can get it. Just sell something at a loss.

It happens more often than you think! That's why - in the long run - profits matters more than revenue.

Of course in a land-grab situation the normal rules of gravity may not apply, but most businesses are not operating in a land-grab.

In your opinion, is the same thing going to happen to Stitchfix? They are nearing unicorn status but they have warehouses and they own inventory.

I agree this was very interesting especially if it really only included just the brand name and the company's customer list:

> "Nasty Gal preparing to sell its brand name and other intellectual property for $20 million"

Was any remaining inventory included? Were the social network accounts included?... It's hard to judge a $20mm deal without knowing more info. But $20mm buys a lot of ads and other marketing campaigns. Also brands that target more specific age groups often have their brand name goodwill overvalued when bought. These companies must introduce themselves to a new younger batch of customers at a much higher cycle rate, which is hard to calculate for younger companies. There is a price for a brand name and a large instagram following, but $20mm (about a dollar per instagram follower for Nasty Gal) sounds very high.

According to the bankruptcy docs, NG had about $70M in top line revenue which they were generating a loss on.

In an e-commerce business, the brand, url, and email list are the most valuable assets. Email lists are super fucking valuable, because emails convert to sales very well. No inventory was included in the deal.

BooHoo is basically going to use their existing supply and fulfillment channels to sell their inventory on NastyGal.com. Basically NG, will just be a front more boohoo.com inventory.

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