It is having trouble expanding for two reasons:
1) Parsi is relatively inexperienced in his role of CEO and his management team are at-will consultants who are not fully dedicated to Giggles as they have several other clients. By his own account he's raised $7M+ (including paid upfront build out costs) over the last several years. If we can safely assume the cost to open each location is $1.5M and he gets $500k paid by the mall, even factoring in the two closed locations there should be at least five or six locations. The fact we only have two is a red flag.
2) His business model involves opening locations in malls, and demanding that the mall owners pay a significant amount of the build out costs. With malls struggling, the immediate thought is that Giggles brings more foot traffic to the locations. The problem is that if those malls don't have stores people want to shop at, all the foot traffic in the world won't matter. And the malls that have stores people want to shop at may benefit slightly from an uptick in foot traffic but not enough to justify paying all or most of the build out.
Parsi needs to figure out if he wants to cater to a higher end clientele in higher end malls, and have to be more of a traditional lessee, or if he wants to put Giggles in lower quality malls and recoup more upfront money for build out, at the expense of potentially dinging Giggles' reputation as "upscale." Will people who visit the lower tier malls have the financial means to afford gourmet meals created by Spago's former chef?
3) The idea is easily replicable. This scares off a lot of big time investors.
4) Anyone who invests a significant amount of money expects to gain a significant amount of control in return. Is Parsi going to cede power to a big time investor? What if someone wants to replace him as CEO? Even if that is best for the company long term because it is his only (and immediate) shot at expanding with cheap money, would Parsi let his ego to the side and step down so that someone with more experience can navigate? I don't know if he would and in turn, a lot of larger scale investors may have reservations about giving him their money.
Nonetheless, the important thing is the future, not the past. I am optimistic that the future can be bright, but Parsi needs to expand new locations, not improve the existing ones by tweaking the menu.
AI
