Boohoo Share Discussion Threads

[cornishman33] 21/8/2017 09:52

I made a couple of small purchases about 2 years ago to try out the service. It was superb, delivery on time, better quality than expected considering very low price. I am retired so obviously not their target customer, but will now count as part of the 'churn'.

[bestace] 21/8/2017 09:31

Just found a snippet on customer churn on the FY16 earnings call (the recording is on the Boohoo IR website).

An analyst asked the FD directly what their customer churn was and he replied by quoting the 4m active customers at FY16 compared to the 3m active customers at FY15. He then said they signed up 2.5m new customers in the year.

That suggests to me that 1.5m out of the 3m active customers at the start of that year lapsed into being non-active, i.e. a 50% customer churn rate.

The FD then went on to say they tend to focus on order frequencies more than churn, that they were seeing positive trends on retention generally, and that lapsed customers were an opportunity for them to focus on.

[sogoesit] 21/8/2017 08:01

Thanks for views cycle.
I think what your experience shows me is that "time" is a crucial element in development of strategy, of markets and of a business.
We (and analysts?) all too often, in our short-termist impatience, reach conclusions based on short term data forgetting that businesses take years to develop and evolve their models, study and react to market feed-back loops, learn and re-develop. Patience, for me as a PI, is a crucial characteristic to have and why I leave winners to run and losers also to wither on their own albeit I try to spot a loser early but find that one more difficult to act on.
As mboy says, this business's learning cycle may be quicker but it is probably slower than the speed of the minds that investors work at in speculating about outcomes!!
[PS. I work in the resources industry where the fruits of an investment can only become apparent after 5 to 10 years and, often, 10 to 15 years. From idea to project delivery that's a long time to be taking risk and speculating!]

[mboy010] 20/8/2017 17:59

'Fickle' is absolutely correct cycle2, their target market is exactly that and the beauty of this business model, in my view, is in the 'test and repeat' element. They make their mistakes fast, learn from them and adjust their lines accordingly.

[berber1] 20/8/2017 16:10

Hi bestace, the fact that the FT got hold of the report, and published the negative points is enough to cause maximum damage, and it does not matter if the report is in the public domain. Luckily for the share price has only consololidated ready for the next target ( 300p) before powering ahead even further. And Redburn certainly do not have private investors interest at heart, I would think that, it must have been financed by some big hedgy to their ends.
The fact that you are having doubt about their churn information as there was nothing published by Boo or Asos, that puts a question mark on the conclusions deduced from their risk assessment as the data used is based on their assumptions which could be flawed. Their assumptions cannot be based on past history as this E commerce is just starting, on the contrary it shows that company's like Asos, Boo, Amazon Involved in E Commerce move very sharply in exponential way.
As for Amazon , I could be wrong, I believe I heard it recently in Bloomberg TV that the company has not very profitable, as they are more interested on dominating the market and fast expansion.
Besides investors in this sort of companies look at their growth potential, which could be enormous.
Boo are showing all the signs of well managed growth company, and have great prospects and wish them great success.

[bestace] 20/8/2017 13:31

I think if Redburn were attempting a bear raid, they would have put their report in the public domain to gain maximum publicity. As it is, they provide research to their paying clients so I think it's fair enough if they take the attitude of "if you want to read it then pay up for it".

pt725 - I think you've articulated precisely why customer churn may be so relevant. We know they had 5.2m active customers in FY17 and 4m active customers in FY16 (29% YoY growth net of churn), but we don't know how many dormant customer accounts there were. If 40% of those 5.2m customers are going to lapse this year, then their baseline of active customers drops to 3.1m and to achieve another 29% growth overall in active customers (which means reaching 6.7m in FY18) they are going to need to recruit 3.6m new customers. That means an increase of 115% gross of churn (i.e. 6.7m compared to the new baseline of 3.1m) to achieve a 29% increase net of churn.

If the customer churn is only 25%, as Redburn have calculated is the case for Asos, the 5.2m active customers would drop to a baseline of 3.9m and to get to a 29% increase net of churn you would need to recruit only 2.8m new customers this year, an increase of only 72% from the new baseline.

In simple terms, and perhaps this is stating the obvious, customer churn makes growth harder to achieve as there is an element of running to stand still, and the higher your customers churn the faster you have to run just to stand still, even before thinking about growth.

Maybe that's not a problem for a company which is at an early stage on its growth curve (I think Boohoo can still be described as such), and you can offset some of the churn by squeezing more money out of your existing customers, but the quicker you churn through your target market of customers, the quicker you are going to start running up against the ceiling of growth opportunities.

That's why I'd love to know how Redburn have calculated their churn rates. As far as I know neither Boohoo nor Asos have not put enough information into the public domain to calculate this, so it's possible Redburn are making some assumptions which opens up the possibility of errors in their calculations. They may have a valid point or they may not, it's difficult to tell but I wouldn't just dismiss them out of hand.

[toffeeman] 20/8/2017 13:22

Churn is meaningless here:1. The time period needs to be specified - in a week it will be 100%2. The faster the brand grows the bigger the churn (because almost all customers buy just once or twice in a period as long as a year) - so the more customers you have the more churn you have!3. The only metric we should care about is the total number of customers and its growth rate. After that The proportion of the total customer base who buy n times is simply predicted by the negative binomial distribution.Red urn obviously don't know this very basic generalisation.

[rickyvee] 20/8/2017 12:21

I emailed Redburn last week asking how to access the Boohoo report and had no reply. This tells me all I need to know about this shady company.

[berber1] 20/8/2017 12:12

It is amazing how company's report, only target specific companies, and you sometimes wonder who is behind it and who is going to profit from it.

[pt725] 20/8/2017 10:17

The real issue on churn rate is what us their definition of it. Does it mean that 40% of the shoppers don't come back etc etc.Applying simple maths to this, they have 5.2m active customers ( shopping within one year) . 40% of 5.2m is roughly 2m , so based on Redburn calculations every year, 2m stop shopping or start again next year. You can see the logic does not work, as it would imply a active shopping population at BOO of around 15m - 25 m over 5 years. 1 or 2 million stop shopping, 1 or 2 million join etc.These figures are much higher than their perceived target market even with a bit of age spread.If Redburns churn correct, the number of active customers cannot keep growing.Be great to hear other views.

[sogoesit] 19/8/2017 20:01

Appreciate the debate, bestace. Thanks.
Well, speculating about a report that I have not read is dangerous, I do admit!

However, a contentious report has been commented on in a (reputable?) financial journal without full disclosure. I do think that in the 21st century, where we are supposed to aim for "level playing fields", that it is incumbent on the institutions (including financial journals who set themselves up as "experts" and who must know their influence), to deliver a measure of transparency. If not, folks cannot argue that we common players should abstain from speculation. Was it not the point of Redburn that we DID speculate or are they, and the FT, totally naive?
[Issuing a contentious report is a well known commercial tactic to attract attention and develop business. On which basis alone I think I am justified in being cynical].

On the matter of subjectivity I would argue that my subjectivity is accountable (known as "skin in the game") and I don't pretend to be an expert in stock market investing. I am my own, albeit "amateur", portfolio manager; nothing more nothing less. For example I would be curious to know how they develop a rational Risk Model for a unique business strategy with no historical analogues by which to draw probabilistic distribution inferences and project that risk into the (unknown) future?
[I note that Dunelm recently suffered a flood. Did any analyst see that coming?]

Yes, I wondered, too, about where they got the churn figures from.
We have also discussed on this thread the company's Twitter feed-back about returns and service so we are already aware of some of the service performance. Drawing rational conclusions from that and (anonymous) social media is fraught with difficulty.

As to risk categorisation these are usually required to be described, together with mitigation, in a company's report. Page 23 lists the company's opinion of the operational risks to be confronted and mitigation tactics. What, therefore, does Redburn add, apart from "independence" and even that may be commercially tainted?
[I note that Dunelm recently suffered a flood. Was that in its list of risks and did any analyst see that coming?].

[bestace] 19/8/2017 17:17

Sogoesit - I wouldn't discount Redburn's subjective analysis just because it differs from your own subjective analysis.

It's difficult to comment without having read their report, but they may have made some valid points.

The FT was quoting the Redburn report as suggesting Boohoo's customer churn was 40% compared to Asos' 25%. I'd love to know how they calculated those figures, but if it's true it could be something to be wary of.

Likewise when they were suggesting that tripling distribution capacity creates an execution risk, well isn't that self-evident?

berber - Amazon has been profitable since 2003, with the odd blip in 2012 and 2014, and they have been consistently cash flow positive since 2002.

[sogoesit] 19/8/2017 16:01

Well stated imv berber.
New market strategies are difficult/impossible to forecast and the market's response to those strategies (like Amazon) even more unpredictable.

This article from the editor of the Chronic Investor, 18 August, says something about what you allude to:

"NEXT's Kodak Moment

I’ve been worried about the state of the high street for much of the year. As we outlined in our recent ‘Consumer Healthcheck’ feature (28 July 2017), wage growth is stagnant, household finances are under pressure, debt levels are rising and confidence is waning, not least in the automotive sector whose diminishing prospects we round up this week on page 12.

I am not alone, and it’s not just the high street’s tiddlers that are prompting cause for concern – we are used, after all, to seeing poorly run retailers shut up their shops even when trading elsewhere is good; ‘retail is detail’ goes the old saying, which unfortunately too many retail managers often forget.

What caught my eye this week was the view of analysts at Berenberg of Next, one of the UK’s retail bellwethers, who suggested that the group was facing “a Kodak moment”, and not in an ‘unforgettable memory’ sense. What they’re talking about is the moment at which the venerable camera manufacturer, which controlled nearly two thirds of the world’s film market, found itself marginalised first by Japanese digital cameras and latterly by the integration of digital cameras into mobile phones. By 2012 the 125-year old company was bankrupt.

It’s an interesting analogy that at first glance does not sit well with a clothes and homewares retailer – but the more you think about it the better it works. Kodak was in fact invented the first company to introduce a digital camera, but was subsequently very slow to transition more fully to digital imaging. It’s an example of something I suggested a few weeks ago: that when faced with such market inflection points incumbent companies find it very hard to wean themselves off cash cows they have become reliant on.

Similarly, Next was often held up as a retailer especially well positioned to transition to the new world of e-commerce, because of its legacy of catalogue retail which bore many similarities to the demands of e-commerce. This, argues Berenberg, has not been the case – while it was an early mover in UK online retail, it has not “fully committed” to the channel for fear, suggests the analyst, that it would cannibalise its own large store base. Another example of the incumbency trap in action.

It seems unlikely, however, that Next will go the way of Kodak; the same fears over slow-to-respond supply chains and uninspiring product ranges have dogged rival Marks & Spencer for years, and even when Next was in its pomp, M&S still proved a difficult elephant to budge from its position as the top dog in UK clothing retail. But the shine has clearly worn off what was once a stock market darling, as evidenced by the hefty price falls in response to the Berenberg note. Once known for always issuing gloomy guidance and beating it, Next is cultivating a new ‘short-termist’ reputation that leaves its shares vulnerable to shifts in sentiment."

[berber1] 19/8/2017 15:37

Thanks Sogesit and bestace for your information and opinions, I would go with that. Boo is on an uptrend curve. They are in the E Market, and this market has just started burgeoning. BOO is in the right market, targeting youngsters teens to early and mid twenties, who are keen to do their shopping by using their smart phones at any opportunity. Boo's clothes are cheap and trendy and very appealing to their targeted clientel. Just look at Amazon their rating is incredible yet they are not in profit just yet, yet their share price keeps rising. Boo are at the early stage of their development,with a sharp management that had the flare to start this adventure at the right time and have delivered and I am sure will keep delivering in the foreseeable future.

[sogoesit] 19/8/2017 15:04

Ah, yes, that is indeed interesting bestace. Many thanks for those ideas and explanation.

I work in probabilistic (stochastic) determination in the resources industry so I recognise where you are coming from about how these folks do their risk determination!

Great!
Usual story then, result: GIGO ... all based on the probability distributions input to the model based on .... yes ... we've guessed it - Subjective Guesstimates (made to look good with rational numbers)! ;-)
Or am I just being cynical?

[I seem to remember those Nobel Prize winners who created Long Term Capital Management doing a great job on risk determination... not to mention our old friend Alan Greenspan who laid the foundations for it all!]

[bestace] 19/8/2017 11:09

Sogoesit - I haven't seen the Redburn report but I imagine they are using a probabilistic approach to calculating that 200p target.

Using purely made up numbers for illustration purposes, they might be assuming a price target at the end of their forecast period based on:

- 30% chance that management screws up on execution with the price falling to 50p
- 45% chance that growth tails off but no outright failure of the strategy, with the price reaching 250p
- 25% chance that the rapid growth story continues to hold true and the price goes to 300p

That comes to a weighted average of around 200p, even though in none of those 3 scenarios does the price actually go to 200p.

When they refer to "execution risk" I don't think they are suggesting that management definitely will screw up, just that the chances of this happening are higher than the markets are assuming.

[pt725] 19/8/2017 09:29

The key to not messing up on the warehouse is as long as Boo have capacity in existing one, new one can be built without worry.Then NG and PLT can be moved to it, followed by men's and kids, keeping risk to core BOOHOO WOMEN low

[shabbadabbadoo2] 19/8/2017 01:04

Sogoesit - If that risk were really to be realised, and management completely messed-up, then 200p for this share would be a pipe dream. On a p/e like this is, any failure to hit the high expectatiojns will be punished severely.

And of course this must go ex-massive-growth at some stage in the future, so the p/e will drop to more normal levels. When that will be is anyone's guess, but my money says not for a while yet.

[pt725] 18/8/2017 11:28

Thanks Sogosit, does anyone have the report. By the way it was wise for Boo not to put out a trading statement for June / July as July according to the ONS online report, turnover dropped month on month for first time for months on non clothing stores. It was only 12% up , the lowest figure for a long time. Best to wait till interims as August will be very good as cool , not warm and a/w clothing will start to move and Boo will have a good result with kids back to school.

[sogoesit] 18/8/2017 09:28

Thanks pt725 for your comfort.

Accumulated today in the summer doldrums.
In a posting on this infamous report the analyst was said to give a valuation of 200p.
What I don't understand is the logic that says basically that the future growth/development strategy of the company is at "execution risk" and then they put a valuation number to the result of that risk.
If that risk were really to be realised, and management completely messed-up, do we realistically believe that 200p would be the new value?
And what would the logic of the 200p be? The intangible brand value after a messed-up management strategy? The asset value of the new ware-fabrication-houses? Etc.?
I don't find the report credible. As I've said it all seems b/s to me.
That's why I've added.
[NB I haven't seen or read this "report" and am just going by hearsay from this board].

[berber1] 17/8/2017 20:16

That's helpful. Thanks

[rickyvee] 17/8/2017 19:24

You have to pay to access the report and it's not available on their website.

[berber1] 17/8/2017 18:38

Can anyone post a link to this " Redbury report". Many Thanks

[cycle2] 17/8/2017 11:34

@I love chicken: Using my own indicators programmed in Tradestation with some interesting systems to bring in UK stock data! However, the basics of the good price action can be seen on any chart.