Two years after entrepreneur Mike Welch relaunched Atterley as an online network of independent fashion retailers, the business has received an injection of cash that will help fuel its expansion.
There are not many obvious similarities between the tyre industry and fashion – except, perhaps, a penchant for rubber. Yet entrepreneur Mike Welch has applied the learnings from his successful tyre business Blackcircles.com to turn former womenswear etailer Atterley into a platform for independent fashion boutiques.
“I’ve been referred to as the ‘tyre guy’,” laughs Welch. “But I’m convinced that what we achieved [with tyres] will work for Atterley.”
Atterley – or Atterley Road as it was originally known – was founded by former Jigsaw jersey designer and buyer Katie Starmer-Smith and her business partner, Edward David, in 2012 as an online womenswear retailer. It sold brands such as Filippa K, Ganni and Selected Femme, as well as its own label.
In 2015, the company changed its name to Atterley, expanded its own label range and relaunched its website. But it ceased trading in January 2016 after it ran out of cash, and in the February of that year, Welch spent £250,000 on acquiring its IP assets and building a new business from scratch.
I used the customers’ money to buy the tyre and I kept what was left. I created what I didn’t know then was called a negative working capital model
He relaunched Atterley as an online network for fashion independents in September 2016, and it now has more than 130 boutiques on board, including Jane Davidson in Edinburgh, The Mercantile in London, and Nola in Brighton. Welch says its annual turnover is in the “multi-millions”, and this is currently growing by 100% year on year. It is not yet profitable.
Last month, Atterley announced investment – revealed by Welch to be $3m (£2.3m) – from Hertfordshire-based high street clothing manufacturer PDS Multinational Group, which it will use to expand its network in the UK and Europe, and target customers globally.
Wheels in motion
I meet Welch in the bar of Brown’s, a swanky hotel in London’s Mayfair, which is full of businessmen in suits and upper-class American tourists. He has a couple of hours before his flight back up to Edinburgh, where he lives with his wife and two-year-old daughter.
Over a bowl of overpriced chips, he tells me he fell into the tyre business after leaving school in 1994, aged 16.
“It was the typical tale – I didn’t get many qualifications, so I took the first job that was on offer, which was to fit tyres at a local garage in Liverpool,” he explains in a softened Scouse accent. He was made redundant after a couple of years, and in 1996 started his own online tyre retailer, called Motorforce, using a computer bought with a £500 grant from the Prince’s Trust.
“I was showcasing the products that were available from wholesalers, taking the cash, but I didn’t own the tyres,” he explains. “I used the customers’ money to buy the tyre and I kept what was left. I created what I didn’t know then was called a negative working capital model.”
The margins need to be significant. I prefer not to hold any inventory
In 1999, car-servicing and repair company Kwik Fit offered him a job launching and operating its websites. He stayed for four years – during which time Ford bought Kwik Fit for £1bn – and then he decided to revisit what he had been doing before, but with a twist.
“I knew there were thousands of well-run, independent garages across the UK, but it’s hard for them to win new business. I thought, ‘If I can get these guys into a network, they could fit my tyres for me.’”
In late 2001, he launched Blackcircles.com, an online network for independent garages. He faxed an application form to join the network to as many garages as he could find listed in the Yellow Pages. By the end of the week, Blackcircles had 600 members.
Over the next couple of years, Welch brought together five advisers, including former Kwik Fit group finance director Graeme Bissett and Kevan McDonald, a partner in law firm Dickson Minto, who turned into investors.
Another high-profile investor, fellow Liverpudlian and former Tesco CEO Sir Terry Leahy, came on board in 2011.
By 2015, Blackcircles had raised £600,000 in funding and built up a network of more than 3,000 garages. Its growth made it a clear target for acquisition and, sure enough, tyre manufacturing giant Michelin swooped in with a £50m offer.
Following the sale, Welch found himself with more time on his hands. He knew a couple of people who were angel investors in Atterley, and they asked him to have a look its operations, to see if he could offer any advice.
He liked the brand and its aesthetic. When it hit the buffers at the start of 2016, he considered buying it – but he was put off by its cash-intensive business model.
“If you’re manufacturing the product as well as retailing it, you need seriously deep pockets to make sure you can underwrite the product for the time it’s sitting on the water, in the warehouse and so on,” he points out. “The margins need to be significant. I prefer not to hold any inventory.”
However, he thought there could be a way to create a stockless business model for fashion, similar to Blackcircles. He asked some boutique owners he already knew, including Sarah Murray, owner of well-respected Edinburgh womenswear independent Jane Davidson, for advice. She encouraged him to go ahead.
Murray, who joined Atterley as an adviser in April 2016 and now sits on the board, says: “I thought the idea was genius, and it was a great opportunity to use my fashion skills and s, and learn more about ecommerce. I knew from first-hand experience how difficult it is as an independent retailer to get traffic to your website. [Sharing resources as part of a network] was a no brainer.”
Early on, Murray pointed out some parallels with online platform Farfetch. But Welch was reassured by the fact that Farfetch targets high-end, designer boutiques, whereas Atterley is focused on premium indies that sell brands such as Gestuz, Ganni and Self Portrait. Its menswear offer – added in November 2017 – includes Farah, Tommy Hilfiger and Ted Baker.
He adds: “At that time Farfetch started to move to direct supply with some of the brands, and some boutiques were starting to feel like they’d been used as a stepping stone.”
It is difficult to avoid comparison with another platform for independent retailers: Trouva. Set up by Mandeep Singh and Alex Loizou in 2013, Trouva targets boutiques in that same premium space.
Trouva’s offer is closer to Atterley’s (Ganni and Farah appear on its extensive list of stocked brands), although it splits its focus between fashion and homeware.
Welch says one of Atterley’s USPs is that it has an eclectic mix of product: “We capitalise on the fact that to stay in business. Sarah [Murray], for example, has to buy in a certain way to differentiate herself from Harvey Nichols. We’re trying to bring on a certain type of boutique, with a certain brand profile and a certain buying style. With every boutique we feel like we have the best buyer in town.
“It’s not quite the Frosties secret formula, but it’s definitely a differentiator between us and anyone who’s doing something similar to us.”
“Atterley occupies a unique place in the market,” adds Murray. “Contemporary bridge collections, accessible pricing [entry-level T-shirts cost around £18], and a mix of known and niche labels.”
Debra McCann, owner of London women’s and men’s wear retailer The Mercantile, says: “Atterley gives us more of a reach to customers that may not have heard of seen The Mercantile. Their demographic is the same as ours, their commission rate is lower than most and I liked their attitude.”
There is some work to do on the site. The brand visuals are a messy mixture of campaign shots and product images, while the link to the independent that stocks each item is easy to miss. When you click on it, you are taken to a page of more product, but there is no information about the boutique.
The platform recently launched image search and Welch says the investment from PDS will be used to make further improvements to the site’s content and functionality.
Welch met Palak Seth, the vice-chairman and founder of PDS, while he was exploring options to develop Atterley’s supply chain and release some capital.
“I was putting all the money in and building the systems. I thought it would be nice to have a partner,” he says.
Own brand will definitely happen at some stage, but to do that we need to have the right expertise
Seth called the partnership a “natural move” for PDS, which supplies many of the high street’s biggest retailers: “It is important that PDS is able to develop insights from data and first-hand experience in online business, to ensure we remain at the cutting edge of fashion and are able to provide market intelligence to our retail customers.”
For Atterley, the investment will underpin international growth and the launch of an own brand. He says he has a model in mind that will avoid the need to hold stock for the brand, but he will not go into more detail at this stage.
“Own brand will definitely happen at some stage, but to do that we need to have the right expertise, the supply chain that can support it, and an innovative partner,” says Welch.
Since the deal with PDS was inked, Welch has been busy making some key hires, including Blackcircles head of international James Eccleshall, who joined Atterley last month to head its customer experience and operations, and former Skyscanner senior growth manager Murat Ozkok-Ohr, who is moving across in the same role. He has also hired someone from the fashion world to head up Atterley’s boutique recruitment, but will not divulge his or her name.
These hires will bring its total headcount up to 15, most of whom are based in Edinburgh.
I was putting all the money in and building the systems. I thought it would be nice to have a partner
About 70% of Atterley’s boutiques are in the UK, and the rest are spread across Germany, Italy and Spain. Welch estimates that Atterley will eventually have an even split of retailers in the UK and mainland European, totalling between 300 and 400 within the next two years.
“The key will be the quality. We could bring on a thousand boutiques, but their inventory has to be right, and they must have the stock and the ability to dispatch it on time.”
Of the 83 countries to which it now ships, the US is by far the largest “and the most exciting” outside of the UK, Welch says. He will spend three months in Miami from February, where he will work through a base strategy for targeting the US customer.
He admits that one of the challenges of the model is managing the cost of delivering goods to countries as far flung as Australia: “On some orders you don’t make as much as others. But we don’t stock many cheap items that you can buy in Sydney. We know how much a return costs us, and we know how much a shipment costs us.” He adds that Atterley’s returns rate is relatively low, although he will not give a figure.
List of possibilities
Another longer-term opportunity could be a flotation on London’s junior Aim stock market. Encouragingly, Farfetch’s flotation on New York’s Nasdaq in September valued the retailer at more than $5.8bn (£4.44bn).
“Farfetch set a precedent in the market in terms of the value appetite for businesses that look like this in fashion,” says Welch. “I don’t think Atterley would ever be a full list, but an Aim list could be a real possibility.”
In the meantime, he insists that Atterley will “stick to its knitting”, and focus on getting its customers in the door at the right cost relative to its profit, retaining them and keeping its conversion rates high. Its cost per acquisition is less than £10.
Atterley is still a relatively young business. Its biggest challenge is the fact that it is not the only platform for independent fashion retailers, and many of the brands it stocks are investing in their own online operations – so it must provide an experience that shoppers cannot get elsewhere.
The injection of cash from PDS should help Atterley to improve its website functionality. This must be a focus before it starts to ramp up the number of boutiques on its network. Meanwhile, its own brand ambitions could help to further differentiate it from the competition. With this latest round of funding, Atterley could become a significant player.
Welch is certainly confident of its potential: “We’re not so important boutiques can’t do without us, but that will come.”