Hammitt is offering equity at a $120 million valuation. That’s an eye-popping price relative to most crowdfunding deals, but this is not an average opportunity. Hammitt is a well-established growth stage company raising Regulation A financing. A $120 million valuation is actually quite fair given Hammitt’s 2020 revenues of more than $17 million. It will be even more fair if the company’s projections of $30 million in 2021 revenue play out. A revenue multiple of 4x is attractive in this industry. Investors can get in now at a reasonable price as Hammitt continues to grow.

The market for luxury handbags is understandably rather niche. The average consumer doesn’t regularly spend hundreds of dollars on a purse. The global market for luxury handbags is projected to hit $94 billion by 2028, expanding at an annual growth rate of 5.3% over the next seven years. While that growth rate is mediocre compared to other high-growth industries, it’s notable that growth in this market is expected at all. In recent years, sales of luxury handbags were declining rapidly. A stronger than expected pandemic rebound in the US market and explosive growth in China are driving renewed demand for luxury goods.

Despite recent optimism about the luxury industry, Hammitt still caters to a select consumer audience. The huge variety of luxury brands competing in this segment — from mainstream (Gucci, Hermès, etc.) to boutique — further reduces the market available to Hammitt. All in all, the company’s market potential is relatively low.  

It appears that Hammitt was initially founded in the late 2000s by Stephanie Hammitt, who ultimately gave control and majority ownership of the company to Tony Drockton. Since then, Drockton has been considered the founder and owner of Hammitt. By the time he assumed control of the handbag brand, Drockton had built a 15-year long career as an entrepreneur in the housing and mortgage industries. He’s since led Hammitt for 13 years, overseeing both operations and creative direction. 

Day to day, Hammitt is managed by CEO Andrew Forbes, who has a much more extensive background in the luxury industry. Forbes spent 20 years as the CFO of Vidal Sassoon, a salon haircare brand. He subsequently served as COO of Jimmy Choo for seven years as the company expanded in the US. After that, Forbes spent a decade as the head of several other fashion brands or consumer goods consulting companies, including a firm that managed the Kardashians’ fashion properties. Forbes is an ideal manager for this up-and-coming brand. 

The Hammitt team is well-developed. It is composed of more than 30 other team members, many with previous experience in luxury goods and/or fashion. It’s difficult to envision a more qualified team to lead this luxury handbag brand, particularly given CEO Andrew Forbes’ deep experience in the industry. 

Hammitt boasts that its handbags are more functional than most luxury alternatives, with various pockets, straps, and other details that combine practicality with beauty. Hammitt bags are also made of premium leathers and other materials, sourced from around the world. Of course, neither of these supposed differentiators are truly distinctive in the handbag market. Combining function with fashion is a growing trend, with startups like Dagne Dover offering a variety of purse and tote options. Furthermore, all luxury brands advertise that their materials are super-premium. 

Differentiation is one of Hammitt’s weak points. Few fashion brands are truly differentiated, of course, so this isn’t a major flaw. Consumers buy from multiple brands, and there’s room for many players in the fashion market. Plus, Hammitt’s strong customer reviews can probably convince new buyers to try out a bag. All in all, differentiation likely isn’t a compelling factor either way for this deal. 

Hammitt was founded in 2008, and the company appears to have grown steadily ever since. In 2019, Hammitt brought in $15.3 million in revenue, with an impressively narrow net loss of just $628,989. Its 2020 revenues grew despite the pandemic slowdown. Hammitt generated $17.6 million in revenue, with a similarly slim net loss of $918,527. Growth is continuing in 2021, with projected revenues of $30 million at year end. All of this revenue expansion has occurred with only $3.5 million in capital investment thus far, which is relatively low. 

Much of Hammitt’s recent growth has been driven by an expanding direct-to-consumer (DTC) online channel. Digital sales are increasing 100% year-over-year, and the unit economics on these purchases are strong. Hammitt’s customer acquisition cost is just $140, with an average order value of $310 and an average customer lifetime value of $684. Hammitt has unlocked the ability to acquire new customers inexpensively and retain them with multiple high-priced sales. In addition, Hammitt’s gross margin for 2020 was a strong 61%. 

Hammitt is performing well, especially in light of the COVID-19 pandemic that damaged many luxury brands’ bottom lines. A continued surge in the company’s high-margin DTC channel could continue to generate strong revenue growth and even profitability in the near future. 

Investors shouldn’t fear a great deal of risk with an investment in Hammitt. The company has 13 years of operating history, with strong recent revenue growth and an experienced management team at the helm. This is a capital-intensive business due to inventory requirements, which does lend some funding risk. Hammitt is also pre-profit and is carrying a fair amount of liabilities on the balance sheet, creating some financial risk. Hammitt’s single founder with little prior experience in the luxury fashion industry boosts the risk score. However, this risk is mitigated significantly by that founder’s tenure at the company and the presence of a much more experienced CEO. All in all, it’s reasonable to assume that Hammitt will continue to operate steadily. 

Hammitt has performed well over its 13 years in operation. There are positive signals that business fundamentals — like the ratio of customer acquisition cost to lifetime value — have formed a strong foundation. However, the luxury handbags industry is simply not a high-growth sector. It’s a relatively niche market that caters to a limited segment of consumers. It’s also worth noting that the strongest growth in that industry comes from Asia, and Hammitt doesn’t seem to have penetrated that market yet. 

Competition is also fierce in this market. Hammitt must fight for market share in a crowded landscape of other luxury handbag brands. Plus, the industry is being shaken up by newcomers like Dagne Dover or Cuyana, which are making luxury handbags seem a bit less stuffy and more appealing to millennials and Gen Z. Hammitt will need to grow a great deal more to provide quality returns to investors in this late Regulation A stage, and that growth seems challenging in a narrow, competitive market.

Hammitt’s main advantage is simply that the company has performed well thus far. The company has a long 13-year operating history, strong year-over-year revenue growth (despite the pandemic), and good metrics on customer acquisition and retention. Hammitt checks many of the boxes of an attractive consumer goods investment opportunity. 

In addition, investors have the chance to get in at a fair valuation for this Regulation A round. While many consumer goods companies inflate valuations in line with tech companies, Hammitt is more conservative with a 5x revenue multiple based on 2020 revenues. It could have an even more attractive 4x revenue multiple if 2021 revenue projections come true. The company will still need to grow a good deal to provide returns for investors, but prior operating history indicates that Hammitt has the business basics and management team to reach those heights. 

Hammitt is a luxury handbag brand selling fashionable, functional handbags both in stores and online. Direct-to-consumer sales have surged in recent years and sustained Hammitt’s strong year-over-year revenue growth despite the COVID-19 pandemic. With $17.6 million in revenue last year and a projected $30 million in revenue this year, investors have the chance to back a growing company at a reasonable valuation. 

On the other hand, the luxury handbag market is relatively small and growing slowly, and a wide variety of competitors offer products that are similar to Hammitt’s. Hammitt doesn’t provide a great deal of detail into its plans for future expansion, so there are questions around the company’s ability to grow to a level that would provide quality returns for investors. Therefore, Hammitt has been rated a Neutral Deal. 

For questions regarding the KingsCrowd staff pick or ratings for this company, please reach out to [email protected].