bonobos good sport

Bricks-and-mortar — but not inventory — might be the best part of the buzzy e-commerce crowd.

And with a $500 million deal to take fine jewelry player Blue Nile Inc. private and bottoms-maker Bonobos said to be on the hunt for $100 million in growth capital, the market is finally starting to home in on just where these companies sit between the la la land of tech valuations and the rock bottom price tags in fashion. Successful e-commerce companies that have some stores — and the opportunity to add more — are getting valued as strong growth plays.

Blue Nile, which on Monday inked an all-cash deal to be bought by Bain Capital and Bow Street, has seen slowing sales and profits this year. But the company’s “web room” retail business is seen has having potential.

It’s that potential that makes the company attractive. The deal valued Blue Nile at about one-times sales and more than 28-times earnings before interest taxes, depreciation and amortization of $16.1 million — that’s something of a middle ground with a relatively low valuation on sales, but a big price tag on earnings.

By comparison, Facebook Inc. trades at 13-times revenues and 25-times EBITDA, while Macy’s Inc. at the other end of the spectrum trades at 0.7 times revenues and 5.7 times EBITDA.

Blue Nile is slated to open its fifth web room in Seattle by Thanksgiving, allowing customers there to try on engagement rings and get advice from consultants, who aren’t paid by commission, and complete the sale online.

Edward Yruma, analyst at KeyBanc Capital Markets, said Blue Nile’s web rooms have helped show the advantages of having physical stores, particularly those that act as showrooms to examine product that is shipped later.

“You need the stores, but by not having to carry the inventory of the stores, you alleviate yourself of a lot of the burden,” Yruma said, citing the expense of inventory.

Shoppers are content to get their order later, he said.

“Amazon has trained people to be OK with waiting a day,” the analyst noted. “The consumer’s getting more used to this idea that, ‘I don’t need everything this second.’ The retailers of the future, it’s not going to be just e-commerce, it’s not going to be just stores, it’s going to be a blend of both.”

The jewelry company’s future owners are expected to keep rolling out web rooms to grow the business.

That’s something Bonobos is looking to do on its own.

Having entered the world as an e-commerce play, Bonobos is looking to come of age as a retailer and is said to be working with Citi to raise money that would be used to significantly expand on its base of roughly 30 inventory-lite guide shops.

The experience-heavy stores, which offer shoppers a beer, advice and a chance to try on styles, also don’t carry inventory and instead ship goods to customers.

Bonobos, which also sells through Nordstrom stores, is said to be profitable with sales of more than $100 million, with projections putting revenues at about $150 million for the year ahead.

The nine-year-old company, which is led by cofounder and chief executive officer Andy Dunn, has already raised $127 million from Nordstrom Inc., Accel Partners, Lightspeed Venture Partners and others. (Dunn declined to comment through a spokeswoman.)

At the WWD CEO Summit in 2014, Dunn noted: “We had this battle early on. Was this a tech company or a retail company?” He settled on the term “merchant.”

One source familiar with Bonobos described it as a solid growth story that other investors are watching closely to see where valuations at the crossroads of retail and e-commerce are going.

“For every Jet.com, there’s a Nasty Gal or a One Kings Lane or a Gilt,” the source said.

Wal-Mart Stores Inc. paid $3.3 billion for e-commerce marketplace Jet.com in September, but that stood out as a relative winner in the e-commerce marketplace.

But the once ultra-hot Nasty Gal, which has also inched into retail, is now said to be looking for its footing.

Fab.com was once valued at $1 billion, but was sold to PCH for $15 million. One King’s Lane went from a $900 million valuation to a fire-sale price in a deal with Bed, Bath & Beyond. Gilt Groupe saw its price tag go from $1 billion to $250 million when it was acquired by Hudson’s Bay Co.

Bonobos could illuminate a more positive ending for its generation of e-commerce darlings, if it can raise the money it needs to grow at the right valuation.

“It’s a fairly pristine asset,” the source said. “There are going to be a lot of takeaways for folks. It’s probably the first of many” deals where fashion and e-commerce meet.

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