Nabru is a company that makes modular sofas meaning you can completely customise your sofa, from the size of the cushions down to the number of arms and the colour of the covers. My girlfriend and I were looking to acquire a corner-sofa-bed, which doesn’t sound very complex, but turned out to be as we had tight specifications:

• no leather or any fabric of the sort,
• around £1,000 (most sofas in DFS, John Lewis were about £2,000),
• durable (i.e. hard cushions that stay hard for a long time),
• has to fit through our flat – we have a corridor making quite a tight angle into the room.

After much shopping and testing, we came across Nabru by searching for corner-sofa-bed on the Internet. In a nutshell, Nabru offers a few ‘standard’ configurations, which you can customize or you can design your own sofa. We went with the latter and visited their showroom to give us an idea of what the fabric looks like and what some of the options are (N.B. you can order fabric swatches to get a proper feel). The sofa arrived a mere 3 days (!!!) after ordering it (we ordered it on a Sunday). I didn’t take a picture of what you receive but you can imagine a pallet full of bits and bops about 6 feet high… quite daunting.

The following videos are to show what the bits look like and give you an idea of assembly. It was very easy but a bit time consuming to put together, but great fun overall. I love the fact that everything is modular and everything can be ordered-reordered afterwards. If you ever have a party and break an arm, you can order it! if you ever stain in in a way that is not washable (all covers come off), you can order new ones!! It is truly amazing.

The Business

I find the business truly remarkable and it must be even more fun from the inside. As a reference, we paid our sofa £755 (yes, no typo) and there were quite a few people in the showroom (I believe all of them ordered when we did). Let us assume that the 3 couples all ordered a sofa during the 2 hours we were there (a Sunday). That would be about 18 sofas ordered during the weekend. We can use an average price of £800 as there were cheaper options but also way more expensive ones. The week is probably a bit slower for business and Nabru probably still gets about 10 sofas ordered a day. Overall, this is about 70 sofas ordered for an average price of £800 or a revenue of £56,000 or for a 50 week year about £2,800,000/year. Not bad a business to be in, at least for the revenue side…

Having a look at the cost side is going to be a bit tougher. To start off, there is obviously materials costs. As an estimate, I would say that material costs (raw + transformation) probably make up about 40-50% of the total price. The reason for this estimate is as follows:

• the wood used for the frame is good quality solid wood, and is cut into specific shapes that look to have a sizable amount of surface loss (i.e. bits that can’t be used),
• similarly, the covers and the foams used for the cushions are of very good quality and are tailored to the sofa I purchased.

Overall, I think all the tailoring done to each bit is probably a higher cost factor than the actual raw material. The second cost center is logistics… I mean, this is impressive. If you have a look at the video you will see the pages of instructions and see how they are put together (you can get sample instructions on the website). Considering how many configurations there are and how many ‘bits’ each sofa has, the logistics must have been (and still be) a large area to sort out. The company looks like it does thing in an intelligent manner to scale things up. For instance, The instructions I had were not ALL about MY sofa: they looked like they were a collection of instructions for the large chunks I had (for instance a ‘corner’) that all tied up together. I would also like to add stock in logistics. Let’s face it, the company did not manufacture my sofa in 3 days, I believe they probably just put all the bits of the same palette. I believe the company is a bit like Dell: customers have the choice between a 100 different configurations but 80% will choose the same 20% configurations. I therefore think that Nabru’s stock is ‘optimised’ and has a good rotation to minimise cost. Overall, this would probably add another 20-30% on the cost structure. Finally, SG&A, website maintenance, personnel etc.. could amount to about 10%.

Overall, the margin is estimated to be between 10% and 30% giving a gross margin of £280,000-£840,000.

A worthy investment?

I have a strong belief in businesses that offer modular and high quality products. During my MBA, I learnt that high quality reduces costs by reducing non-quality costs. The dichotomy is that high quality usually rhymes with high price because an industry is so deep. For instance, the ‘basic’ quality for a sofa is Ikea at £400 and let’s face it, it’s not great – whereas a John Lewis sofa will set you back £2,000 but the quality will be great. If teh depth of the industry were reduced i.e. if Ikea sofas’ quality was excellent, we would see the reduction in price due to higher competition.

That is why I love businesses like Nabru: they have figured out how to deliver excellent products and still make a comfortable margin on them! – ask DFS how much profit they would make if they reduced their sofa prices to Nabru prices

So, yes, Nabru is an excellent investment.

Risks? What risks?

Does Nabru have a patent on their ‘technology’ or can anyone order a few sofas from them and start copying the pieces and start a similar business? Similarly, can the business scale? If all of a sudden they had 100 orders a day, what would happen? I think Nabru are aware of this latter issue because I do not see them advertising as widely as they could. If I were a Private Equity, I would seriously approach Nabru and see how the business can be built up – hey aren’t Cimven and Permira buying DFS? hint hint, synergies, mergers and cost reductions !!