Luxury slipper start-up Mahabis saved from administration

Mahabis, a London start-up that uses ubiquitous online ads to hawk upmarket wool slippers, has been bought out of administration by investment company YYX Capital.

YYX is backed by a number of partners, including James Cox, who co-founded Simba Sleep, one of a new breed of online sellers of high-tech mattresses. He will serve as interim chief executive of Mahabis, in addition to remaining on the board of Simba.

No price was disclosed, and the administrators at KRE Corporate Recovery said they had received “over 70 expressions of interest” in buying Mahabis. The deal means that staff and supplier relationships will be preserved.

Ankur Shah, Mahabis’s founder, will not be continuing at the company. He cultivated the brand by casting his £69 slippers as ideal for the growing ranks of homeworkers and billing himself as a champion of what he called the “downtime movement” encouraging people to work less.

“Ankur Shah and his team have built a great business in Mahabis, which unfortunately just stumbled at a critical point,” said Mr Cox. “It has an established brand name and good customer recognition, having already sold nearly a million pairs of its iconic design footwear in over 100 countries in just over four years.”

According to a statement from YYX, Mahabis had £25m in sales and generated about £2.5m in earnings before interest, tax, depreciation and amortisation in 2016-17. 

Given that Mahabis was generating considerable revenue, the reasons it was forced to seek protection from creditors in late December have been murky.

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Asked to explain, Mr Cox said Mr Shah was trying to sell the company in early 2018 as he entertained two offers from private equity funds, and this may have distracted him from the day-to-day operations. Meanwhile Mahabis’s reliance on Facebook and Instagram advertising to drive sales was becoming more expensive as customer acquisition costs rose.

“Ankur had taken profits out of the company on the way up — as he was entitled to do as the sole owner — and he simply didn’t leave enough of a cash buffer to insulate it in a downturn,” said Mr Cox.

The experience of Mahabis, whose tagline was “slippers reinvented”, is a cautionary tale of how the direct-to-consumer model, which bypasses the retailer, for everything from mattresses to razors can be difficult to sustain even if a brand shoots to notoriety quickly.

YYX Capital aims to nurture such direct-to-consumer brands, but Mr Cox believes they need to be run professionally or many will fail as they try to scale up. Its other investments include Waldo, a contact lens delivery service, and Straight Teeth Direct, an app that offers dental services.

“Not every DTC business will be big enough to justify its own infrastructure, so we have created a platform with logistics, supply chain and other expertise that can be shared among the companies,” he said.

To fuel growth, YYX plans to expand Mahabis’s presence in high street retail stores, as well as revamp its online marketing strategy to revive the brand. Until now, Mahabis slippers were sold only online and, since December, in UK shoe chain store Office. The new owner now has the ambition to quadruple sales to £100m and reach a 15 per cent ebitda margin within five years.

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