Maybe we need to talk to David Whitcroft, our Senior Vice President of Finance and Operations. Who's that?. Exactly. It's one of the little nuggets of information I found on the kickfurther website a while back. There was a lengthy conference call transcript on the site that I've basically taken as the defacto financial statement for the year. I will cut and paste the conversation at the end of this. Maybe if they added a Chief Operating Officer and a few more upper management types we might see some results. Note my sarcasm. I didn't know they could afford a SVP of Finance when they are still looking to fill roles with unpaid interns.
Conference Call Transcript
Ben Macpherson: I’m the CEO. I’ve been involved with the business since 2009 [inaudible]. My History is in retail, publishing, and technology primarily. I have a strong passion for apparel and lifestyle products and have extensive experience I guess in direct marketing, e-commerce, and retail.
Ben: So the business was originally founded in Australia, we relocated to the U.S in, at the end of 2014. A short bit of history in relation to this P.O, which will bleed into a little bit of a background about how we’re distributed, sales growth, projected growth, etc.
Ben: So P.O is our second Kickfurther co-op and we’re delighted to be able undertake this co-op again, which is terrific. As many of you know by reading the comments and the information that there was issues with the second co-op around some information that wasn’t correct, really just due to some timing conflicts along with the upgrade Kickfurther was making. We just felt it prudent that information be correct and clear even though we corrected some of that in the comments.
Ben: So we pulled the co-op down and relaunched the co-op yesterday. You know we’re very happy to be back here. Our past co-op was a much smaller amount at twenty-five thousand. We paid it out a little early. One and a half months early because we sold our inventory quicker than we forecasted and were able to pay the co-op out, so it was great we were very, very happy with that.
Ben: The background, as I mentioned we started in Australia, the business and the business model was originally founded as an online only e-commerce model in 2009 in Australia. Just globally 2009 was pretty early on in the physical goods, apparel, e-commerce space. We grew the business really nicely but were looking for ways to grow into the international markets and the U.S predominantly. We were testing different means of online customer acquisition and found that it was very expensive to acquire customers in the U.S because the lack of brand awareness and general awareness in the U.S. We undertook a wholesale distribution program to distribute through leading retailers to help provide that brand awareness and then eventually migrate those customers who purchased in store, to online. That was very successful, we undertook, we launched it with the world’s premier luxury good retailer online [inaudible] and then we rolled out to Nordstrom, [inaudible] and about 350 to 400 retailers around the world.
Ben: That helped us grow our e-commerce business in the United States and sales went from about 15% to now about 60-70% overall and now accelerating, we think they will be at about 90% by the end of February. Now that we’ve grown the brand and the business, along with the awareness, we have started to pull back on the wholesale distribution, really just so we can focus our resources and energies just on our e-commerce efforts. They are significantly higher margins and we build a more engaged, date driven relationship with our customers, and we can build a sustainable business without having to be condemned by what the retail partner may or may not do, depending on their market conditions.
Ben: Prior, we were funding, well let me just start saying that year in sales are now up 55%, which is great. What is more impressive and I guess pleasing for us is that sales increase is based on essentially being underfunded for our inventory, had we had the inventory that we could have had, or could have sold I should say, sales would have been significantly higher based on some calculations we have done, incorporating request rates for products, conversion rates from online, and two or three other factors, we think we could have been up 200 or 300% year-on-year.
Ben: But that’s all good news, it’s not great news that we haven’t been able to achieve that growth because we didn’t have the inventory, but it’s good that we know the demand is there.
Ben: so when we did the last co-op and were able to pay that out earlier, we elected to do a larger co-op to really to satisfy more of that demand. Historically we have been financing our inventory through some trade funding that was associated with our wholesale business. It was extremely expensive and cumbersome to use and really made the process of ordering product, delivering product in a timely fashion and on a continual basis, very clunky. We were finding that it was conflicting with the direction of the business and the business model that were really honing in on. That is the continual delivery of new product monthly, and eventually weekly to strive to continue to get that repeat traffic to Banjo & Matilda and drive additional sales. Whereas the traditional model under the trade finance scenario where we’re running...
[Recording Gap 6:54 - 7:18]
Ben: The product and the P.O itself is made up of our core selling products. The products we have now, in most cases have 7 years of history selling and remain to continue to be best selling items for us. The products are luxury. It’s quality cashmere produced in artisan factories. Many of the other goods are produced with sophisticated yarns, taken from farmers in Mongolia, where 98% of the world’s cashmere is produced. They are exported to an Italian mill and then the yarn is reimported back into China, where they have some of the most sophisticated manufacturing facilities and capabilities in the world. Everything is manufactured with a low cost labor base and high degree of computer automation, hand finished, and then delivered with a result of being a comparable product to an item that would be three times as much. Same yarn, same quality finishing but in a more relaxed, Banjo & Matilda branding and style.
Ben: One proposition for us in terms of our core product and the reason why it’s such a great seller is because it’s a great quality product at a really accessible price point. The second is that we got a very loyal customer base who keeps rebuying products. We have new customers acquiring and coming onboard continuously and the style of the products is very applicable to the current trend which is a much more casual approach to fashion. Cashmere sweatpants [inaudible] of a classic track suit, it’s luxurious and casual all at 100% cashmere. Our long sleeve roll tees are 100% cashmere, five grade cashmere, really casual and are great for busy women who are running from the school drop off, to work, then finally to a dinner, or their wearing a cashmere sweater with jeans or cashmere tracksuit pants with a tee-shirt, it’s pretty versatile. Typically when people make that investment of a few hundred dollars, they know they’re going to get a lot of good wear out of it.
Ben: Not sure what else I can tell you about the business, i’m trying to speak through to be as efficient as possible but i’m very happy to answer any questions. I’m not viewing the screen where the questions may be asked online, but Keeton I think will ask those questions and ask us to comment so i’m not sure whether there is any of those there yet or if anyone else has any other questions.
Keeton: Well, I can say that there aren’t any in the chat at this point but I have received three questions from Kickfurther community members to my email who aren’t able to attend.
Keeton: So the first question is how often do you intend to update your backers?
Ben: We have a very proactive approach to updating our backers. Communication is important. I think from our last co-op you will see that we were, that we frequently updated our backers. We did several major updates and then continuously monitored comments and provided answers as needed. We gave a couple other smaller updates over the course of how long the co-op was for and I think we did every two weeks and will maintain that schedule.
Keeton: Alright thank you. Now the other question is two tiered , so have you ever had any issues with receiving your inventory from the manufacturer, and if so what steps have you taken to prevent this from happening again?
Ben: Yeah well David can dig in here. I’ll give the topline but David can give more detail as it is a relevant question and it’s important to answer thoroughly. So the Supply chain and manufacturing partners have now been in place since really the founding of the business. We have worked with over 30 manufacturers over the years and continue to work with 2 main manufacturers whom we have worked with since the start. So the first thing is we have very good, reliable manufacturing partners. The second is that we are very close to the manufacturing process. We know and continually monitor the manufacturing so we know exactly the status of the manufacturing, when the yard has been received, going on the production line, knitting, any particular issues. We’re essentially overseeing the production, albeit remotely, from the U.S and then finally before the goods are sent we have a quality assurance inspection, and that’s a full standard inspection where everything is measured and checked, so that we know what we receiving is what we ordered. Now we have certainly had issues in the past, going back sometime ago, and were sort of ironing out the kinks of our supply chain. We’ve never lost a shipment, we have never not received a shipment, we have had delays, we have had faulty product that needed to be replaced at the manufacturer's cost. These have all been very minor instances. In overall product purchase, it has been probably less than 2% but David can give you more information there.
Ben: David, have we had, in the last twenty four months let’s say, what is our error rate of in terms of delivery time, and quality?
David: Overall the QC checks have seen a less than 2% error rate and in those cases the factory works to remedy, which does add a delay, but it’s not materially an issue, it’s not on a large enough sample to slow us back or cause any issues. We haven’t had any styles that have been defective and we haven’t had any delays that have been outside of our tolerance, so we factor in up to a week of delays mostly around customs clearance shipping and freight delays. However, the scope of worse case scenario has a maximum delay of 48 hours but generally the factory has been excellent in delivering on time, with the correct quantities, we do have a tolerance + or - 5% but generally wouldn’t get anywhere near + or - 5% per style or for a whole delivery.
Keeton: Alright thank you for answering. Now we do have two more that have come up in the chat. I’m going to ask those at this point, the first one is and I’m going to read it verbatim is , also any chance of early payment again this time around?
Ben: Well we are correctly incentivised to pay early. The quicker we can turn over the capital on the inventory, the better. We’re now running at twice the e-commerce since when we first started looking at Kickfurther and we have a lot of capacity to absorb inventory so our goal will be to turn the inventory over as quickly as possible and finance more through Kickfurther, because we find it's an efficient way to raise, trade finance at a reasonably and efficient cost. But that being said, we never want to promise something or over promise something that we don’t deliver. We will obviously maintain the schedule at a minimum and assuming sales continue to perform the way they do then hopefully we will pay out early. For now we just like people to assume that we will pay out stated in the schedule.
Keeton: Now this was actually asked beforehand and I missed it so i’m going to address it at this point. One of the users wanted to know if you could speak to the size of the co-op this time around and he asked why such a large co-op compared to the first time around.
Ben: Well I think I answered that question a little bit earlier and we can provide some more technical information this time around. But the real reason is because when we did the first co-op, we ideally would of liked to and could have supported a much higher co-op than at the time. We tested the waters with the co-op just to see how it went and we were pleased with it and so we’re really doing a co-op that is half or a little under half of what we could absorb in inventory. So from our perspective the size is still a lot less than we can absorb. Bearing in mind we got a $2.5 million dollar business, $25k in inventory is barely meaningful. Once we start to get to around $250k, that’s when we feel like, we start to get the numbers to really match the demand of the inventory. So that’s the reason.
Dave: I think that is a good summary, I would also point out that it is a new method and platform for this part of our offer. So the size of the initial co-op gave us a feel for how it would interact with our systems and the effect, if there would be an effect, on the production timelines. I think we were really happy with how it came together and that is reflect with the size of our second co-op.
Keeton: We do have two more things to ask, the other question the user asked is , have you considered other alternatives for inventory financing, if so what are those you have considered?
David: My initial thought on that is that it’s well number 1 it works and number 2 it's competitively priced. The cost of capital is in line or better than alternatives that are traditional alternatives. This new wave of in affect peer-to-peer connection, which is allowed or facilitated by the platform. The cost of capital is competitive and facilitated by the platform in it’s own right.
Ben:We have also looked at everything from small business loans to more extensive means. This is a more attractive option in terms of the ability to be able to raise inventory capital quickly and executed and do it in a time that’s flexible and works within our inventory requirements.
Keeton: The last question that is in the chat is, during your first co-op, you projected that your 2017 revenue would be $3.2 million, has this changed at this point in time?
Ben: No, we’re really happy with our forecast for the year and the performance is in line with our projections.
Keeton: Alright then that is really all the questions I have received.
