A few years ago, I rounded up every last penny of savings I had – and borrowed several tens of millions I didn’t – to buy my own home.
Like many before me, my budget for furnishing my new empty castle was consequently tight.
I got a mattress delivered in a box and plonked a TV on the floor. Then I went researching.
Browsing on my laptop sat on a packing box, a well-worn path for a certain kind of first-time buyer took me to Made.com.
And it was love at first… website.
The fancy furniture! The metal legs and raw wood! The stylish rugs!
All relatively affordable, attractive, and on-trend.
There was just one snag. Inconsistent reviews.
Most agreed Made’s furniture looked lovely. But while some raved and posted their favourites on Instagram, others grumbled about rattling fixtures or flimsy upholstery that didn’t last.
To be sure, it was anecdotal – and many clearly loved their wares – but I got the impression the substance didn’t always match the powerful first impression.
Everything must go
Alas, investors who bought into Made’s growth story may feel something similar today.
Because having floated on the LSE in June 2021 at a valuation of £775m, Made has gone bust, with 700 jobs unfortunately at risk and the firm’s brand names and websites sold in administration to rival Next for just £3.4m.
Even in a year when it’s been easy to lose money, such value destruction stands out.
From hopes of £1bn unicorn status to dead as a dodo in less than 18 months, the demise of Made should be remembered as a cautionary tale on the risk of betting on profitless high-growth stocks pumped up to blue-sky valuations.
And no doubt it will be – until the next frothy bull market comes along.
A reasonable purchase
At least for those who owned Made along the way, the memories may run deeper.
And that includes me, I must sheepishly admit.
I invested a small amount at £1.37 in December 2021. I thought I was bottom fishing. But as Next has since proved, you can only be sure you’re at the bottom when you buy out of bankruptcy!
Yet even with the benefit of hindsight, I’m okay with my initial decision to invest in Made.
I purchased my shares before Russia invaded Ukraine, remember – a conflict that later threw a wrench into both the recovery of global supply chains and the prospects of inflation cooling without punishing interest rate rises.
And in December Made’s management still sounded confident, reiterating guidance of 40% growth in sales and stating: “Strong growth has been achieved while maintaining marketing efficiency and delivering improving repeat order mix.”
It didn’t sound like a business in a death spiral.
Helter skelter
More questionable by far was my decision to average down at 51p in May this year.
An update earlier that month had warned of sales slowing and margin pressure continuing.
Still Made said: “The Board remains very confident in the long-term value drivers of the business.”
Management did push off an ambitious target for £1.2bn in gross sales to “beyond 2025”. But they repeatedly claimed Made was outcompeting peers.
My thesis was Made would continue to take market share and that, while in a worst-case scenario, it might require a rights issue to raise funds to navigate through the tough period – retailers always being vulnerable if suppliers start to worry about their balance sheet – it would emerge as a winner in an inevitable shift to online retail.
Yet there was no talk of any potential fundraising until August – by which point Made’s shares had fallen roughly 95%, to less than 10p.
And by then it seems investors – and soon even potential acquirers – had cold feet.
I’d had second thoughts, too, dumping my shares at 53p shortly after that top-up as the economic gloom had deepened.
Not what we ordered
Made was clearly a terrible investment for me, although it could have been worse.
Indeed, nobody who held the shares for more than a few weeks after the flotation made much if any money. Following an initial small burst of enthusiasm, it was downhill all the way.
I’m sure there’ll be some handwringing in the weeks ahead about whether we got sufficient insight into the state of the business – and perhaps even questioning of those who brought it to market.
However, I’m inclined to give management at least a little benefit of the doubt.
Business was booming at Made.com at the time of its IPO. Its customer base had grown at a 38% CAGR to 1.1 million in the five years to 2020.
Moreover, firms right across the tech sector were flying high on the fumes of 2020 that had apparently accelerated us several years into the online future.
And for what it’s worth, the IPO prospectus was festooned with risk warnings.
In good times, investors are inclined to see such risk sections as boilerplate.
But when things go bad, the warnings appear as prescient and mocking as any spurned oracles of ancient Greece.
How’s this for a sample of headings from the risk declarations in Made’s IPO prospectus?
- Made relies on third-party freight service providers, and disruptions to freight can adversely affect Made.
- Made’s business is dependent on the continued efficient operation of several warehouses.
- Made’s sourcing and logistics costs are subject to movements in the prices for raw materials and fuel as well as other factors beyond its control, and it may not be able to pass on price increases to its customers.
- Made is exposed to risks in relation to an actual or perceived decline in its creditworthiness.
- Inability to forecast business accurately could prevent Made from properly planning expenses and process capacity.
I could go on. Each followed by an explanation of what could – and in some cases did – go wrong.
We can’t say we weren’t warned.
Eyes wide shut
Many of us were wrong-footed when what had seemed like a quantum leap into the future – driven by the pandemic – turned out to be a round trip back to where we started.
Tech giants globally are now laying off tens of thousands of staff, having expanded too fast on the back of demand that isn’t there.
Just this month Meta CEO Mark Zuckerberg admitted: “I got this wrong, I apologize.”
Perhaps Made might have survived one particular reality check. But adding soaring inflation, disrupted logistics, rising interest rates, nervous consumers, and investors who’ve turned terrified of growth companies was too much.
Finally, IPOs always come with additional uncertainty.
Of course, plenty of old-line retailers have gone bust in the last few years. Buying a veteran is hardly foolproof.
Even so, a new-ish company with a new-ish business model that’s new to the market means a lot of unknowns to be found out.
And found out Made was.
Still, lovely sofas.
