In April 2021 one of the biggest British retail success stories of the decade, Made.com, announced that it had signed a deal to more than double the size of its warehouse space. The press release was celebratory. The online furniture retailer – beloved by millennials for its clean, mid-century inspired cabinets and affordable velvet sofas – was expanding after a big jump in demand during the pandemic. Compact desk sales had risen 600 per cent as people adapted to working from home and another 350,000 sq ft of warehouse space was needed. The announcement, however, marked the beginning of the end for the company.
Eighteen months later everything had changed. Made’s chief executive, Philippe Chainieux, had departed suddenly in February for “family reasons”. The company had been forced to issue three profit warnings and then, on 9 November, it fell into administration. What remains of the company – its brand, web addresses and other intellectual property – was bought in a pre-pack administration, a quick sale of assets, by its rival Next for just £3.4m.
The collapse is astonishing for a company that, just a year ago, was valued at £775m when it floated on the London Stock Exchange. Chainieux hailed its initial public offering (IPO) as an “exciting milestone” but it masked disagreements among the company’s founders and over-confidence in the resilience of its customer base, supply chains and, ultimately, business model.
Two weeks ago, when rumours of Made’s imminent demise began to swirl, Brent Hoberman, a former chairman and board member, who was also one of its co-founders, vented on LinkedIn. Hoberman’s profile on the social network lists him as the co-founder of 20 businesses, and former non-executive roles for the Economist, the Guardian and TalkTalk; he is best known, however, for co-founding LastMinute.com, the travel website that floated on the stock market at the height of the dot-com boom, and whose shares fell 95 per cent before it was sold for $1.1bn in 2005.
It was that experience, wrote Hoberman, that led him to step down from the board of Made.com when talk of an IPO began. “I was wary of the public company journey should markets become volatile,” he wrote. “I didn’t want to ride a rollercoaster like that, when I would have no control and minimal equity… I had advocated a strategic sale.”
He bemoaned the company’s transformation in recent months from a business model that focused on “minimal stock and wastage” to one that was “more similar to other retailers”. Made’s low-waste, “just-in-time” model had been the key to its early success. While other retailers sold stock, it sold designs that were only produced once enough customers had placed orders for them. Lead times were weeks or even months, but this actually helped to sell the designs to younger buyers who liked to think of their spending as more thoughtful and it kept overheads low.
Things changed during the pandemic, when people were stuck at home confronted by their tired old furniture. “During Covid they saw a big increase in sales as people basically focused more on their homes,” says Jonathan De Mello, a retail analyst. “Made saw massively ramped-up sales, and profits as a result.”
Made’s annual report showed revenue had risen from £212m in 2019 to £247m in 2020 and £372m in 2021. But as orders surged, the company had a problem. As it proudly proclaimed in its marketing material it worked with over 200 factories – and for each one it was a relatively small customer. Because of that, none of its suppliers prioritised its orders. When the supply chain crises of the pandemic hit, its customers’ orders were at the back of the queue. Wait times increased and complaints about quality filled social media.
That’s when the company made its crucial mistake. By increasing warehouse space and filling it with stock, it could ship items to customers at speed, but it also increased its costs dramatically at the very moment that the price of everything else was rising precipitously. Freight costs had risen from £8.2m to £45.3m between 2020 and 2021; salaries had risen from £24.5m to £30.3m; the average cost of warehouse space rose 8.4 per cent between 2021 and 2022, according to Savills – and then there was the spike in energy costs that began in late 2021.
Steve Robinson, founder of the retail consultancy Omnicommerce, explained: “Their average order value is £246, their gross profit per order is £97, their fulfilment cost per order is £45… with a difference between contribution and marketing costs of only £14 per order, there is not much leeway, and in the first six months of 2022 this £14 was completely wiped out by further macro-economic cost factors.”
By buying more warehouse space, Made was essentially saying that it expected the surge in customers it experienced during the pandemic to last forever, says De Mello. “Furniture is not like fashion, where you buy it every few months, or food, which you buy every week. Once people had appointed their homes with Made.com products, they didn’t need to do that again,” he says. “Thinking that what happened in Covid would continue into 2022, 2023, was a big mistake. Their demand modelling must have been all over the place that they thought that they were going to see the same returns in the following years.”
On Monday morning Ning Li, another of the company’s co-founders, who was its chief executive until 2017, wrote an emotional letter to “my dearest staff at Made.com”. “I had many sleepless nights in the last month, watching the company I loved building on its last legs,” he wrote, before detailing his attempts to raise money to buy the business back. “My plan would be to… run a smaller – but profitable – business. My plan proposed to the board was to keep at least 100 jobs… and honour all the orders of undelivered customers. It just felt like the right thing to do to me.”
Unfortunately for Made’s customers and workers, Next looks unlikely to preserve many – or, indeed, any – of its 573 workers’ jobs, and about 12,000 customers who put in orders some months ago will not get either their furniture or a refund. Made.com’s fate shows just how badly the market was skewed during the pandemic – and that in many situations companies that looked liked the biggest winners were only making short-term gains. As businesses and economies continue the long recovery, Made.com is unlikely to be the only casualty of this optimism.
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