Making $50m Flipping Lulu's

🧠 The Takeaways

Today we’re preparing for a stalking horse bid of Lulu’s to flip it out of it’s inevitable bankruptcy.

1. Kill off the terrible product catalog that’s in a discount death spiral.

2. Get 100% laser focus on Weddings.

3. Flip it to The Black Tux or David’s Bridal.

+ Why you’re probably undercharging your customers.

Let’s Community - Raise Prices more Regularly

1 reason price increases is a classic PE first activity: Founders are too blinded by what previous customers were willing to pay vs. what new customers are willing to pay.

As a brand rounds out their offering:

• More social proof

• Better support/service

• Builds an ecosystem around the products

The products become inherently more valuable. More importantly, those are the value props that motivate late adopting customers to buy.

Now don’t double your prices tomorrow, but every 18-24 mos re-evaluate your pricing. With Inflation, raw material + wage changes you’re gross margins are constantly eroding.

While customers often complain about price hikes more Rev will come from new customers who are unaware of old prices.

If you can reduce your COGS while maintaining this practice that is how you create more profits for your biz.

Gross Margins RULES all.

Let’s Examine This Biz

Note: As always, none of what follows is legal, tax, investing, financial, or any other sort of advice. I’m not a current investor or affiliated with Lulu’s. And I was never here 😉.

Lulu’s, the Zillenial “Attainable Luxury” fashion brand for Bridesmaids + Wedding guests, will be bankrupt by the end of the year. Founded in 1996 as a NorCal Fashion Boutique, this early Retail -> DTC brand has been a staple of affordable women’s wear.

• Trading at $0.89/share

• $37.5m market cap

•  -98% since its 2021 IPO. 

If there were a run on Lulu’s gift cards, they’d be insolvent.

Financial Summary

TLDR Analysis: Bankruptcy watchlist within the year.

• -19% Rev growth is destroying this Online retailer. 😰

• 42% Gross Margins is too low for a public fashion biz. 😨

• G&A as a % of Rev (26%) never can be higher than Selling/Marketing (21%) ⚰️

I’m not joking about the Gift card run. As of their Q3 2024 earnings, they have:

• $27m in current assets (excluding inventory)

• $16m in stored-value card liability

• $11.5m Revolving Credit Line (Aka Revolver)

• $5.7m in current lease liabilities

If there’s a run on their gift cards it could trigger their Revolver, and they’d be insolvent.

Let’s Fix This Biz!

Here are the 3 ways I’d harvest any remaining value from Lulu’s.

1) Give Up the Low-Cost Market

Temu + Abercrombie devoured Lulu’s lunch, coming in at lower prices + higher volumes. 

Lulu’s took too long to move upmarket.

There’s no way a U.S. apparel biz is making any money on 70%+ off offers or <$15 apparel pieces.

Lulu’s needs to dump the bottom 80% of its catalog in the cheapest way possible. 

With ~75k products, it has so many losers on the books that the fulfillment + selling costs are becoming more expensive than the capital laid out for the inventory.

Takeaway: Never be the cheapest option unless you have 10x the scale.

2) Build the Bridal Style Service

The greatest mistake Lulu’s made was trying to expand into every women’s fashion category. They're known for being the place to get a Bridesmaid/Wedding Guest outfit. 

You don’t need to buy pajamas from where you got your Bachelorette weekend jumper.

They need to bet the farm on the Wedding model. 

Women spend SOOOOO much money on outfits related to their wedding. So much.

Lulu’s should build Wedding Outfit Central where Brides + Bridal parties buy outfits for:

1. Engagement Photos

2. Engagement Parties

3. Bachelorette Parties (so many matching outfits)

4. Bridal Showers

5. Wedding Welcome Dinner/Drinks

6. Wedding Gown (+ Bridesmaids)

7. Wedding Party Outfits

The bride makes the style decision on ALL of these purchases. 

Lulu’s needs to channel the Black Tux and make the bride the purchase choke point to buy everything for the bridal party from Lulu’s.

Everyone submits their size and preferences then buys everything for the entire wedding.

This can start with a “Wedding stylist + a Pinterest board.” They can explode their CAC and make way more money because the AOV on $10k worth of wedding apparel (+ Footwear, jewelry etc).

Plus, a bridesmaid today may be a bride tomorrow.

Takeaway: Exhaust your core market. Avoid becoming the “everything” store.

3) Flip what’s left to The Black Tux or David’s Bridal

Either:

A) The Black Tux should Reverse Merge with Lulu’s and become a public biz

B) Lulu’s should sell itself to David’s Bridal.

Option A) The Black Tux Reverse Merger

Essentially The Black Tux goes public by merging with Lulu’s. The Black Tux’s financials aren’t public, but from how frequently I’ve used them over the last 5 years and how much money my network’s spent, they must be doing well.

Why they’d do this:

1. Lulu’s gets a profitable men’s biz to cross-sell into their female audience.

2. The Black Tux rolls out their focused model to Lulu’s customer group.

3. The Black Tux goes public + adds the better customer demo (women) to their biz.

Option B) David’s Bridal Acquisition

I like the brand match less here, but David’s Bridal is what Lulu’s end state looks like. 

Bridal/wedding focused, covering all the key wedding purchase categories with big retail distribution (195 locations).

David’s Bridal would remain the “older” brand, and Lulu’s would be the “cool new” brand in the portfolio dominating the Wedding and Prom Apparel market.

Either way Lulu’s needs a new home and focus.

Takeaway: Accelerate faster with the right partners.

Final Thought

No offense to Lulu’s CEO, but this is why the Finance Nerds/Bean Counters shouldn’t be running brands. 

They can be essential COO/CFOs, but great brands (especially fashion) come down to great taste + bold bets.

Not balancing the books.

Everything about Lulu’s screams “diversify and optimize!”

Which they did very well. Right into their graves. It’s sad to see. 

Lulu’s has been around since 1996 + was an early eCom player (fully online in 2008).

It’s a common mistake too many brands make. They believe once they’ve gone public, they need the finance person in charge to talk to “the street.” 

When really, they need a visionary to make the bold bets through hard times.

It’s too late now. Lulu’s is stuck in a position you can’t crawl out of.