PRIME SERIES
Despite the rise
of consumerism the retail industry may be experiencing its greatest challenges
in history. The entrance of digital
technology to the retail process has created opportunity for some and threats
for others. Retailers must deliver a
shopping experience that gives consumers the immediacy and personalization they
have experienced on other digital platforms.
Younger shoppers are also adept at mixing on-line and in-store channels
for a single purchase and are disappointed with those retailers that confine
them to a single path.
It all sounds
very modern, but even retailers who serve customers across multiple channels
and are ever present through mobile connectivity still struggle for financial success. The problem is that contemporary shoppers
have penchant to order merchandize and send it back. Costly returns have become the bane of
merchants.
A solution to retailer’s
returned merchandise problem comes from My Size, Inc. (MYSZ), a developer of
sensor-based measurement technology. The
My Size measurement tool can be used in digital shopping and shipping channels
to make certain buyers get things right the first time.
MySize is a
fledgling company and has not yet captured revenue or profits from its measurement
innovation. However, a growing string of
new relationships in its target markets suggests the company is about to turn
the corner to success. The timing could
not be better for investors to look closely at MYSZ shares.
Swipe for customer service…
As consumers
have shifted their buying activity to online platforms, their selection
behavior has changed. Many buyers order
a product with a plan to immediately return some or all items in the
order. As a consequence, ‘returns’ to
the seller have increased by five times compared to the frequency of items
being taken back to brick and mortar stores.
According to eMarketer return rates are in a range of 8% to 10% in brick
and mortar stores, but are double that for e-commerce sites. Half of high-ticket items or luxury goods are
returned for store credit or refunds.
Returns cost
retailers in restocking activity, goods lost to damage in handling or losses in
shipping. Retailers are experiencing
lower profit margins and weakened conversion rates from online advertising and
promotions. Reverse Logistics
Association reports that the return and repair process accounts for 10% of
total supply costs.
The high cost of
returns does not end in the retailer’s back room. The average cost of a return label for shipping
with the top logistics carriers is $6.75.
Statistica estimates that in 2020, return deliveries could cost as much
as $550 billion. The astounding number
is 75% higher than just four years earlier.
The Fitting Room
The number one
reason for merchandise returns is that the size is wrong. Return Magic recently completed a survey of
1,000 business and compiled data from 800,000 customers of the online retail
platform Shopify. The study found 30% of
customers returning merchandise thought the product they got was too small and
22% found the product too large. My Size
management cites data suggesting that size is the culprit in as much as 80% of
returns of merchandise bought on-line.
One solution to
reduce returns and improve customer experience may be to replicate the accuracy
of the brick-and-mortar fitting room.
My Size Solution
My Size has
developed a mobile application called MySizeID
that turns the smart phone into a measurement tool using sensors already built
into the device. The user’s home or
office can be transformed into a private fitting room. Users are provided a tutorial video that
shows exactly how and where to place the smartphone so measurements are
accurate.
The app records personal
measurements that are saved on a secure and encrypted server for future
reference when the user shops for garments from a participating on-line
retailer. While shopping online the user
clicks a MySizeID widget or icon on
the retailer’s site to receive an immediate size recommendation based on a
comparison of their particular data and the retailer’s size charts.
Retailers can
license the MySizeID app directly or
display their own branding on a white label version. MySizeID
is the only sizing solution that allows its Standard Development Kit or SDK to
be integrated with the retailer’s app so customers do not have to switch back
and forth between apps. There are both Apple
iOS and Google Android versions of MySizeID,
exposing the app to the vast majority of smartphone users.
Box Size Does Matter!
The cost burden
of returned merchandise is not confined to product recovery. Retailers are also hit by higher shipping
costs, especially if the retailer has offered free returns. On-line retailers already have a shipping
cost issue on the original order if that have promised flat rate shipping or
offer free shipping on orders over a certain value.
At least two of
the major shipping and logistics services providers for e-commerce, UPS, DHL or
FedEx, apply dimensional weight to every package picked up by their
drivers. As a consequence for a given
weight the larger the box measurements the higher the shipping charge. Entering correct box size can yield shippers
big savings.
My Size offers
the BoxSizeID mobile app for
measuring a package using a smartphone.
The app then calculates shipping costs and arranges for package
pick-up. BoxSizeID is also available on both iOS and Android platforms.
Size of the Matter
The core of My
Size’s technology is encompassed in SizeIT,
a measuring tape Standard Development Kit or SDK. It is this SDK that is activated when users
measure objects by moving the mobile device from one side to the other. The Company’s patented algorithm relies on
motion sensors already embedded in the smartphone to calculate the
distance. SizeIt encompasses the foundational technology for the MySizeID and BoxSizeID apps as well as a third product called the SizeUp ‘smart’ measuring tape app.
My Size has
built a robust platform encompassed in its SDK that gives retailers a
plug-and-play solution. It can be easily
set up and managed by the retailer. By
standardizing features in the SDK, the platform can be economically deployed
without time consuming and costly customization. MySizeID
licensees are given a one-month trial period to evaluate the performance of the
technology and their set up under live, real-time shopping conditions.
The MySizeID has already been adopted by top
on-line shopping platforms, Shopify and Lightspeed. Shopify offers the MySizeID to all its retailing partners at a flat monthly fee,
explaining the app as a means to ‘help shoppers pick the rights size, every
time.” Lightspeed tells its retail
partners to “forget about return shipment hassles or costs” with MySizeID. The most recent convert to MySizeID is Penti, a Turkey retailer backed
by the Carlyle Group. Penti has set a
goal of cutting return rates in half.
Ramp to Recurring Revenue
Getting more
retailers and on-line platforms signed up is the key driver of My Size revenue
streams. The company receives a license
fee every time one of its apps makes a size recommendation. Management has indicated it expects as many
as 20 million size recommendations in 2020 from platforms already signed up or
in trial at the time this article was published. Fees vary depending upon the agreement in
place and could range from just a penny to a dime for each size recommendation.
Investors can
expect to see ramp in initial revenue in 2020.
Management plays it down because it will take time to drive the pace of
recommendations. However, as the app is
downloaded and put into use, recommendations should build and My Size license
fee will follow. Earnings should be
right behind as management expects profit margins typical of
software-as-a-service business models.
Competition
There are other
developers who have recognized the need to get the right fit in e-commerce. However, not all the available apps actually
‘measure’ and others stop well short of determining size.
True Fit is an app recognized by My Size management as a potential
competitor. In our view, that is a
generous view on what True Fit can accomplish.
Users select their body type and provide a bit of information about
brands they like and indicate the sizes of any clothing items they already
own. From that little bit of
information, the app divines the correction size you need to the garment you might
buy next. Then every time the consumer
shops for a True-Fit rated garment the consumer’s recommended size will pop
up. No measurements needed, but shoppers
dare not gain or lose an ounce! We might not be impressed, but more than 3,000
items have been rated by True Fit on Nordstrom.com and there are at least a
dozen other retailers such as Brook Brothers that are also signed up with True
Fit.
Another player
in the measurement field is Upcloud’s Size Advisor, which also relies on
the user to know and accurately enter body measurements into the app. Size Advisor then compares that data to the
selected garment to render a recommended size and offer fit commentary. North Face and QVC Shopping Network have adopted Size Advisor
for their respectively e-commerce sites.
My Size management
also recognizes Virtusize as a potential competitor, in part perhaps
because it has been adopted by over two dozen online retailers including
Esprit. This app also relies on the
sizes of garments you already own to compare to the new item you intend to
purchase. By contrast MySizeID users do not need to know their
old sizes, and can rely on the easy-to-use app to get an accurate and current
size measure and recommendation.
The player for
My Size to beat could be Me-ALity with its in-store kiosk. Users must go to a Bloomingdale’s
brick-and-mortar store at least once and enter the Size-Matching Station for a
free-scan that collects 200,000 points of data.
The stations use the same technology as the full-body scanners used at
airports. The app renders the best-fitting
styles and sizes for garments sold by partner brands. More than 150 different sites use Me-Ality, including
Bloomingdales, Banana Republic and Vince Camuto. My Size management does not see a threat from
Me-Ality, perhaps because the service is available at just a few stores in New
York and California.
Measuring tape
apps are also circulating in My Size’s target market. EasyMeasure uses the camera on a
mobile device to calibrate the distance between two points on images captured
by the camera lens. The app is available
on both Apple’s iOS and Google’s Android smartphone and tablet platforms. AR MeasureKit is another measurement
app available on the iOS devices that depends on the device camera and
augmented reality technology to calibrate point-to-point distances. A similar measurement tool called Smart
Measure is available on the Android platform.
Importantly, My
Size has four issued patents to protect its intellectual property in Japan,
Russia and the U.S. Another eighteen
patent applications are pending that could give the company more protection
from competitors trying to copy My Size measurement algorithms.
Working Capital
The presence of
several avaricious competitors gives My Size some incentive to move swiftly on
the large market opportunity for sizing solutions. As investors know, it takes a well fortified
balance sheet, specifically ample working capital, to really put the pedal to
the metal.
My Size reported
$2.6 million in cash on its balance sheet in September 2019, the last time the
company reported financial results.
Working capital was $2.5 million, excluding an allowance for warrant and
derivative liabilities. That might seem
like ample resources, except My Size has been using about $450,000 in cash each
month to support operations. At that
rate of spending, the September 2019 cash kitty would have lasted about five
months or until about the end of February 2020.
To get prepared,
in January 2020, the company completed a direct offering of its common stock,
raising $2.0 million in new capital. The
added cash extends My Size runway for an estimated four more months.
We also note
that My Size has an ‘at market’ equity sales agreement with investment banking
firm H.C. Wainwright for up to $5.5 million in common stock. Reactivation of the sales agreement would
require filing a new shelf registration with the U.S. SEC, but this does not
seem to present an insurmountable obstacle to opening up that source of
capital.
‘Returns’ Value
Puns aside,
there could be an interesting return to holders of My Size shares. There is plenty to give investors confidence
in My Size future success: a highly
competitive, leading-edge product, a series of new relationships to deliver
fast market penetration, a high-margin business model, and access to capital
for growth. Investors in the recent private placement
bought My Size common stock at $3.89 per share, well below the current stock
price. Patient investors with the time
to wait for the expected ramp in revenue, MYSZ presents a compelling value
play.
Neither the author of the Small Cap
Strategist web log, Crystal Equity Research nor its affiliates have a beneficial
interest in the companies mentioned herein.
Underwriters of the Prime series may
have a beneficial interest in, serve as agents of, or act as advisors to the
companies mentioned herein.
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