Money Rehab with Nicole Lapin - How Soho House Lost $118 Million Last Year — and What It Tells Us About Scaling Exclusivity

Episode Date: March 27, 2024

Today, Nicole follows the money trail of Soho House's financial problems and unpacks the key question: how do you scale a business built on exclusivity?

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money is working as hard as you do. So why overcomplicate your money? Keep it simple with Bank of America, your one-stop shop for everything you need today and the goals you're working toward tomorrow. To get started, visit bofa.com slash newprosmedia. That's b-o-f-a dot com slash n-e-w pros p-r-o-s media. bfa.com slash newprosmedia. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. it's time for some money rehab. So there are two really popular trends right now in business strategy. I know you've seen them both. The first one is community. Lots of companies now are trying to make their brands feel like not just logos and products, but communities. And the second is scarcity. You have definitely seen this. Social media-centric brands launching a new product and then selling out in one day, usually because there's limited inventory. But it looks

cool. There's one company that's encompassed both, Soho House. But how do you scale a business that's built on exclusivity? Soho House doesn't know the answer, and that is problematic. Soho House's origin story begins in London. The brand was started by entrepreneur Nick Jones nearly three decades ago. The goal was to be more than just a club. And isn't it always? Soho House's mission was to be a sanctuary for creatives, a space where the artistic and the influential converged. In other words, a hub for the rich and famous. And at first, it totally worked. Prince Harry and Meghan Markle, Kate Moss, Kendall Jenner, and other big celebs were members,

and the club really nailed that cool, exclusive vibe. Beyond the application process, one thing that has always reinforced Soho House's exclusivity is the membership fees. As of today, the membership fee to Soho House New York is $2,850 a year. And if you want access to all Soho Houses around the world, it's $5,200. But as Soho House expanded its footprint globally, the narrative began to shift. What was once a tight membership criteria got a little looser. And instead of Soho House being a hub for creatives, it started to open its doors just a little wider and welcomed in the finance bros. They also welcomed me in, so they've definitely loosened their reins.

This pivot made sense from a financial perspective, sure, but it wasn't good for the brand. Or at least, that's what OG members said. The original members saw this move as a dilution of the very essence of what made Soho House unique. So the club was at a crossroads between its boho roots and profit. And then in 2021, during the pandemic, Soho House went public. On one hand, I get it. Taking a company public is a great way to raise more capital for your business. And for a company with a membership-based model, taking capital from investors means that you don't have to take capital from members in the form of hiking up membership fees. But for Soho House, going public was an interesting choice because still, to this day, the club has lost money every single year

since its founding. Going public was a potential new avenue for growth, but it also meant that Soho House wasn't just answering to disgruntled members. Soho now had to answer to Wall Street. And unfortunately for Soho House, short sellers saw an opportunity. Short selling is essentially the practice of making investments hinged on the assumption that the value of a stock will go down, not up. At the time, short sellers, specifically the investment firm Glasshouse, known for short selling, drew parallels between Soho House and WeWork. And obviously, WeWork crashed in a pretty big way. So this hurt Soho House's stock performance. As of right now,

the stock is down over 50% from its IPO in 2021. And in 2023, the club reported losses of $118 million. But I've got to hand it to them. Soho House has shown resilience and an ability to adapt that is pretty awesome. Despite the losses in 2023, the numbers weren't all bad. The numbers of members increased by 20%, and the waiting list hit record highs. Soho House continues to expand all over the world in different cities, and we even got a little insight from Buying Beverly Hills' John Grauman on the show recently. And a little tidbit he heard from founding member Ron Burkle. out there, a lot of money had started moving out there. And as I said, you got to follow the money. And I had heard rumor that the owner of Soho House, Ron Burkle, had actually bought the Lake Arrowhead Resort, the big hotel there. And a friend of mine happens to represent him. So I

called him. I said, hey, I'm thinking about making this offer. Can you call him and find out if this is true? And he called me back in five minutes and said, yeah, no, he bought it. And supposedly, it's turning into Soho. That, again, creates so much new relevancy, which is going to create more interest and demand. And that'll drive more traffic there. And that'll bring values up. The issue that Soho House has been grappling with is not an easy one to solve. Again, it's a problem of scaling a concept that's inherently exclusive. It's an interesting question, right?

How does one maintain a vibe of exclusivity while looking for growth in a global marketplace? How does one maintain a vibe of exclusivity while looking for growth in a global marketplace? How does the brand stay true to its roots while navigating the demands of shareholders and the public markets? What we're seeing now is Soho House trying to bridge the gap between its artsy aesthetic of the past and its aspirations as a global and profitable entity. This gap is, of course, riddled with challenges, but there are opportunities too. As this story continues to unfold, it will undoubtedly provide insights, lessons, and perhaps a few cautionary tales for other brands navigating similar waters.

In the world of luxury branding and finance, the story of Soho House is a fascinating study in the art of balancing exclusivity with expansion, tradition with innovation, and the past with the future. For today's tip, you can take straight to the bank. If you're a member of one of these clubs, know that the price you get in with will not be the price where it stays. This is not a profitability problem isolated to Soho House. Many membership clubs struggle, and if the companies are private or if they're poor-performing

public companies, the only viable people to raise funds from are the members. Members watch the fees closely, of course, and there's always a big outcry when membership fees increase. So look out for other hikes. Are events at the club no longer free? Are the menu prices increasing? Those are the first line of defense charges that will drive up the overall price of your membership. And from there, whether or not it's a good ROI, that's up to you. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Levoy. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have

your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at moneynews and TikTok at moneynewsnetwork for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.