Uncomfortable facts are still facts. You don’t necessarily want to think about them, but they are still true. And, to be a responsible investor, you have to look at the world with a computational self-honesty.
A good example of this is the number of millionaires and billionaires in the world. Even as we wallow in a pandemic recession, the number of super-rich people grows and grows.
According to recent economic research, the rich are likely to get much richer from the current turmoil because balance sheets are everything: If you don’t have enough capital to maintain your capital structure for any organization, you may have to let it go to someone who has the cash to see it through.
The simple example is to imagine a mom-and-pop breakfast restaurant up the street. They may have to shut their doors and sell the business to Denny’s or IHOP in the months ahead because they don’t have deep enough pockets to survive for enough months with basically no revenues during the pandemic crisis. As such, the lease, the kitchen equipment, the location, and its relationship with the community – all of that is still a business. But it just becomes a new Denny’s because Denny’s has the deep pockets necessary to make it to the other side of this virus.
Take that as a metaphorical map of what’s happening right now. It’s happening in everything. It happened in the stock market rapidly in March. Stocks fell so fast that overleveraged, shallow-pocketed investors were forced to dump positions into the hands of richer people at distressed prices, who are now much, much richer for that transition. It’s not an everyone-hurts cyclical downturn. It’s a wealth transfer, plain and simple.
It’s not fun to think about it that way. But as investors, we need to examine the bloodless verdict of the marketplace and act accordingly. In this case, there are a number of rich-get-richer trades to be had – with big tech being the most obvious, and most played out. But we want to focus on a relatively new angle on this dynamic that may be relatively underappreciated: the rare custom luxury goods by-appointment consumer market.
And the stock that may most perfectly capture this theme right now is small-cap Clikia Corp (OTCMKTS:CLKA).
The Model… and the Money
Clikia Corp (OTCMKTS:CLKA) engages in the sale of extremely high-end watches and jewelry, with plans to expand into a number of other product categories, potentially including rare custom luxury cars, clothing, electronics, and possibly even real estate. The model is the key point to understand. It is based on access to a network of suppliers and buyers. That amounts to “being in with the super-rich”.
The company’s founder and CEO, Anil Idnani, has established those relationships and brings them to the table in the form off Maison Luxe, which is now a wholly-owned subsidiary of Clikia.
The establishment of this model has instantly turned around the fortunes of this left-for-dead stock, and we’re not sure the market has priced in the transition, which is a key reason we point it out here.
Clikia is suddenly doing solid seven-figure sales seemingly overnight, after booking basically nothing in sales for the prior few years.
We get this impression straight from the company’s official materials, which suggest CLKA is on pace for well north of $2 million in sales in 2020. That is coming from Maison Luxe individual sales deals with very-high-net-worth clients, as well as its negotiated relationships with duty-free sellers in Colorado, Alaska, and the US Virgin Islands.
That last point was brought up in a recent press release in which the company noted that it had already booked over $300K in sales in recent weeks on a wholesale basis with its duty-free partners.
The combination is a great start. But the ceiling looks to be quite a bit higher even for this small part of the equation.
“The idea is to grow a brand that sources retail markets with responsibly sourced and priced watches,” remarked Idnani. “That’s typically nearly impossible to find. This is now more the case than ever due to a supply shock as factories shut down or halt production of luxury goods. However, demand hasn’t dropped at all this year despite the health crisis and resulting economic turbulence. The result is rising prices on inventory we have in-house.”
The Path Ahead… and the Money
The vision for the company is to leverage its superior market positioning and experienced leadership in the domestic US custom luxury watch and jewelry space as a launching point for expansion into the global custom luxury goods marketplace, with potential for expansion into high fashion, exotic custom automobiles, luxury accessories, and other by-appointment, rare luxury items.
The model that Maison Luxe has developed, in managing by-appointment disruption in market inefficiencies in custom high-end luxury goods, has wide applicability to geographic and product category expansion. Additionally, the Company believes that this model has not been widely developed in terms of market competition, creating a strong opportunity for return on invested capital in expansion.
Expansion in both geographic and product category creates the potential for strong expansion in total addressable market for Maison Luxe in the future.
The other key here to appreciate is the feedback loop of success available to a company in this space that starts with the right connections.
As a company like CLKA sees greater access to capital, management believes margin expansion will become a function of volume purchasing for key items that carry little risk of long-term demand shortfalls and are also capable of price appreciation over time – which is a feature of inventory factors in the high-end custom luxury goods market.
Future capital deployment is anticipated to emphasize margin expansion through optimizing held inventories, creating volume input price advantages for any company in this position.
Additional core investments will be made in multifaceted marketing strategies, including the development of key influencer relationships, with an emphasis on social media networking. In addition, significant investments are expected to go toward developing additional product sourcing relationships outside of the US market and in multiple additional product categories.
And, again, the results so far are actually on track to be almost astonishingly good – as far as we can tell from company materials – in terms of turning Clikia around from a relative nothing to a company now driving huge topline growth and millions of dollars of cash flowing in the door.
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Published at Wed, 29 Jul 2020 06:12:10 +0000