Thrift+
Thrift+ (on Seedrs)
Thrift+ is a clothing donation service and online charity retailer. Thrift is raising £1.3m in new equity at a pre-money valuation of £14m.
Company Profile
Established and operating in UK, Thrift+ allows individuals and brands sell unwanted clothing items while also raising funds for their chosen charities. There are upwards of 150,000 charities in UK that do not operate high street shops and Thrift+ appears to be connected with less than 10% of that universe (12,000 charities) which possibly somewhat undermines the giving proposition.
The continuing cost of living crisis, societal backlash against fast fashion and towards ‘circular’ fashion, and an increasing number of consumers wanting to shop more sustainably and ethically, all provides a supportive macro environment for Thrift+ to build its business. The European Environment Agency estimates that less than 1% of all clothing worldwide is recycled and Oxfam estimates that 1.7 million sequin items were thrown out after the Christmas party season! So, on the surface at least, Thrift+ seems well placed to capitalise on this retail fashion zeitgeist. Let’s look a little further.
Thrift+ has been developing its business model for several years. Originally, Joe Metcalfe, Thrift’s CEO, launched a click & collect app for high street charity shops in 2014 called Charity Street. It is unclear what, if any, progress Charity Street made before that business closed/pivoted in 2017 to launch Thrift+. To date, Thrift+ has sold over 500,000 items of used clothing and raised £1.5m in donations for some 2,000 nominated charities in UK.
Thrift+ offers an online shopping marketplace exclusively for second hand clothing. As such, Thrift is not new a new idea, in fact it operates in quite a crowded marketplace where in addition to the well-established channels like eBay and Depop, there are multiple second hand clothing marketplaces like Vinted (vinted.co.uk), Thriftify (thriftify.ie),Reflaunt (reflaunt.com) and Recurate (recurate.com ) and Nuw (thenuwardrobe.com) who are all seeking to monetise broadly the same market opportunity.
How does it work?
The process starts with a request for a pre-paid postage Thriftbag which can be returned to Thrift with any unwanted clothing to be (potentially) offered for sale. Thrift inspects, sorts, photographs and uploads any acceptable items (but only from certain brands and items of sufficient quality and condition) to its website for sale. If an item is sold the client gets paid the selling price after deduction of Thrift’s listing fee (a flat £3.75 per item),Thrift’s commission (35% of the item sale value) and any charitable donation the client may stipulate.
In addition to selling clothes for individual clients, Thrift has also had some good success in developing partnerships with major brands and retailers to offer a fashion ‘take back service’. A total of 20 partnerships have been announced to date including with Oasis, Gymshark, ASOS, The White Company and Karen Millen. This service works in the same way with customers of those brands requesting a Thriftbag and using it to return that brand’s clothing to Thrift for resale and then receive cash or credit to be used on the Thrift+ platform for any sales.
Commentary
Company Performance
In 2022 Thrift is forecasting Gross Merchandising Revenue of £5m and generating a net loss of £3.4m due principally to a high level of corporate overhead (c.£3.1m). Thrift aims to double Revenues to £10.9m in 2023 but still generating a net loss of £1.5m.
It’s hard to get behind this overhead figure with the limited information provided but we would guess that the staffing requirement and manual process of clothing inspection, photographing, uploading and generally handling garments is a big contributor.
While Thrift have shown consistent quarterly revenue growth, the business has been consistently loss making and is only projected to breakeven in 2024. Thrift has ‘recirculated’ c.500,000 items of clothing to date which with a Gross Sale Value of .£8.1m implying an average sale price per item of £16.20 and an average fee including commission to Thrift of c.£8.15 per item.
In April 2020 we understand that Thrift had 6 staff uploading up to 10,000 items each month implying 83 items/person/day or c.6 mins per item (receive, inspect, photograph, upload etc). This has been improved to a current estimated processing time of c.4 minutes per item which still seems to be very high and indicates a still heavily manual process with limited automation. Although Thrift talks about using technology to automate and improve operational efficiencies until this happens the manual processing will likely be a major limiting factor on growth. Unless Thrift can go more upmarket in terms of product profile to get its average unit sales price up and get its processing time per item down, I believe that it will be difficult to reach critical mass and profitability and will likely require significant additional new funds to be raised to defray ongoing operational losses.
Thrift can have up to 400,000 items of clothing on its website at any given time which illustrates the logistical challenges it will face as it looks to scale up its business and grow revenues as forecast by some 1200% over the next four years. This challenge should not be underestimated.
The Raise
Since it commenced operations in 2017 Thrift has raised close to £7m in equity in seven previous fundraisings and is now looking to raise an additional £1.3m at a pre-money valuation of £14m.There is no justification presented for this valuation and based on the current financial profile and operations of the business, seems aggressive and well above the single digit millions valuation we would advocate. The fact that the business has operated for 6 years, has raised considerable equity and is still sub-scale and heavily loss making, highlights a real risk of continuing dilution for investors before Thrift becomes meaningfully cash flow positive. The funds raised will be used in part to build out a technology solution to improve Thrift’s processing efficiency. Funds will also be used to expand its fashion partnerships and to overhaul the Thrift brand which we suggest seems to be less of an imperative than building a true technology platform.
Positives
- Highly experienced management team with successful track record
- Strong monthly recurring revenue
- Large social media following
- Good geographic spread of users
- No debt in the business
- Strong partnerships delivering incremental business at low cost
Negatives
- Valuation is on the high side
- Low scale potential
- Low barriers to entry for competitors
- Low industry growth rates
- Heavily reliant on one big supplier
- High churn rate of customers
- Market in decline
Our Conclusion
Our Take
Although it’s an online marketplace, Thrift physically receives, inspects, uploads and despatches clothing and holds very considerable physical inventory, which means it is actually more akin to a brick-and-mortar business with a limited tech play. This has implications for scalability of the Thrift business as well as the attractiveness of the company to potential future acquirors.
Without developing a tech solution to improve its clothing handling and logistics, we think Thrift may struggle to achieve its target scale and the prospects of a trade sale in 3-5 years generating a meaningful return for equity investors may be challenging. Furthermore, it seems improbable that another platform or brand would acquire Thrift without it having a real operational technology platform in order to scale and trade profitably.
Thrift has been successful in launching partnerships with well-known brands and retailers and currently has more than 20 live and with a strong pipeline for 2023.Time will tell whether these partnerships will drive real growth and value for Thrift or are they more about marketing and greenwashing the credentials of the various brand partners? If these partnerships are genuine commercial relationships they could add considerably to Thrift’s value proposition and we would be excited about the prospects for Thrift’s growth if the operations and logistics become more automated.
ECF Scorecard
- Strength of the Management Team (Score out of 30):
- Size of the Opportunity (Score out of 25):
- Nature of Product/Technology (Score out of 15):
- Competitive Environment (Score out of 10):
- Marketing/Sales Channels/Partnerships (Score out of 10):
- Need for Additional Investment (Score out of 5):
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FINAL SCORE: XX
