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This is a very detailed s-1. The 'Our Financial Model' starting on page 84 is a great way to understand how B2C companies make money: > Our ROI calculation ass

This is a very detailed s-1. The 'Our Financial Model' starting on page 84 is a great way to understand how B2C companies make money: > Our ROI calculation assumes an average of 20 lifetime turns per unit. Based on the average lifetime turns as of June 2021 of all items we acquired in fiscal years 2015, 2016 and 2017, we have determined that an item can turn a minimum of 20 times on average over its lifetime. >When we multiply the item economics from fiscal year 2019 and the first six months of fiscal year 2021 by 20 turns, this implies total lifetime revenue of $445 and $536, respectively, and total lifetime profit of $212 and $324, respectively. >Therefore, our product ROI has improved from 4.0x to 5.9x on a revenue basis, and from 1.9x to 3.6x on a profit basis based on item economics in fiscal year 2019 and the first six months of fiscal year 2021 applied over the expected lifetime of units, respectively. We believe we have the ability to drive improvements in product ROI over time as we continue to decrease our fulfillment expenses to improve profitability per item and use more efficient product acquisition channels to reduce upfront product cost.

raman162 5y ago
I believe that this answers my original question I made in a previous comment regarding the impact on environmental fast fashion. Sounds like it's better for the environment for someone to use rent the runway versus making a purchase at H&M.
- sokoloff 5y ago
  Maybe or maybe not. Making and moving four articles to H&M, then to the consumer who might wear them 5x each is not obviously worse than making one article, moving it to Rent the Runway and then moving it twice for each of 20 wearings.
  - azinman2 5y ago
    Fashion industry produces 10% of world CO2 and consumes a ton of water in the process [1]. To get H&M pricing, you’re using extremely low pay workers which in the case of China, could easily be forced labor. You have to include the total picture to make a fair comparison. [1] https://www.worldbank.org/en/news/feature/2019/09/23/costo-moda-medio-ambiente https://www.worldbank.org/en/news/feature/2019/09/23/costo-m...
    - FireBy2024 5y ago
      Thanks for sharing that link. It really is an eye opener. Although, this number seems wrong. Is the entire fashion industry only valued at 2.4B? > The fashion industry is key for economic development: it is valued at some USD 2.4 billion globally and directly employees 75 million people throughout its value chain.
- chrisseaton 5y ago
  I've never connected the Swedish clothing scene with fast-fashion. Do people buy things at H&M and wear them just 20 times? I associate it with very slowly changing sensible basics like hoodies that I'd buy and wear for three years.
  - xeromal 5y ago
    It depends a lot on how you dress. I'm not trying to prove a stereotype, but my girlfriend will buy from H&M and maybe wear a top 3-4x. She has a ton of outfits though so she may wear those tops over several years. Me, on the other hand, bought 10 shirts from H&M of various colors and I wore them until the threads fell apart and you could see my skin. The shirts still lasted for a few years. Both of our shirts ended up lasting about the same amount of time, but were used way differently
  - mikepurvis 5y ago
    I think a lot of fast fashion is sold with the expectation that it may only be worn 2-3 times.
  - jcomis 5y ago
    H&M is quintessential fast fashion. Not every item is created with that life cycle, such as basics, but many are.
  - sailfast 5y ago
    Unfortunately things from H&M rarely last past the first 5 or 10 uses in any semblance of their original shape, size, and color (in my experience)
  - skrtskrt 5y ago
    Part of the thing with fast fashion like h&m is that their size and quality are so inconsistent you may buy 5 things and (generously) only wear 1 of them especially if you order online, and you may not even feel that it’s worth returning a couple $5-$8 t shirts. That 1 article you like, you’re lucky if it lasts a full year
hikerclimber1 5y ago
Everything is subjective. Especially laws.
hogFeast 5y ago
It is a typical example of how B2C companies interpret their own results. But this is an example of extremely bad/misleading financial modelling which has also been typical with B2C IPOs/IR...so it doesn't really reflect how they make money...because they aren't actually making any money doing this. There are, to be frank, so many errors that it would take multiple blog posts to go through...some classics from one read through: * "Product ROI - Revenue" - this will go down for me as a real DTC classic...I had to check if the CFO perhaps did stand-up comedy on the side, this is surely indicative of great comedic talent? But no, just a neck made of solid brass. * "Product ROI - Profit" - after deducting almost no costs. Again, if this company doesn't work out then the executive team should surely consider comedy. * The big issue with all these analyses is that they are very sensitive to the recent past. You are not getting a random sample of history, you are getting the sample where everything works out, and all the metrics (whether fictional or not) produce the right outcomes. That is fine, but it is worth understanding that over the long-term, it will go wrong eventually and the estimate for turn will drop significantly. So whatever number they produce sounds great but it is best case. You see this over and over (turn, churn...it is usually some measure like this that is clearly very favourable and unrepresentative). * With this company specifically, another big problem is that management controls D&A...they are saying clothes will last three years...okay...my feeling here is extreme doubt. Burberry used to literally set fire to clothes that were more than a year old...my view is that management have (somehow they convinced their auditor to go along with this) turned an immediate business cost into something they can depreciate over three years so their "financial model" doesn't look like total dog shit. Btw, you can actually back this out, I am not going to bother because I can see the "model" is unprofitable once you do this...obviously. * If I was inclined to analyse this business (I am not, it looks like a dumpster fire), I would need to really interrogate the claim of 20 turns per unit and exactly when those turns are occurring. I could be convinced this model works. But if management is depreciating over three years...all I am clear of is that management are up to something. * No deduction of marketing costs in ROI calculation? They have gone for "Product ROI"...okay but the business model depends very heavily on efficiency of marketing spend. I understand what the game is with IPOs but is this a real example of their "financial model"? No, it is fictional. * Their G&A is crazy. I don't know how this is possible (the other thing I would look carefully at would be their Linkedin, it is so large that one wonders if costs aren't also being moved here from somewhere else)...again, I understand why this isn't "Product ROI"...but they are spending huge amounts here, which really should be taken into account in any analysis. * Fulfilment is part of the model but I didn't see a real explanation for that cost. They are obviously having to clean/repair clothes but where are they in their capital cycle (this is very important for DTC because it is something the market frequently gets wrong)? It looks to me like they invested heavily pre-Covid, haven't really seen things recover...so I would guess they lever costs quite quickly on fulfilment when they recover (which is good: simply, their cap utilization is probably low so revenue can go much higher with little marginal costs...I do wonder why the selling shareholders are so generous) but, again, I would question the value of their inventory...and if they don't recover then those fulfilment costs can sink them too. Yep...so I would be cautious about reading too much into this. The stuff about "Product ROI - Revenue" and depreciation are real classics though...when you think you have seen it all, the investment bankers will continue to give (I have no idea how they got KPMG to sign off on their depreciation policy). Very generous. EDIT: would love to see more two years financials too...like that is highly, highly, highly sus...is that just the norm now (I don't do this kind of thing professionally anymore). You have to look at cash flow with these businesses to see "real" profitability, and capital is just pouring into the business with very little in the way of return...it just makes me wonder whether they weren't also losing tons of money in 2019, and realise that no-one will buy the Covid turnaround tale if they were also losing crazy money in 2019. I notice that one of the first search terms for the company name on Google is "...are they still in business?"...which isn't encouraging.
chinathrow 5y ago
> we have determined that an item can turn a minimum of 20 times on average over its lifetime. I don't understand this, can anyone help me out? Is it min or avg?

raman162 5y ago

I believe that this answers my original question I made in a previous comment regarding the impact on environmental fast fashion. Sounds like it's better for the environment for someone to use rent the runway versus making a purchase at H&M.

sokoloff 5y ago
Maybe or maybe not. Making and moving four articles to H&M, then to the consumer who might wear them 5x each is not obviously worse than making one article, moving it to Rent the Runway and then moving it twice for each of 20 wearings.
- azinman2 5y ago
  Fashion industry produces 10% of world CO2 and consumes a ton of water in the process [1]. To get H&M pricing, you’re using extremely low pay workers which in the case of China, could easily be forced labor. You have to include the total picture to make a fair comparison. [1] https://www.worldbank.org/en/news/feature/2019/09/23/costo-moda-medio-ambiente https://www.worldbank.org/en/news/feature/2019/09/23/costo-m...
  - FireBy2024 5y ago
    Thanks for sharing that link. It really is an eye opener. Although, this number seems wrong. Is the entire fashion industry only valued at 2.4B? > The fashion industry is key for economic development: it is valued at some USD 2.4 billion globally and directly employees 75 million people throughout its value chain.
chrisseaton 5y ago
I've never connected the Swedish clothing scene with fast-fashion. Do people buy things at H&M and wear them just 20 times? I associate it with very slowly changing sensible basics like hoodies that I'd buy and wear for three years.
- xeromal 5y ago
  It depends a lot on how you dress. I'm not trying to prove a stereotype, but my girlfriend will buy from H&M and maybe wear a top 3-4x. She has a ton of outfits though so she may wear those tops over several years. Me, on the other hand, bought 10 shirts from H&M of various colors and I wore them until the threads fell apart and you could see my skin. The shirts still lasted for a few years. Both of our shirts ended up lasting about the same amount of time, but were used way differently
- mikepurvis 5y ago
  I think a lot of fast fashion is sold with the expectation that it may only be worn 2-3 times.
- jcomis 5y ago
  H&M is quintessential fast fashion. Not every item is created with that life cycle, such as basics, but many are.
- sailfast 5y ago
  Unfortunately things from H&M rarely last past the first 5 or 10 uses in any semblance of their original shape, size, and color (in my experience)
- skrtskrt 5y ago
  Part of the thing with fast fashion like h&m is that their size and quality are so inconsistent you may buy 5 things and (generously) only wear 1 of them especially if you order online, and you may not even feel that it’s worth returning a couple $5-$8 t shirts. That 1 article you like, you’re lucky if it lasts a full year

hikerclimber1 5y ago

Everything is subjective. Especially laws.

hogFeast 5y ago

It is a typical example of how B2C companies interpret their own results. But this is an example of extremely bad/misleading financial modelling which has also been typical with B2C IPOs/IR...so it doesn't really reflect how they make money...because they aren't actually making any money doing this. There are, to be frank, so many errors that it would take multiple blog posts to go through...some classics from one read through: * "Product ROI - Revenue" - this will go down for me as a real DTC classic...I had to check if the CFO perhaps did stand-up comedy on the side, this is surely indicative of great comedic talent? But no, just a neck made of solid brass. * "Product ROI - Profit" - after deducting almost no costs. Again, if this company doesn't work out then the executive team should surely consider comedy. * The big issue with all these analyses is that they are very sensitive to the recent past. You are not getting a random sample of history, you are getting the sample where everything works out, and all the metrics (whether fictional or not) produce the right outcomes. That is fine, but it is worth understanding that over the long-term, it will go wrong eventually and the estimate for turn will drop significantly. So whatever number they produce sounds great but it is best case. You see this over and over (turn, churn...it is usually some measure like this that is clearly very favourable and unrepresentative). * With this company specifically, another big problem is that management controls D&A...they are saying clothes will last three years...okay...my feeling here is extreme doubt. Burberry used to literally set fire to clothes that were more than a year old...my view is that management have (somehow they convinced their auditor to go along with this) turned an immediate business cost into something they can depreciate over three years so their "financial model" doesn't look like total dog shit. Btw, you can actually back this out, I am not going to bother because I can see the "model" is unprofitable once you do this...obviously. * If I was inclined to analyse this business (I am not, it looks like a dumpster fire), I would need to really interrogate the claim of 20 turns per unit and exactly when those turns are occurring. I could be convinced this model works. But if management is depreciating over three years...all I am clear of is that management are up to something. * No deduction of marketing costs in ROI calculation? They have gone for "Product ROI"...okay but the business model depends very heavily on efficiency of marketing spend. I understand what the game is with IPOs but is this a real example of their "financial model"? No, it is fictional. * Their G&A is crazy. I don't know how this is possible (the other thing I would look carefully at would be their Linkedin, it is so large that one wonders if costs aren't also being moved here from somewhere else)...again, I understand why this isn't "Product ROI"...but they are spending huge amounts here, which really should be taken into account in any analysis. * Fulfilment is part of the model but I didn't see a real explanation for that cost. They are obviously having to clean/repair clothes but where are they in their capital cycle (this is very important for DTC because it is something the market frequently gets wrong)? It looks to me like they invested heavily pre-Covid, haven't really seen things recover...so I would guess they lever costs quite quickly on fulfilment when they recover (which is good: simply, their cap utilization is probably low so revenue can go much higher with little marginal costs...I do wonder why the selling shareholders are so generous) but, again, I would question the value of their inventory...and if they don't recover then those fulfilment costs can sink them too. Yep...so I would be cautious about reading too much into this. The stuff about "Product ROI - Revenue" and depreciation are real classics though...when you think you have seen it all, the investment bankers will continue to give (I have no idea how they got KPMG to sign off on their depreciation policy). Very generous. EDIT: would love to see more two years financials too...like that is highly, highly, highly sus...is that just the norm now (I don't do this kind of thing professionally anymore). You have to look at cash flow with these businesses to see "real" profitability, and capital is just pouring into the business with very little in the way of return...it just makes me wonder whether they weren't also losing tons of money in 2019, and realise that no-one will buy the Covid turnaround tale if they were also losing crazy money in 2019. I notice that one of the first search terms for the company name on Google is "...are they still in business?"...which isn't encouraging.

chinathrow 5y ago

> we have determined that an item can turn a minimum of 20 times on average over its lifetime. I don't understand this, can anyone help me out? Is it min or avg?