Brayola, the Israeli startup selling custom-fitted bras online to the global market, appears to be reaching the end of the line, at least as far as its current business model goes.
Responding to a request for court protection from creditors filed by Brayola last week, Tel Aviv District Court Judge Hagai Brenner on Sunday appointed two trustees for the company – Ronen Ashkenazi, who is Brayola’s chief financial officer, and attorney Avi Abramovich on behalf of Mizrahi Tefahot Bank.
Appointing two trustees is the usual practice in case one of them is an employee of the company.
Brayola had petitioned the court after getting a letter from Mizrahi Tefahot Bank demanding that it turn over the collateral it had pledged against $2.3 million in loans, as well as appoint a receiver and act to sell the business. All told, Brayola has debt of $7.4 million, the company told the court.
Founded in 2011 by Orit Hashay, Brayola enabled women to buy bras without taking measurements. Instead, users fill out a short questionnaire on the bras they already like (brand and size) and get back recommendations on other bras that fit similarly, based on a database of other customers with the same preferences.
Over the last eight years, Brayola has built up a database of bra preferences for 2.5 million women.
When it was founded, the concept was regarded as an innovative solution to a class of apparel that is notoriously difficult to sell online because they are so hard to fit without going into a store and trying one on.
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At its peak, Brayola employed 30 people, but the number has since fallen to just nine – seven in Ramat Gan and two in New York. The company raised $12.5 million over its lifetime, with its most prominent backers being The Firstime Fund, HDS Capital, the founders of the ride-hailing startup Gett and Haim Dabah, the brother of Isaac Dabah, who controls the Israel’s apparel company Delta Galil.
The request for a stay of proceedings revealed that Brayola had been in advanced talks to sell itself to Delta and had even exchanged draft contracts. However, about a week-and-a-half ago Delta pulled out of the negotiations. Brayola said the deal would have included complete repayments $4.9 million in debt, with the rest of repayments covered from Brayola’s revenues. Shareholders would have received nothing for their stock, but 81% had voted in favor in order to rescue the company.
Apart from Delta, Brayola had had discussions with Rakuten, the Japanese online retailer that had acquired Israel’s Viber five years ago for $900 million. Rakuten had offered to buy Brayola for $32 million, part of which would be subject to milestone achievements paid out over several years.
The Rakuten deal also collapsed, but in its court statement Brayola said it showed that the company continued to have commercial potential. Another possible buyer for the company in the past was Victoria’s Secret.
Based on the offers it has received to date, Brayola said its intellectual property is worth $6 million or more. It plans now to sell the entire company because its assets separately would be difficult to sell. The primary one is its database of women’s bra preferences, which were supplied to Brayola, and selling it to another company might violate U.S. and Israeli privacy laws.
In addition, Brayola has $692,000 in cash and merchandise inventory worth $200,000 at cost. It also has $17.5 million in accumulated tax losses.
Brayola’s business model is based on drop shipping – it would directly transmit orders to manufacturers, who would then ship them directly to Brayola’s customers. Brayola’s profits were on the margin between the wholesale and retail price of the products.
Its gross monthly turnover ranged between $1.7 million and $2 million, although its generous return policies meant that on average 11.5% of sales were returned. Gross profits were 45-47%. However, that volume wasn’t enough. According to court filings, Brayola needed to do $3.3 million monthly and a gross margin of 51% to break even.
Brayola marketed itself via email, Google and social media. However, Facebook, which was its biggest marketing channel, cut Brayola off after it had used up its credit line.
In August, traditionally its strongest month, Brayola said its sales declined amid fierce competition from bigger rivals cutting prices and shipping for free.