How does a social club business model that relies on exclusivity grow itself quickly? Get a little less exclusive and invite more masses to join... even if it has a ridiculous 27,000 people on it waiting list currently. This is what Soho House - a group of private members' clubs aimed primarily at those in the arts and media - is doing.
The famed exclusive private social club that caters to people in industries like entertainment and media has started exploring ways around the constraints of having a limited membership (and the resultant limited revenues): simply open the doors to more people - and they're doing it with some success. As the Wall Street Journal reported, it is paying off for them:
Soho House & Co. Ltd., known for chic, members-only properties catering to those in creative industries such as entertainment and media, is in the midst of a counterintuitive strategy: expanding its limited-entry club model into a global empire.
The 23-year-old London operation says its 19 locations in nine markets around the world currently have 71,000 members, who pay $1,050 to $3,200 each in annual dues for access to the club and its hip events and social networks. (Food and drink not included.)
The company plans to open as many as five new clubs each year in major cities around the world, and is considering a public stock offering in the U.S. as a way to fund that expansion, said founder and Chief Executive Nick Jones. The company’s current locations include London, New York and Istanbul, and new sites are planned in Amsterdam, Hong Kong and Mumbai, among others.
“We really do feel there are some good, long legs here,” said Mr. Jones, who opened the first Soho House in London in 1995. Location No. 20 is set to open later this month in Brooklyn’s Dumbo neighborhood. “There is a lot of white space for us. There are a lot of countries, a lot of cities where there could be more clubs.”
Soho House’s core business model isn’t new. Private social clubs have been around for centuries, popularized in British high society in the 19th century and later in university and city clubs initially tailored to elite businessmen in the U.S.
Since the selective process of taking in new members isn't based on any type of formula and reportedly seems to be completely discretionary, simply opening up the doors to those hungry to pay $3,200 a year is an easy revenue floodgate for the company to open:
Membership in Soho House is selective. Admission requires a lengthy application and interview process, and the waiting list hovers around 27,000, the company said. But unlike elite private clubs of the past, membership isn’t based primarily on wealth or family status.
There’s no set formula for new admissions. Membership committees for each house meet quarterly and decide how many new members to admit, considering factors such as overcrowding. Members include Matthew Rhys, star of the FX series “The Americans,” and actress Jodie Foster.
Soho House has purged its ranks when members don’t fit the image it wants to portray. In New York after the financial crisis, it removed about 100 bankers from its rolls, the company said. Membership committee decisions are final.
Its average member is 36 years old and getting younger, the company said, compared with an average age of above 50 for the typical U.S. private club, according to data from the National Club Association. Executives say Soho House is tapping into a desire for flexible workplace arrangements such as those offered by WeWork Cos.
At the same time the Soho Club is pushing a posh atmosphere for its members, the company itself has been taking on more debt in order to pursue its expansion plans. This debt has led to ratings downgrades and jostling with the company's bondholders:
Soho House is majority-owned by billionaire investor Ron Burkle’s Yucaipa Cos., which took a 60% stake in the company in 2012. London fashion and restaurant impresario Richard Caring has a 30% stake, and Mr. Jones owns the rest.
The company posted $371 million in operating revenue in 2016, up 21% from a year earlier, according to data provided to the U.K. government. Approximately half of revenue comes from food and beverage, 20% from membership and the remainder from hotel rooms and other services, according to the company.
As it has pursued global expansion plans in recent years, Soho House has taken on significant debt that led to ratings downgrades by Standard & Poor’s and Moody’s in 2016. Those firms found that the company’s construction and development costs for new properties were quickly eating up its cash.
In early 2017, the company agreed to a consolidation of its debt with one of its bondholders, Permira Debt Managers, according to a person familiar with the matter. The agreement extended the company’s debt maturity to 2022, from 2018, and reduced its average cash cost of debt by 30%, the person said.
But the business model for private clubs - despite the average age and average enrollment of members in the U.S. declining - seems to be well in tact.
At least, that's what someone who is the President of a company who consults for private clubs could argue while trying to offer a bond for one of these clubs:
Frank Vain, president of the McMahon Group, which consults for private clubs, said the new generation of urban clubs has found a way to create a mystique around membership without being overtly exclusive or stuffy.
“People always want what they can’t have, and they want something that’s special,” said Mr. Vain. The new clubs “have redefined special. There’s an anticlub aspect to them that is creating a buzz.”
While the idea of a "exclusive" private social club opening its doors to new members in order to expand its growth seems completely counterintuitive, surprisingly in this day and age, it isn’t the worst business model we’ve heard of.