Silkroll
Silkroll is an online service founded by two women entrepreneurs in San Francisco, CA, that wants to help extend the life of a piece of clothing while keeping their customers fashionable through a new marketplace where customers can trade their clothes.
The Silkroll service serves as an intermediary between buyers and sellers of second-hand clothing, accepting pieces that are mailed in, valuing them, and shipping them back out to buyers. Each piece of clothing is assigned a point value "equal to the value of the clothes". These points, in turn, can then be used by sellers to purchase other clothes through the platform. The entrepreneurs claim to have a proprietary database of point values and quality grades to help determine the value of each article of clothing. Interestingly, the entrepreneurs state that fully 25% of all clothes turned into the service are discarded and that potential sellers are dinged points from their account for not doing their homework first.
Silkroll, at the time of airing, claims to have traded $2,300,000 worth of clothing items through the platform. To earn revenue, the company charges a 5% transaction fee and has earned $35,000 thus far. Additionally, buyers can purchase points in bundles. These bundles of points offer a sometimes steep discount of the supposed $1 per-point value, with the entrepreneur stating that the points can be had at $0.50, $0.33, and even less per-point value depending on the size of the bundle purchased.
To help surface items that may ordinarily go unseen over the most popular items, the entrepreneurs state that they are building style-matching software to help connect unique items to purchasers they might appeal to.
Barbara stated that she didn't feel as though a 5% commission was enough to survive and dropped out of the deal. She also stated that she was not a fan of the name "Silkroll." Mark said that he heard a lot of buzzwords like "machine learning" and "market effect" but thinks that they've skipped over actually looking for and servicing customers.
Robert said that he found the whole presentation confusing with the different types of numbers and values being tossed around. And, because he couldn't follow it, he also dropped out of the deal.
Mr. Wonderful said that the entrepreneur's biggest mistake was the over $8,000,000 they assigned themselves and that it was, essentially, an insult to the sharks. Lori agreed with Kevin about the valuation and also dropped out leaving the entrepreneurs without a deal.
As a parting shot, Kevin stated that he wanted to invoice the entrepreneurs for the time that they had taken up.
This deal aired on Episode 10.17.
Analysis
The idea of a "global consignment store" is not actually a bad idea and does represent a good way to maximize the value of a single piece of clothing for the seller. It is not much different than the idea behind eBay. The reason that people used to go antiquing was because there were places where nice furniture could actually be had at a bargain. However, have you noticed that there no longer seem to be deals to be had? This is because of eBay. Antique (and other types of) dealers can now sell into a national or global market and set their prices accordingly.
This same thing exists with consignment stores. In some places, there may not be much of a secondary market for clothes. As such, the prices for those used articles would be much cheaper than if the same item of clothing were sold into a market with more demand. With a national or global marketplace, suddenly the true fair value of second-hand clothing can be found and paid.
The problem with this deal is not that the idea is bad it's that, as Robert stated, it's just too confusing. There are typically two reasons to use a "points" system instead of just a straight currency value. The first is the reason Las Vegas uses chips; to abstract the value away from actual money in the hopes that the user will spend more. The second is to make money on the margins. In this case, say each point were worth $5. If you turn in a piece of clothing that's worth $42, you might give the customer 8 points. When they redeem these points, they only receive $40 in value and the company has essentially banked the $2. In the short term it may not sound like much but over hundreds and thousands of transactions, it adds up to significant value for the company. In this case, each point is just one dollar so the point system serves no purpose but to confuse customers... and investors.
Additionally, this deal suffers from a problem that a lot of online services suffer from, which is the "Two Market Problem." Put simply, this service offers two markets, one for buyers and one for sellers. There have to be enough sellers on the service in order to lure buyers but if there aren't enough buyers, sellers will evaporate. Once you reach a critical mass, this stops being a problem but when you consider the number of online trading marketplaces that you can think of, you might also realize that fewer companies than you might originally think have solved this.