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Custom menswear, where investors lose their shirt?


Custom menswear, a darling of VC over the last few years before the contraction, is challenged.

In short, as a former private equity guy, I loved the investment case. No working capital (buy shirt today, get in weeks, pay supplier in months) and an obvious value proposition (why buy off-the-rack when can go custom for a little more). I mean c’mon this is the Thomas Friedman The World Is Flat stuff they teach us in school.

On a personal level, this dynamic reduced my risk profile as I could “lean startup” without raising capital. What I learned was that this just made me lucky. I didn’t end up raising in an industry where barriers to entry and differentiation are too low to build equity value. I didn’t end up fired or working primarily to simply try and make my investors whole.

As I’ve watched our competitors lose founders, have down rounds and raise with goals that don’t return 10x. These include raising to “open more showrooms along the East Coast, invest in marketing and improve its website.” I have to wonder if anyone outside of Trunk Club (purchased by Nordstrom, tip of hat to them) has delivered real returns.

Having built hundreds of store models in private equity, I know store returns top around 3-4x over five years, even without the drag on working capital (custom has no inventory). We’re not trying to call out Alton Lane for the above objectives, but I have friends with Virginia degrees that know $12mm is a lot of capital to have raised for a few stores and a website (degree placement in photo a little much, bachelors not doctorate). I know interest rates are low and finding returns are hard, but custom shops come and go all the time, risk is high. Ask these customers about Clifton Charles (now this is a call out), get em’ ABC.

Investors wear dress shirts, they get it. Bankers wear dress shirts, so like me, they quit their jobs to open online custom shops. But then they raise money and put ads on TV. Like I see TV ads for MTailor when I am home visiting my grandparents in Indiana. This brings me to my last point. Dollar in. Dollar out.

Every startup wants to tell their investors that $1 in, means $1.75 out in 6 months or something like this. Well shipping “quality” custom shirts across the country is hard to do for $70 with a reasonable margin. My guess everyone is playing the market share game, which is great for consumers, but given no one has monetized this strategy, bad for business.

Bloomberg asked this in November 2014 headline “The $100 Custom Shirt Is Here. Does It Have Room for Profit?” And that’s at $100. We’re at $83 through verifying our clients fit up front to acheive zero returns down the road.

I love this industry because our clients are smart, they don’t fall for gimmicks, but are willing to reward differentiation with their dollar. Where will the next phase of companies find differentiation? I look forward to finding out and working with my team to position us to be it.