World’s Best — If you need to ask how much it is then you can’t afford it.
High end luxury items deserve a high end internet shopping experience. 10,000 dollar cutlery deserves a 10,000 dollar customer experience.
World’s Best is the crème de la crème of luxury online retail. They celebrate the best of the best when it comes to material goods and they target the 0.1–1% of the richest people in the world. They also want your money so they can grow and are raising a round on SeedInvest. The question is should you hold off on that investment in order to get a fat discount on a Patek Philippe watch when the company files chapter 11 or invest and count your dollars later?
Come with me as we explore if World’s Best would be a good investment.
Disclosure: I am not an investor in World’s Best or any affiliated companies.
World’s Best Mission:
World’s Best sets itself apart from a typical luxury online retailer like Net-A-Porter or the Bloomingdale’s online catalog by offering a concierge service or what could just be called, “excellent customer service.”
World’s Best goals are to sell the best goods with the best service in order to get their clientele to keep using the service and buying more. They are targeting the recurring online revenue of the wealthy and will bend over backwards to get it.
The Problem World’s Best Solves:
The issue with higher end online shopping is that if the product is bad or defective the customer’s money is tied up until that product is returned and the problem is resolved. In the case of high end luxury items that could be anywhere from 3000–10,000 dollars per item. If an issue arose with my 10,000 dollar watch being broken on arrival I would demand 10,000 dollars of customer service to get that issue resolved.
At present places like Net-A-Porter do not offer these types of services. In fact Net-A-Porter has a poor rating via Trust Pilot:
In fact within the first three reviews listed two of the three gave the lowest rating possible.
When we type in World’s Best then the top two reviews are the following:
The “Tony Reviewer” (Not me) is skeptical as he should be — he also raises an excellent point. World’s Best could in theory become the World’s Best at distributing counterfeit items.
There is an explicit sense of trust that needs to be given by the consumer. We immediately give that trust to a brick and mortar type store such as Neiman Marcus or Bloomingdale’s. After a few more years of sales World’s Best could win the trust of it’s consumers, but there is no room for error. Everything needs to be nearly perfect. All customer complaints need to met with outstanding service.
At the core of it’s business plan World’s Best is just a distributor of luxury goods. Since they are a distributor they have no capital expenditures such as manufacturing sites or design locations. Their overhead is smaller and they need to make enough money to cover their payroll, insurance, marketing, and their supply chain.
As a distributor World’s Best faces a problem of cash flow for the future, a relatively thin margin, and competition from their suppliers going direct to consumer. They also have to keep both their customers and their suppliers happy.
World’s Best has disclosed an un-audited balance sheet of their finances for 2015 and 2016. Let’s take a look.
I’ve outlined in red their total sales, cost of sales, and gross margin. All in all their EBITDA is about 6.5% and after taking into account the expenses they have a negative cash flow of $67,715.
With respect to cash for 2017 they also had about $116,940 in deferred revenue that helped cover their losses in 2016 and they still have $227K from financing that they can use to continue operations in 2017. But remember how much the cost of sales was in 2016? It was about $2.6 M and they only have $300K in cash going into 2017.
I don’t have an MBA, but it looks like World’s Best needs to borrow to buy more inventory to help cover their costs. This is why World’s Best needs cash.
So they lost 67k in 2016. Let’s look at their projections for 2017 and beyond.
They project that their profit will be larger than their expenses around the middle of 2019 and if we look at gross profit over gross revenue we can think of it as a 12.3% EBITDA business. Further, since their expenses are less than the profit now they have some cash that they can put away or utilize to pay off their debt faster or utilize to secure additional financing.
Their current interest rate is 5% based on a $200,000 note. I am not aware of future financing for the company, but this will probably be dependent on this SeedInvest round.
So my biggest concern on this investment is the company being able to manage cash flow.
Robert Steele is the more seasoned of the two founders and has held executive positions at PepsiCo, which gives me confidence that he will have the expertise in management of the company’s cash and debt.
Kevin Chow gives me confidence that World’s Best will be able to survive in a very competitive digital marketplace. He also appears to know his market with previous experience at JP Morgan Private Banker and interactions with high net-worth individuals.
Hurdle and Challenges for World’s Best
Aside from cash flow issues of World’s Best and the obvious hurdle is that Net-A-Porter, Neiman Marcus, or Bloomingdale’s could easily copy the World’s Best customer service model.
There is a surge into affordable luxury clothing via online shopping from brands like Everlane and Detriot Denim, but these online companies are primarily focused only on their own products. Overall there is a shift toward online only shopping experiences. Unfortunately, this makes the online market extremely competitive.
Overall it appears to me that the online capacity for consumer products is so great that the age of physical retail is on the verge of collapse. Additionally, online retailers seem to be adapting to a race to the bottom mentality with larger retailers like Amazon competing for market share.
I don’t see anything unique or any unfair advantage for World’s Best except brand and a potential loyal following of customers. These next few years will make or break the company. If they can survive the road to being cash flow positive and manage their debt properly in the event of missing a trend or seasonal merchandising missteps then it seems like a viable company to me.
Suggestions for Innovation
I think World’s Best has some potential for innovation. Exclusive deals with luxury or new luxury brands like Tom Ford or OFF WHITE could be very interesting.
It’s not that I don’t think that Tom Ford or OFF WHITE need to exit their own online retailing businesses, but allowing a distributor like World’s Best to focus on selling with an upscale concierge could allow for brands to focus on being better at product development, paying their employees more money, or upgrading the safety of their manufacturing facilities.
Invest or Not?
The minimum investment to World’s Best on SeedInvest is 500 dollars and in looking at their profits for 2016 and projected profits for 2017 and beyond I think the market cap valuation is a bit high at 6 million. I’d be more excited at a 3–4 Million valuation considering 15–20x of their yearly gross profit. Overall it appears to me that this company is at best a 2x-5x return on investment provided they can survive the next few years. I don’t think this is a Unicorn.