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Profit from the rise of the influencer with In The Style

Online fashion company In The Style is pioneering a more collaborative approach to working with social media stars
Profit from the rise of the influencer with In The Style
  • After years of providing cheap marketing for fast fashion brands, social media influencers are seeking more profitable opportunities
  • In The Style is cashing in by offering them a direct route to market
IC TIP: Buy at 205.75p
Tip style
Growth
Risk rating
High
Timescale
Medium Term
Bull points
  • Novel business model
  • Exploiting social media trends
  • Fast-growth
  • Attractive margins
Bear points
  • Early stage
  • Vulnerable to competition

Nespresso reportedly paid George Clooney as much as $40m (£28.9m) to drink its coffee on TV in the noughties. In 2012, Pepsi (US:PEP) is said to have offered Beyoncé an even greater sum – $50m – to swig its carbonated soft drink.

But in the years since then, some of the world’s hottest brands have realised that celebrity endorsements do not have to break the bank: in 2017, one Boohoo (BOO) executive said the fast fashion company had plied some stars with little more than free pizza and clothes.

Boohoo and other similar brands are specialists in getting endorsements from social media influencers – typically young, attractive models who are known by few people outside Instagram and TikTok, but who have gained millions of loyal followers on these platforms. With a simple selfie of themselves with a company's product, a selection of these influencers may reach as many potential customers as Clooney or Beyoncé – while costing a fraction of the price.

For fast-growing fashion companies, this has been great for growth. 

Now a new kid on the block wants to take the influencer marketing model to the next stage. In The Style (ITS), which listed its shares on Aim in March at 200p, says it is pioneering a unique approach to working with social media stars: in contrast to other celebrity-endorsed labels, its clothing ranges are designed and developed in direct collaboration with influencers. But will it work, and how attractive is its proposition to investors?

‘The influencer economy’

Manchester-based In The Style was founded in 2013 by entrepreneur Adam Frisby, after he “realised there was magic to be created with celebrities and social media”. The following year, the online fashion retailer launched its first collection designed by a celebrity: a range of dresses by Lauren Pope, star of the hit TV show “The Only Way is Essex”.

Today, In The Style says it works with 15 different female influencers across the UK, selling their collections through its own site as well as other popular online retailers like ASOS (ASC) and Lipsy. According to the company, these social media stars have a combined Instagram reach of 30m people – far exceeding its own following of 3.3m.

Influencers receive a commission from sales, incentivising them to promote products to their large network of fans. These promotions generally consist of a series of selfies, alongside posts emphasising the celebrity’s own role in the design process: “[My] collection is going to be sizes 4-28 as well as petite and tall options because that was something extremely important to me,” former “X-Factor” star Stacy Solomon writes in one.

By appearing to place influencers at the heart of its brand, In The Style is creating a particularly attractive proposition for the social media stars that its rivals are jostling to bring on board. Many of these celebrities now want to be more than just an advertising vehicle: there are growing signs that they are wising up and planning to cash-in on their personal brands.

In April, for instance, one 19-year-old with 25m TikTok followers made headlines by launching his own venture capital firm: with $15m in dry powder and backing from a former Goldman Sachs (US:GS) banker, Josh Richards now plans to acquire stakes in the companies he promotes online. Meanwhile Kylie Jenner, perhaps the world’s most famous social media celebrity, recently became the world’s youngest self-made billionaire after launching her own cosmetics company and marketing its products to her 264m Instagram followers.

The ‘influencer economy’, in other words, is changing. Influencers want more influence over their personal brands, and In The Style is seizing on an opportunity to turn that desire into profit.

Fast fashion, fast growth

According to the company’s latest accounts, its business model appears to be working.

Reporting annual results for the first time as a listed company, In The Style said sales soared by 132 per cent to £44.7m in the year to March, as a number of recent collaborations helped bring new customers on board. Revenue growth continued into this year, rising 44 per cent in the first quarter compared to the same period in 2020.

From a pre-tax loss of £2.2m in the previous 12 months, In The Style said it turned a pre-tax profit of £2.5m adjusted for £2.3m of IPO related costs. Along with the proceeds from its IPO, that helped lift net cash from £2m to £11.9m, excluding lease liabilities. The fact that with the right buzz, 70 per cent of collections can sell within a few hours makes the company very cash generative. Historically it has been paid by customers before it has had to pay its suppliers. The business is kept capital light by outsourcing most fulfillment to Clipper Logistics (CLG).

The company now plans to continue investing in relationships with influencers and to expand through international markets, which were responsible for just 5 per cent of sales last year.

House broker Liberum, the only broker currently covering the company, are overwhelmingly positive about growth potential. Even after the exceptionally impressive 2020, it forecasts sales growth of 18 per cent this year, with profit growth of 24 per cent. Given the group does not look like stand out value compared with peers, it is this growth potential that investors are expected to pay up for. Underlying operating margins, meanwhile, compare well with other online fast fashion retailers but are forecast to drop back to around 5.6 per cent by 2024 as the top line rapidly expands.

NameTIDMMkt CapPriceFwd PE (+12mths)Fwd DY (+12mths)FCF yld (+12mths)EV/SalesEBIT MarginROCEFwd EPS grth NTMFwd EPS grth STM3-mth Fwd EPS chg3-mth share price chg
NextNXT£11bn7,924p152.4%5.1%3.412%14%36%5%6.7%-3.3%
ASOSASC£3.5bn3,490p22-5.0%1.06.5%19%4%20%-1.3%-29%
boohooBOO£3.4bn272p23-1.5%1.87.1%30%24%22%4.9%-14%
N BrownBWNG£253m55p72.0%7.9%0.75.6%5%7%15%4.0%-15%
In the StyleITS£108m205p35-2.0%2.26.4%25%132%7%1.0%-14%
SosandarSOS£63m31p---5.6%4.6-27%-50%-91%--27%

Source: FactSet/Liberum/Company

15 minutes of fame?

For those deciding whether to buy in early, a key question going forward is how much In The Style’s reliance on celebrities will weigh on its profitability. These influencers want more than free pizza and clothes, and the fees they demand could depress margins.

The retailer does not disclose how much it pays in commissions, but says these expenses are included in “administration costs”. According to its latest results, these costs increased by £2.5m in the year to March. Specifically, an £1.8m rise in marketing was "primarily attributable" to commissions. But the £10.4m rise in gross profit to £20.6m suggests this was all money well spent. Liberum sees commission coming in a between 5 and 6 per cent of sales in coming years.

In the future, however, the company’s celebrity tie-ups may not be so profitable: there is little to prevent larger competitors from doing a similar thing to In The Style, potentially squeezing its market position and increasing competition and costs for acquiring the most desirable influencers.

Indeed, there have recently been signs that Boohoo itself is pursuing a much closer relationship with its celebrity partners. Only last week, former “Love Island” contestant Mollie-Mae Hague announced she was joining the company not just as an advertising model, but as “creative director” for its subsidiary, Pretty Little Thing. “I'm not an influencer any more and people can see that, it's become a lot more than that,” she told the BBC.

As a growing number of influencers like Hague pursue more fulfilling forms of employment, we believe In The Style is well-positioned to capitalise on the trend and deliver growth in the short term. But investors need to remain watchful for other social-media savvy retailers encroaching on its competitive position. Everyone has their 15 minutes of fame: In The Style’s moment may only be short-lived but its business model holds considerable allure for investors willing to take on that risk.

Company DetailsNameMkt CapPrice52-Wk Hi/Lo
In the Style  (ITS)£108m205p265p / 200p
Size/DebtNAV per shareNet Cash / Debt(-)Net Debt / EbitdaOp Cash/ Ebitda
21p£11.5m-88%
ValuationFwd PE (+12mths)Fwd DY (+12mths)FCF yld (+12mths)EV/Sales
35-2.0%2.2
Quality/ GrowthEBIT MarginROCE5yr Sales CAGR5yr EPS CAGR
6.4%24.6%--
Forecasts/ MomentumFwd EPS grth NTMFwd EPS grth STM3-mth Mom3-mth Fwd EPS change%
132%7%-13.7%1.0%
Year End 31 MarSales (£m)Profit before tax (£m)EPS (p)DPS (p)
202019.3-2.1-4nil
202144.72.51.8nil
f'cst 202252.93.15.7nil
f'cst 202366.63.85.9nil
chg (%)+26+23+4-
source: FactSet/Liberum forecasts/Company, adjusted PTP and EPS figures
NTM = Next Twelve Months  
STM = Second Twelve Months (i.e. one year from now)