Factsheet Commentary : March 2021

Finally, a little light is starting to appear at the end of the tunnel, as the home nations begin their first, tentative, steps out of lockdown. Thanks to the strong progress made thus far with the UK’s vaccination programme, hospitality and entertainment venues should start to reopen soon and, perhaps, some semblance of normality will return to our everyday lives. Fingers crossed. 

As lockdown eases in the UK, retailers are likely to see an uptick in sales as shoppers return. In March, we invested in the IPO of In The Style (ITS), an online fashion retailer. Gross margins in the clothes business are decent but it is the cost of customer acquisition that kills the economics. The numbers look even worse when the acquired customer never returns after the initial purchase. It is not surprising that many fashion ventures are loss making and, after a few years of excruciating pain, eventually go out of business. 

ITS keeps customer acquisition costs low by partnering with online celebrity influencers who have many hundreds of thousands of fans on various social media platforms, such as YouTube and Instagram. These followers are ready customers – provided they are handled with delicate hands. The influencers play an active role in the design, fabric, colour and cut of the clothes that they create and then ITS executes on production and logistics. The resulting range of outfits are unique and unavailable anywhere else in the market, ruling out a price based race to the bottom. 

Crucially, there is no upfront payment made to the influencers; ITS pays them a share of realised profits – helping cash flows. This partnership model ensures that the influencers are very much incentivised to promote their products to the best of their abilities. 

ITS was started by founder Adam Frisby in 2013 (at the tender age of 26) – with £1,000 and no office. A little over seven years later and the business is now worth well over £100m. Undoubtedly, these are the kind of British success stories that we are proud of and want to invest in. 

As the UK economy begins to reopen and social gatherings are again permitted, people will want to refresh their wardrobes and we expect ITS to be a direct beneficiary of this. For the year ending 31st March 2021, we expect revenues and net income to come in at £40m and £2m respectively. Boohoo was clocking similar numbers in 2012 but now it is ITS that has the advantage of being able to grow from a relatively small base. As a fast growing company that is leveraging a brand new business model, the runway appears long for this young entrepreneur and his effervescent team.

Sterling Investments Management Ltd
Lynwood House 2-4 Crofton Road,
Orpington, England, BR6 8QE

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