When Soho House announced its New York listing in June, chief executive Nick Jones received an email from the club’s fifth member.
Greg Hunt, a screenwriting agent, wrote that he used to sit in the bar of the first Soho House in central London “wondering if the place will get more busy”.
Twenty-six years and more than 119,000 members later, the company has 30 Soho Houses in 12 countries and secured a valuation of $2.8bn on Wednesday. The private members’ club group raised $420m through an initial public offering, selling its stock at $14 a share, at the bottom of the range it had pitched to investors.
“I would never have imagined I would be sitting here with the FT on a Monday morning pre-float,” said Jones, who started the private members’ club after taking the lease on three adjoining buildings above his Soho restaurant Café Boheme 26 years ago. “I was just hoping to survive 1995.”
The company, which targets “creatives” and has counted supermodel Kate Moss and singer Pixie Lott as members, has transformed in size. For the listing, it is renaming itself Membership Collective Group to acknowledge its other brands including The Ned, a hotel in the City of London, and Scorpios Beach Club in Mykonos.
What has not improved dramatically is Soho House’s bottom line. It has never made a profit, instead expanding through expensive loans and investment from deep-pocketed shareholders. It abandoned a previous listing attempt in 2018. Jones said those potential investors had failed to grasp the benefits of its subscription model.
During the pandemic, restrictions forced its clubs to shut and MCG made roughly 1,000 of its 6,100 staff redundant. Clients could freeze memberships and just 8 per cent of members cancelled, the company said.
But even before Covid-19, the income statement was looking troublesome. Pre-tax losses swelled 37 per cent to $123.5m between 2018 and 2019, while revenues increased 12 per cent to $642m. Last year revenues dropped 40 per cent to $384m and it fell to a $236m loss.
The company is banking on an overhaul of its cost structure and an aggressive growth strategy to woo investors. It aims to be net profitable by 2022 and is listing in New York because the US accounts for 41 per cent of turnover, with members there paying roughly $3,400 a year, the highest fees across the group.
US ambitions
The US is also home to MCG’s biggest shareholder, the retail billionaire Ron Burkle, who owned 53 per cent of the company pre-float and will, alongside Jones and hospitality entrepreneur Richard Caring, another main shareholder, retain preferential voting rights.
With up to 7 per cent of shares on offer set aside for members, Jones said, about a quarter had registered an interest.
MCG plans to open houses in Nashville, Portland, and a second in Hollywood by 2024 as well as a ranch in California, a beach house in Palm Springs and a branch of The Ned in New York. It bought US boutique hotel group The Line in June and plans to open a Line hotel in San Francisco next March.
Jones said the trick to breaking into the US was “not being so het up on failure”. The 2003 launch in New York could have meant “the company not being able to survive because it would have just taken us down, and I thought it was worth the risk”.
MCG has also followed WeWork into the shared office sector with eight sites in London, Los Angeles and New York. Nonetheless its prospectus states it does not have “a single direct competitor” except for local clubs and co-working spaces in individual cities. It claims to be in an “industry of one”.
Debt burden
Of the $450m that MCG hopes to raise, it plans to use $223m paying down some of its $600m net debt, interest payments on which cost it 41 per cent of its revenues in the first quarter of this year. In March it replaced a $345m facility with the buyout group Permira with a £560m loan from Goldman Sachs at an interest rate of 8 per cent, while settling $79m of unpaid interest.
“The main reason for going public is to pay that debt down. We don’t really need it for capital investment,” said Andrew Carnie, MCG global president.
To achieve its target of five to seven new Soho Houses each year, the company is adopting an “asset light” approach through which property owners foot the cost of openings.
MCG plans to lift membership revenues from 26 per cent of the total to more than 50 per cent over time. Other income is from food and drink sales in house and a line of interiors products for which it will open its first studio in September. Naturally, there is a membership attached to that too.
Richard Clarke, an analyst at Bernstein, said that MCG’s subscription model with its recurring income held valuable lessons for other hotel groups as they emerged from the pandemic: “The success Soho House has had growing its member base and the resilience seen through Covid . . . suggest customers are willing to pay upfront for status, exclusive experiences and perks.”
He added that the youthful skew of the group’s clients indicated “demand for these subscription-type memberships should remain strong in years to come”.
For Jones, adding membership to any brand is an obvious choice and he plans to offer its services to other businesses.
Even the underwriters can apply
Pierre Dourneau, MCG’s North America managing director, who joined as a waiter in Café Boheme in 1995, said Jones is “non-stop” and that the company’s entrepreneurial ethos means that “if you are nice . . . you are going to struggle”. Some staff stay three to four months. Others, like Dourneau and membership director Vanessa Xuereb, another longtime employee, love the “organised chaos”.
One former design team employee, however, said the speed of growth meant that managers had not had “their heads screwed on as to what needed doing. They brought in a whole new team [but] gave us little feedback and little understanding of what we needed to do.”
Ben Silverman, producer of the US version of The Office and a member since 1996, said he valued the familiarity of the clubs: “It is great to be with like-minded people in Berlin or LA or Austin, Texas, but you will also find people you know as well as from the new location.”
Some members, however, fear that rapid expansion could devalue their membership. “Soho House still holds an allure but it has been diluted,” said a London member of more than three years.
Jones said MCG made every effort to “make sure we are a local club for local members, not a transient club for people who might not be living in a city for a long time”.
As for the criteria: even bankers could join, he said, if they had a “creative soul”.