Soho House Entering a Club of Its Own: The Stock Markets

LONDON — Since its inception, the Soho House chain of members clubs has been associated with exclusive hangouts for the jet set, where celebrities and deep-pocketed professionals shell out thousands of dollars each year to gather in sleekly designed urban redoubts.

Now its parent company, Membership Collective Group, is set to join a different sort of club — the public stock markets — when it begins trading on the New York Stock Exchange on Thursday at a roughly $2.8 billion valuation. The company has raised $420 million from its initial public offering, at the low end of its expected range, largely on the promise that it can continue to rapidly export its model across the globe.

“There’s huge global opportunity,” Nick Jones, the company’s founder and chief executive, said in an interview. “We really, really think it’s the time to do this now.”

MCG’s new life as a public company will test its proposition that a business built on exclusivity — 59,000 people were on its wait list for membership as of May 30 — can achieve ambitious growth targets.

Mr. Jones, who in 1995 created the first Soho House in a central London restaurant as a modern take on traditional gentlemen’s clubs, argued that MCG follows in the footsteps of companies like Peloton, which has parlayed the status symbol created by its pricey exercise bikes and treadmills into reliable subscriber fees.

Soho House now has roughly 119,000 members at 30 clubs around the world, drawn largely from industries like the arts and the media. Mainstays also include celebrities: British tabloids tittered for weeks over reports that Prince Harry and Meghan Markle had spent an early date at one of the Soho Houses in London.

But MCG must also prove that its business is durable.

It has lost money for its entire existence, including $235.3 million during pandemic lockdowns in 2020, nearly double what it lost the previous year. In-house sales of food and drinks, a major source of revenue, plunged 60 percent in 2020.

And the company’s balance sheet has been weighed down by debt: It carried $2.1 billion in total liabilities as of April, taken on largely as part of its expansion efforts.

MCG executives argue, however, that the worst is over for the company. Even during the pandemic last year, its retention rate was 92 percent, as members largely opted to keep paying their dues. And when clubs have been able to reopen, according to Mr. Jones, members have largely flocked back.

“We don’t have a problem with demand,” he said. (One thing that has changed, he conceded, is that members aren’t staying out quite as late as they did before the pandemic.)

Latest Updates

That mirrors the overall arc of demand for private clubs, said Bill McMahon Sr., the chairman of the McMahon Group, a consultancy to the industry. At least in the United States, the industry as a whole has boomed, most likely thanks to the buoyant economy. The number of new clubs has risen, as has the number of applicants for them, particularly those 55 and younger, Mr. McMahon said.

“When people have more money in their pocket, they’re signing up,” he said.

MCG hopes to add three to five clubs every year across its brands, which also include the Ned and the Scorpios beach clubs, according to its prospectus.

If anything, those goals are conservative, suggested Andrew Carnie, MCG’s president. The company opened a Soho House this spring in Austin, Texas, with clubs in Paris, Tel Aviv and Rome also set to debut this year. Seven clubs are expected to open next year, including a Scorpios resort in Tulum, Mexico.

The company expects to pay down much of its debt with proceeds from its stock sale, Mr. Carnie said. And it hopes to finally turn a profit by the end of 2022.

MCG has also been expanding its offerings. Last year, it rolled out Soho Friends, which allows limited access to clubs and events for an annual fee of 100 pounds, or $138. (Traditional full-service membership costs about $3,400 a year.)

The company has also emphasized its Soho Works co-working spaces, which operate in three cities and count more than 1,000 members. It is expanding its Cities Without Houses memberships — meant for residents of cities where the company does not yet have a presence — to 80 locations by next year.

And this year, it will roll out a digital membership aimed in large part at attracting customers across Africa, Asia and South America and allowing them to connect with existing members.

Perhaps MCG’s biggest test, however, will be its effort to expand beyond the high end of the market. Last month, it acquired the Line group of hotels, with the aim of introducing memberships for slightly more downscale accommodations around the world — something that, Mr. Jones said, the company can manage alongside its traditional elite clubs.

“We want to cover every angle,” he said. “It doesn’t matter which market segment we’re going for.”

Source: Read Full Article