SKU'd: The best comedy writing of 2021 was retail's S-1s - The Entrepreneurial Way with A.I.


Thursday, December 16, 2021

SKU'd: The best comedy writing of 2021 was retail's S-1s


Kaarin Vembar is obsessed with the luxury and apparel markets. She also has a sassy mouth so her managing editor decided to give her a column in an attempt to harness insight for readers. Kaarin can be reached at [email protected].

I realized that S-1 documents were hilarious on Aug. 14, 2019. 

That was the day that We Work, i.e. We, dropped its documentation in order to go public. The paperwork was so laugh-out-loud funny that my Retail Dive colleagues ended up reading sections of it to each other. It dripped with hubris, raised questions, and presented then-CEO Adam Neumann as a type of savior. (I'm not the first writer to point out that his name is mentioned 169 times in the S-1.) It was obvious that the reality of the company was different from its own self-perception, and those documents ultimately became the catalyst to its downfall. At least for a time.

The set of paperwork companies file to go public is informative for potential investors. But, it is also a treasure trove for journalists who typically receive their first real look at a company's financial information.

And this year has been huge for IPOs in the retail sector. While 2019 and 2020 were defined by bankruptcies, going public was the surprising financial move of the year. Yet, it was boggling to understand why so many companies chose this direction, especially after reading the contents of their filings.

It caused me to ask the question many times over: Does anyone actually read these things? Because, if so, the decision to invest in a number of the companies that went public this year feels dubious at best. 

Cathaleen Chen's Business of Fashion article "Why investors don't care whether DTC brands are profitable" may sum up the mystery of this year's IPOs the best: "[D]izzying valuations reflect the allure of the central narrative of the DTC era — that these companies represent the future of consumption, and that the best of them will become the retail giants of tomorrow. A lack of profits today — or a clear idea of when and how these start-ups will eventually operate in the black — is of little concern to investors hoping to get in on the ground floor of the next Gap or Nike."

In the meantime, there are great bits in S-1s that sincerely made me laugh or cringe. But, mostly it was a bunch of placing-my-head-in-my-hands moments as I tried to comprehend the business models of some of the most buzzworthy retailers in the game. 

I also acknowledge that the "risk factors" section of S-1s (of which I'm a big fan) must be taken with a grain of salt. That section is full of juicy tidbits of what may cause a company to flop, and is necessary to educate potential investors and ultimately protect a company against any lawsuits if the company doesn't perform. It's kind of like if you were starting to date a new person and had to report to the SEC each and every way your relationship could possibly end up in flames. If you put too much focus on it you would never date. If too much weight is given to this section no one would ever invest.

But still, that section of the filing gives a framework to help us better understand a company's operations. Especially when it is of the, "we have never made money and we may never make money — and by the way we only have one fulfillment center. I don't know what to tell you" variety. 

With that, here are some moments from four different S-1 filings that made me pause and laugh. Or do a double take. Or some that were just plain interesting. I'm also including each retailer's net sales and what its executive staff is currently being paid. That last part is only because I'm nosey. 

Honest Company

File date: April 9

What the company's S-1 has to say regarding financials: 

  • "We have incurred net losses each year since our inception and we may not be able to achieve or maintain profitability in the future."
  • Marketing costs in 2019 were $31.9 million. Marketing costs in 2020 were $44.5 million. 
  • Net loss in 2019 was $31 million. Net loss in 2020 was $14.5 million.

Regarding multiple past lawsuits: 

  • Honest Company has been the subject of litigation claiming that its labels contain inaccurate or misleading information, so it is "in the process of updating the language on certain of our labels," according to the S-1. 
  • In 2015, multiple class action lawsuits were filed against Honest Company claiming that some products, including its sunscreen, were ineffective and not natural. The brand settled those class action lawsuits by agreeing to labeling changes and a $7.4 million settlement. 
  • In 2016, multiple class action lawsuits were filed against the company saying that it misled buyers about ingredients in its laundry detergent, dish soap and multi-surface cleaner. The company settled those lawsuits by agreeing to marketing and reformulating changes and a settlement of $1.6 million.

Regarding its relationship with founder Jessica Alba: 

  • The company has an agreement with actress Jessica Alba, who founded the company, which includes a license for her likeness. Alba can terminate that agreement at any time with written notice. 
  • The company states that it has 43 million followers, but is clear that number includes Jessica Alba's 39 million followers across all her social media accounts, plus the 4 million of its own. 

Regarding operations: 

  • The company is contracted with only one distribution partner. Honest Company has warehouse fulfillment centers in Las Vegas; Fontana, California; Breinigsville, Pennsylvania and the Netherlands. They are all managed by a single distribution partner, Geodis Logistics, which provides warehousing, distribution and fulfillment services. The agreement between the companies is renewable on an annual basis and can be terminated for any reason by either side upon prior written notice.
  • Last year, Amazon accounted for around 22% of the company's revenue. The vendor agreement with Amazon states that either party may terminate the agreement with 60 days' prior written notice.

Regarding executive pay:

Name Position Total Compensation*
Nikolaos Vlahos Chief Executive Officer $6.8 million
Jessica Alba Chief Creative Officer  $2.3 million
Rick Rexing Chief Revenue Officer $1.8 million

*Compensation includes salary, bonus, option awards, non-equity incentive plan compensation and all other compensation.

Rent the Runway

File date: Oct. 4

What the company's S-1 has to say regarding financials: 

  • "We have a history of losses, and we may be unable to achieve or sustain profitability." 
  • As of July 2021, the company has an accumulated deficit of $674 million. 
  • Marketing costs in 2019 were $22.9 million. Marketing costs in 2020 were $8.1 million. 
  • Net loss in 2019 was $153.9 million. Net loss in 2020 was $171 million. 

Regarding product procurement: 

  • The company had 133,572 active subscribers in 2019, and 54,797 active subscribers in 2020. 
  • The company obtains most of its products from over 750 brand partners through its wholesale, Share by RTR, and Exclusive Designs programs with designers or manufacturing partners. 
  • Before 2018, the company purchased most of its products from brand partners, typically at a discount to wholesale costs, which the company refers to as "wholesale" items. In late 2018, the retailer began to obtain products through its Share by RTR and Exclusive Designs programs. 
  • With Share by RTR, products are acquired directly from brand partners on consignment at zero to low upfront cost and have a performance-based revenue share over time. 
  • With its Exclusive Designs programs, products are designed using Rent the Runway data in collaboration with brand partners. The company manufactures items through a third party and pays the brand partner an upfront fee with "minimal revenue share payments." 
  • For Exclusive Designs collections, brands are able to produce new product lines "at little cost to them." All of the styles are exclusive to Rent the Runway for a period of time, then businesses can monetize those products through other channels and pay Rent the Runway a royalty fee. 
  • For wholesale and Share by RTR, entering into contracts in advance of a season "requires brand partners to agree to incur costs related to manufacturing products before we have paid for it, which requires the brand partner and brands to continue to trust us."

Regarding operations: 

  • Most of the company's inbound shipments from customers are returned through a single vendor. The company is transitioning inbound shipments to multiple vendors.

Regarding data acquisition: 

  • Gathering customer data is a selling point for the company. "One of our significant differentiators is the vast amount of quality, actionable data that we are able to collect on our customers and our products." 
  • And brand partners receive a lot of that data. "For brands, we provide real-time, data-based feedback on wear rate, durability, quality, fit and customer demand on a detailed, quarterly dashboard." 
  • Rent the Runway captures more than 6,200 unique data points per subscriber per year.

Regarding executive pay: 

Name Position Total Compensation*
Jennifer Hyman Chief Executive Officer, Chair $1.7 million
Scarlett O'Sullivan Chief Financial Officer $594,315
Anushka Salinas Chief Operating Officer $812,172
Brian Donato Chief Supply Chain Officer  $638,000

*Compensation includes salary, bonus, stock awards, option awards and all other compensation.

Brilliant Earth 

File date: Aug. 30

What the company's S-1 has to say regarding its financials: 

  • "We have a history of losses, and we may be unable to sustain profitability." 
  • Marketing costs in 2019 were $57.1 million. Marketing costs in 2020 were $47.1 million.
  • Net loss in 2019 was $7.8 million. Net income in 2020 was $21.6 million.

Regarding operations: 

  • The company doesn't typically enter into long-term contracts with suppliers, and in some cases does not have formal written contracts. "[A]s such, we operate without significant contractual assurances of continued supply, pricing or access to resources." 
  • The company is dependent on turning existing shoppers into repeat customers, and that may rely on habits surrounding fine jewelry shopping changing. "Historically, consumers have been slower to adopt online shopping for fine jewelry than e-commerce offerings in other industries like consumer electronics and apparel. Transitioning the consumer in-store experience to an online platform for fine jewelry is difficult because jewelry tends to be a considered and high-value purchase that consumers like to physically see and touch before making a purchase."
  • The S-1 mentions inventory shrink. "We are subject to the risk of inventory loss or theft and we may experience higher rates of inventory shrinkage or incur increased security costs to combat inventory theft."

Regarding executive pay: 

Name Position Total Compensation*
Beth Gerstein Chief Executive Officer $611,400
Eric Grossberg Executive Chairman $611,400
Jeffrey Kuo Chief Financial Officer $480,233

*Compensation includes salary, bonus, stock awards and all other compensation.

Rue Gilt Groupe

File date: Nov. 12

What the company's S-1 has to say regarding its financials: 

  • "We have had operating losses each year since our inception, and we may not achieve or maintain profitability in the future."
  • The company's total costs have increased each year since inception, and are continuing to grow. 
  • Marketing expenses in 2019 were $31.1 million. Marketing expenses in 2020 were $29.4 million.
  • Net loss for 2019 was $15.9 million. Net loss for 2020 was $16.3 million.

Regarding inventory: 

  • If products aren't purchased at prices "sufficiently below" prices paid by other companies, Rue Gilt Groupe may have problems differentiating itself from full-price retailers. 
  • The company largely does not have the right to return unsold products to brand partners. 
  • "Nearly all of the premium and luxury brands that we offer on our sites are sold by competing retailers, and such retailers and certain brand partners have their own proprietary retail stores and/or sites that compete with us. Accordingly, there can be no assurance that any of our brand partners will continue to sell to us, or to meet our quality, style and volume requirements." 

Regarding the company's relationship with Simon: 

  • Simon Property Group invested in the company in 2019 and is one of the company's biggest stockholders. 
  • Online marketplace Shop Premium Outlets was launched in 2019. Rue Gilt Groupe is able to access Simon's entire VIP member file for marketing purposes. 
  • Rue Gilt Groupe has a trademark license agreement with Simon, and Simon has the right to terminate the company's ability to use the trademark in certain circumstances, including if Simon's ownership in shares of stock falls below a specified threshold. 
  • Rue Gilt Groupe has a non-compete with Simon that prohibits it from operating any e-commerce outlet marketplace that sells and ships outlet good to customers.

Regarding operations: 

  • The company's ability to deliver products to customers in the U.S. is dependent on a single fulfillment center in Shepherdsville, Kentucky. 
  • The company primarily relies on one major vendor for shipping. 

Regarding data acquisition: 

  • The company's membership model "allows us to track buyer behavior across multiple devices, providing [a] 360-degree personalized view of our members across all of their activities on our platform." 
  • RueLaLa, Gilt and Shop Premium Outlets are maintained as separate destinations, but the platforms share, among other things, data. 
  • Data gathered "provides insights to our brand partners that strengthens our relationships and increases the value proposition of our platform." 

Regarding executive pay: 

Name Position Total Compensation*
Mark McWeeny Chief Executive Officer $3.5 million
Lisa Rhodes President, Chief Merchandising Officer $866,319
Mark Weinberg Chief Financial Officer, Chief Operating Officer $594,897

*Compensation includes salary, stock awards, non-equity incentive compensation and all other compensation.


Kaarin Vembar, Khareem Sudlow