4 ms·

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/industr

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-state-of-fashion 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-amoruso-2013.html 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 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?

ghshephard 10y ago
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-lease http://www.kcrea.com/cre/louisville-ky-industrial-space-for-... It goes for around $5-$6/SF annually.
- alaskamiller 10y ago
  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.
  - ghshephard 10y ago
    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%20W005%20Industrial%20Space%20Cost%20Comparison.pdf 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.
    - ghshephard 10y ago
      Here's good comparable with monthly and annual rates (it's big, modern): http://www.kcrea.com/listing/29969851/9101-Minor-Ln-Louisville-KY-40219 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.
      - cm2012 10y ago
        I appreciate you taking the time to do this research. A great HN conttibution.
      - deleted 10y ago
        [deleted]
      - ykler 10y ago
        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 http://fgpcl.com/what-to-expect-with-triple-net
IsaacL 10y ago
Revenue is often used as a vanity metric. On the other hand... revenue is tangible, profit is an accounting construct.
- grzm 10y ago
  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.
  - Retric 10y ago
    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.
  - mcguire 10y ago
    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_1118735846 https://www.amazon.com/gp/aw/d/1118735846/ref=dbs_a_w_dp_111...
  - cookiecaper 10y ago
    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 https://en.wikipedia.org/wiki/Hollywood_accounting
sage76 10y ago
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.

ghshephard 10y ago

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-lease http://www.kcrea.com/cre/louisville-ky-industrial-space-for-... It goes for around $5-$6/SF annually.

alaskamiller 10y ago
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.
- ghshephard 10y ago
  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%20W005%20Industrial%20Space%20Cost%20Comparison.pdf 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.
  - ghshephard 10y ago
    Here's good comparable with monthly and annual rates (it's big, modern): http://www.kcrea.com/listing/29969851/9101-Minor-Ln-Louisville-KY-40219 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.
    - cm2012 10y ago
      I appreciate you taking the time to do this research. A great HN conttibution.
    - deleted 10y ago
      [deleted]
    - ykler 10y ago
      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 http://fgpcl.com/what-to-expect-with-triple-net

IsaacL 10y ago

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

grzm 10y ago
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.
- Retric 10y ago
  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.
- mcguire 10y ago
  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_1118735846 https://www.amazon.com/gp/aw/d/1118735846/ref=dbs_a_w_dp_111...
- cookiecaper 10y ago
  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 https://en.wikipedia.org/wiki/Hollywood_accounting

sage76 10y ago

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.