The rapid collapse of Made.com has raised eyebrows across the retail sector. Retail Week delves into what went wrong, where the money went and what the fate of the business could be

Made.com bookcase

Made.com ‘got caught with massive inventory at just the wrong time’, says co-founder Brent Hoberman

On November 1, Made.com came undone. In less than 18 months, the millennial homeware hotspot has gone from raising £775m in a highly publicised IPO to collapsing into administration

The collapse of the brand has raised eyebrows – and questions – from the wider industry, sector onlookers and even its co-founder. So what went wrong? Where did the money go? And what might happen next?

What happened? 

In short: a perfect storm. When Made.com launched, it had an inventory-light, just-in-time model, which allowed it to keep costs low. 

“There was nothing obviously wrong with the proposition,” says Investec equity analyst for retail Ben Hunt.

“They had seen healthy sales growth and relatively stable gross margins leading up and in to the pandemic. They had healthy customer growth in both the UK and Europe.” 

The homewares boom over the pandemic supercharged growth. The retailer expanded its range and broke into trendy new lifestyle categories, including concrete office stationery and dog teepees.

Freight costs and the supply chain crisis at the back end of 2021 hit the business hard. According to Freightos, costs on some freight lanes into northern Europe increased 400% on pre-pandemic levels and remain at similar levels today.

“They just didn’t have the balance sheet to withstand the perfect storm that came their way”

Ben Hunt, Investec

Shoppers then became concerned with lengthy lead times and conversions took a hit, making the model hard to justify.

Made then invested in warehousing and inventory right before the homeware boom quietened and, according to Savills, warehousing costs shot up by an average of 8.4%.

“Made got caught with massive inventory at just the wrong time,” says Made co-founder Brent Hoberman, who left the business five years prior to the IPO. 

“The model had previously always been about minimal stock and wastage. What was once a differentiated model morphed into being more similar to other retailers.” 

Demand for homewares plummeted, which, according to retail analyst Jonathan De Mello, was always on the cards: “Made had straight-line forecasting that didn’t take into account the inevitable – that we would see a decline in homeware after lockdown.

“People had spent that money on their products during that time. It’s linked to the housing market too, which also declined.”

Made was unable to withstand the downturn because it had no liquidity, which Hunt describes as an “error”.  

“It had no banking facilities; we can only assume to avoid banking fees. With no demonstrable history of profitable growth and with no sign of trade improving, the appetite to raise further money in equity markets – already burnt by poor-performing IPOs – was scant.”

When it was stuck with inventory and expensive property costs, it moved to promotions and discounts, at which point, for a business that was yet to turn a profit, it was over. 

As Hunt puts it: “They just didn’t have the balance sheet to withstand the perfect storm that came their way.”

The money

The question of Made’s capital has been a point of contention throughout its unravelling. Hoberman says there are “many questions” about how it was spent, the risks involved and its change of business model.  

As of the end of 2021, Made had £107m in the bank a retail investment director predicts that changing its business model accounts for at least 50% of that balance.

“The business went from being working-capital-negative, so it was actually a very good model from a cash perspective,” says our source

“They then decided to go working-capital-heavy. So what you saw is this sort of massive working capital swing from being a negative business to being a positive business over this period of time, so that’s eaten up at least half of the cash.”

Of the other half, they point to increased operating costs: “As demand grew over Covid, they added a lot to their overhead base because they thought it was here to stay and they invested. You also have a very significant operating loss as you’ve layered cost into a declining revenue base: marketing, head office, warehousing.” 

What will happen next?

For Made, the answer may come from another co-founder. Ning Li, who remains on the board, incorporated a new company on October 31 called Made Notting Hill. The company lists him as the sole director and shareholder, suggesting he may intend to bid for the assets.

According to Hunt, other potential bids could come from European homeware players looking to break into the UK market such as Germany’s Westwing or Home24. But he thinks it is too much of a “red flag” for any established UK players to take on.

In the market generally, Made’s downfall is expected to be just the beginning of a bigger ecommerce crash, says an investment director. 

“There’s been an overexuberance around the disruption, growth and potential of what some of these pureplay online businesses can achieve through funding losses and chasing growth at all costs. My sense is there are going to be many more to come,”

“People are suddenly saying: ’You know what? You’ve never made any money.’ Any business today that is burning through a lot of cash and doesn’t have a strong business model will come under a lot of pressure.” 

As we add Made’s cautionary tale to the records, Hoberman delivers a reminder to businesses on a similar trajectory: “Cash is always king.”

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