A Rainy Day for Handbag Raincoat

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Handbag Raincoat founders Morgan George & Arley Sarner were hoping for a cash-filled rainy day from the Sharks on Season 10 Episode 5 of Shark Tank. However, no Shark wanted to take on the impending storm these ladies are about to face, so they walked out emptied handed.

Handbag Raincoat gives consumers a new way to protect their handbags from mother nature. George explained that she drew inspiration for the idea from six years of seeing her colleagues in merchandising struggle to keep their handbags dry when it rained. She & Sarner decided to start with shower curtains as a prototype, which they turned into $600k in sales over the past three years.

George & Sarner start off strong; their comedic angle of having water rain down on them throughout the pitch gave the Sharks a light-hearted and energetic impression of George & Sarner. Their growth from testing online with Bed, Bath, & Beyond (BB&B) to now being in over 100 BB&B stores and Nordstrom Bed Bath Container Store especially caught the Sharks’ attentions. On top of that, they hadn’t spent a single penny on marketing or advertising, and even appeared on publications such as Oprah’s magazine and “The View”. With just over 50% margins on their three different bag sizes, George & Sarner seem well-positioned to take Handbag Raincoat from a break-even company to one that “owned the rain”. However, all the sunshine surrounding this company was met with storms after explaining their legal troubles with copycats.

Despite having two design patents on their product, Handbag Raincoat spent about $10k to litigate two other businesses that tried to steal their idea. Furthermore, they are now facing another copycat in a very large handbag company. George and Sarner seem determined to fight them, but that isn’t enough to sway the Sharks in their favor.

Three Sharks go out in part because of the impending legal costs Handbag Raincoat will face trying to fight off a large company. Mr. Wonderful explains that he likes to “pour gas on the flames of sales, not litigation”. Barbara shares similar concerns and doesn’t like how they haven’t spent any capital on marketing or advertising, as she believes it will be a big and important expense for Handbag Raincoat if George and Sarner want to grow this business. The remaining Sharks simply do not see a winning formula; differences in market strategy and operating style deter the remaining investors, leaving Handbag Raincoat out in the rain without a deal.

Analysis

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I was honestly a bit surprised that Handbag Raincoat did not receive a deal from the Sharks. They had a seemingly great brand with proven demand and repeated sales success, something that the Sharks don’t find often in the Tank. However, this company left without a deal due to legal issues and difference in management style. The looming price tag on fighting off a major corporation is enough to shoo away many investors. But investors also need to share similar ideas when it comes to market penetration and company strategy.

For example, Barbara did not like how George & Sarner had not spent any capital on marketing, and the company was still only breaking even. That signals to her that they are inexperienced when it comes to truly trying to scale their product, and that there may be some inefficiencies in their operations if they cannot afford to market their product. Handbag Raincoat is up against some tough competition, and with $600k in sales since inception and $125k in the last year, the marketing/advertising spend to support that sales trajectory would be high, too high for Barbara to take a chance.

Guest Shark Sarah Blakely, founder of Spanx, offered her opposing view to litigating a massive company. When she first started Spanx, she explained how others tried and succeeded in copying her idea and marketing it at a level far beyond than what she could afford to do. Instead of tying herself up in legal battles, she decided to focus on creating and selling. She explains that if she would have tied herself up in legal battles, she wouldn’t have the time or resources to continue innovating and beating others to the market with new ideas.

Given that George & Sarner had other ideas on how to expand the brand and “own the rain”, this is certainly a strategy they could consider. However, coming up with new, successful ideas consistently is extremely difficult, so it’s understandable why George & Sarner would want to protect their existing, successful product. However, to an investor, than can come off as a lack of confidence in oneself to successfully navigate the market and execute on new ideas.