It’s not cheap or easy to be disruptive, but if you slip up, there might still be money to be had for a second try.
Witness the bankruptcy of Tamara Mellon Brand LLC, which was reported first on WWD.com Wednesday night. The official filings for the reorganization paint a picture of a brand that raised $24 million in 2013, but never produced real top-line traction and still found itself scraping for cash this year.
The company — which Jimmy Choo cofounder Tamara Mellon launched with the intent of “disrupting the traditional fashion calendar and supply chain” with a shop now, wear now strategy — plans to pivot with a new venture capital partner and a new, more direct path to the customer.
The company launched with a lot of buzz and a big name at the helm. But a year ago it became plain more financing was needed. Shareholders — which included Wilton Place Inc. and TM Holdings One LLC, linked with Ron Perelman’s MacAndrews & Forbes — were given the opportunity to lend money to the brand. Two existing investors and one outside party did put in more money in January with subsequent advances in May, June, September, October and November to fund payroll and pay vendors.
But the company owed roughly $4.1 million to Mellon and other lenders and sought a fresh start.
“TMB needs additional funding, however, to accomplish the brand’s goal of becoming a vertically integrated high fashion e-commerce brand and survive as a viable going concern,” the firm said in its filings. “Despite its best efforts, TMB has not been able to secure additional funding outside of Chapter 11.”
That’s because some investors have not allowed it to raise new capital that would have priority over their interests and no new money was willing to come in subordinate to the existing equity holders, according to the filings.
Thus the prepackaged bankruptcy. The company expects to pay the administrative expenses it owes and many other claims, but the term loan will be paid in cash and preferred stock of the reorganized company. The equity in the existing company will be wiped out.
Mellon was the largest shareholder in the company, holding 52 percent of its common stock as well as preferred shares.
If the reorganization plan is approved by Delaware bankruptcy court, Mellon herself will extend the company $2 million in debtor-in-possession financing for a roughly two-month tour in Chapter 11. The company that emerges will be capitalized with $12 million from New Enterprise Associates 15 LP and other lenders.
New Enterprise will own 31.1 percent of the recapitalized company. The Menlo Park, Calif.-based venture fund already has stakes in myriad companies, including Gilt Groupe, Glamsquad, Groupon, Jet.com and Moda Operandi.
Mellon will own a little more than 16 percent of the new company, plus warrants and options.
The plan to get the company to break even is aggressive, though, and calls for revenues to move from $2.4 million next year to $5.4 million in 2017 and $9.9 million in 2018. To build up those sales, the brand would spend $4.5 million of the $11 million in cash it will have on hand as it re-emerges from bankruptcy.
Tamara Mellon initially launched her own brand with an eye toward selling shoes that would traditionally cost $800 — say, the price of a pair of Jimmy Choos — for $450 by vertically integrating the supply chain. The sales of Tamara Mellon 1.0 came from a mix of tamaramellon.com and high-end online and brick-and-mortar merchants.
Now the emphasis is on going straight to the consumer. Call it the Warby Parker or Bonobos model.
“TMB believes that transitioning away from traditional retailers and concentrating on direct sales to customers via both Internet and company-operated stores will maximize TMB’s goals of shortening the design and manufacturing process, enabling it to deliver to customers the fashion they want to wear, now,” the company said in a court filing.
Mellon added: “We will use this brief period of reorganization so we can position ourselves to take advantage of our new growth strategy and ensure the long-term vibrancy of our brand. We expect that we will emerge from this stronger than ever in 60 days or less, and all of us at Tamara Mellon look forward to pursuing our passion long into the future.”
The designer, who gave her women’s wear a tribal-Gypsy-warrior woman vibe, is not alone in finding life at their own label tough after powering a runaway success.
Coach Inc.’s former executive creative director Reed Krakoff also had difficulties with his own high-end brand, which took a broad approach and large initial spending to enter several categories and launch retail. Mellon also went big at launch and tried to start off running.
Designers without the same kind of funding tend to start smaller, build buzz and get known for one strength. The eight-year-old Cushnie et Ochs, for instance, has a reputation for its tight, sexy dresses, but a smaller presence in other categories. Now, with fresh funding from Farol Asset Management and a new chief executive officer in Peter Arnold, the company is going to try to build out its offering.
With a tighter budget this time, Mellon might take a more focused approach for her comeback story. Michael Kors, after all, also went bankrupt out on his own before bouncing back with new financing to become a sales powerhouse — and Wall Street darling.