TSH 22: 5 Things to learn from this billion dollar business

 Reading time, 1 min 30 seconds.

An Australian women’s fashion brand just sold a stake, valuing them at over $US1 billion. Yep, a billion.

Zimmerman, founded by sisters Nicky and Simone Zimmerman in 1991, started just like many people reading this newsletter - designing in their garage during the week, and selling at their local markets, Sydney’s Paddington Markets on the weekend.

After gaining a following at the markets, and some press in Australian Vogue, they opened their first store, in the suburb of Darlinghurst, not far from their initial market location, which they kept running, along with the store for two years.

Let’s stop there for a moment.

Women’s fashion is the most lucrative retail business in the world, particularly for online sellers. In my experience working with many different categories, women’s fashion ranks number one in terms of accumulated sales across the clients.

It is however, also the most saturated, and competitive. It seems like one in five online businesses starting out, are having a crack at women’s fashion.

 If you want to start a women’s fashion brand, it’s important to remember that you have basically zero chance of creating a new idea, so I remind you, that it is important to find a better idea.

Zimmerman’s better idea was to “fuse fashion with swimwear.”

They weren’t the first to design women’s fashion, and they won’t be the last, but they did have a point of difference, they did have that better idea.

Fast forward to 2023 and Zimmerman sold a stake in their business for more than $US1 billion. 

Here are five things we can learn from the Zimmerman deal:

1. Net profits of 30% are achievable in retail

 I see this time and time again, a 30% profit, particularly in fashion is possible, but very unlikely if you’re continuously discounting or starting with a gross profit margin of under 50%. If you refer to my 50/30/20 rule, I provide a guide on how to get to that magic 20% net profit. If I had to guess, I would say that Zimmerman’s ratios would be closer to 60% gross profit, 30% operating expenses, 30% net profit.

2. When it comes to selling your business, net profit is still the most desirable

We can see that the valuation of Zimmerman was based on a 14 x multiple of net profit - an incredible result but a safe one for the buyer, who can see that this is a business that can pay them back and then some over time.

3. The business has an omni channel approach, with 58 stores, an ecommerce business and a wholesale presence

Omni channel retail is alive and well. Zimmerman provides this concept largely across the US and Australia, once again proving that it doesn’t need to be bricks and mortar or online, it can be both. Having physical stores can drive incremental sales, and increase brand awareness and strength.

 4. It’s crucial to have a better idea

Zimmerman had, and still has a thing.  They are swimwear meets fashion meets resort wear - and they were absolute pioneers. This proves that even in the hyper competitive world of women’s fashion, you can stand out, maybe not with a new idea, but a better idea, and if you do, your chances of success increase exponentially.

5. Ecommerce represents huge growth opportunities

When you sell a stake in your business, it’s often not to get an enormous payout (although I’m sure the Zimmerman sisters did), it’s often to further grow your business. In this case, new investor, Advent, has said that much of the investment coming from the new funds will go towards improving their distribution network, and boosting their ecommerce business.

So there you have it. An Australian fashion brand starting from humble beginnings, just like many of you reading this, has achieved a valuation of over one billion US dollars, following much of what I talk about:

1. Get a better idea, if not a new idea and - give your customers a reason to choose you
2. Focus on profits. I don’t care what anyone says, profitable business sell for the big bucks
3. Create a brand that lasts for the ages, not a pump and dump brand based on Facebook ads
4. More money into product development, less into ads
5. It’s possible to start a side hustle that takes over the world

Until next week,

Paul

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