From Tees to Rompers
Utah native, Rachel Nilsson, was 19 years old, she started her first clothing company. It was so successful that she couldn’t keep up with production – even after hiring a seamstress to help out. Rachel ended up walking away from the business.
Years later, as a stay-at-home-mom whose family needed financial help (her husband was in graduate school at the time), Rachel decided to sell her kids’ old clothing online. When she noticed that the best-sellers were pieces she had handmade, she had a brainstorm for a product idea: a baby and toddler romper that could be pulled off from the neck down instead of having to deal with snaps and a squirming baby. She came up with the idea by creating a prototype with one of her husband’s old t-shirts and noticed that elastic and flexibility in the neck made it easy to take off for diaper changes.
Because she didn’t want to have to do the sewing anymore, she signed on with a manufacturing firm in Los Angeles. In a little more than a year’s time, she brought in $792,000 in sales in a primarily online sales channel. Since she had been doing so well, she needed cash to help fund her inventory costs, so in the 19th episode of Shark Tank’s 7th season, she asked the Sharks for $200,000 for a 10% stake in her company, Rags to Raches.
Rachel Wows the Sharks
Shark Tank Season 7 Episode 19
Rachel knows her company is doing well and she wants to see it continue to grow, but she’s having trouble deciding whether or not to push into retail as she’s afraid competitors will knock off her design. She’s killing online with a strategy to introduce limited edition designs, and driving her Instagram followers to her website by promoting the limited offerings. She has a healthy profit – $280,000 – with the purchase price of her rompers ranging from $37-$49 and the average cost to make them between $7 and $10. She tells the Sharks she needs money to pay for inventory costs.
Rags to Raches has had incredible success online, but Rachel keeps changing her mind about whether or not she wants to move into wholesaling with retailers. Mark doesn’t like that she’s so indecisive so he drops out. It seems that Rachel knows there’s an opportunity to make money by branching out into retail but is really worried about knockoffs. While she has a strong brand, she’s not protected from competitors trying to copy her concept, and they could do so at a much lower price point, around $19.99 per item.
Daymond puts forth an offer that would allow Rachel to make money by licensing her clothing, but it would involve creating a sub-brand for retailers while continuing to sell her existing brand online. Daymond’s offer is $200,000 for 20% of the business. Lori admits she would have made the same offer as Daymond, but she says that Daymond does it better. She’s out.
Then Kevin and Robert make identical offers that wouldn’t force Rachel to “knock off myself,” as she phrases it. Kevin wants to put Rachel’s items on his Something Wonderful platform, which includes mostly wedding and engagement products, but the users also have kids so Kevin sees an opportunity for her. Robert has a platform called Tipsy Elves and would like to put her products there. Rachel is familiar with Tipsy Elves and says she follows it. She asks Robert if he’ll accept a 15% stake instead of 20%. Robert wants to know if they have a deal if he drops down to 15%, and after a bit of hesitation, Rachel agrees to partner with Robert.
It’s not entirely clear why Rachel chose to take Robert’s offer since Tipsy Elves – primarily a holiday apparel company – has only $15 million in annual sales versus Something Wonderful’s half a billion sales every year. It could just be that he was willing to negotiate his equity down by 5%.
Rags to Raches Today
Not even a month after her appearance on Shark Tank in February 2016, Rags to Raches’ sales quintupled! They had so many orders they had to hire a fulfillment company, and more than 100 retailers wanted to sell the rompers. But the deal with Robert Herjavec didn’t actually go through. In the end, none of the partners offered what felt like the right deal for her. Instead, she’s been able to grow her business strictly through word-of-mouth and her highly successful Instagram account. It doesn’t hurt that huge publications like Forbes, Vogue, People, Us Weekly, and Huffington Post have picked up her story.
The Rags line has grown to include tees, dresses, and accessories, and there are even products for adults available on the website. In December 2018, a venture capital company put up $1.5 million, and that allowed Rags to move away from an online-only model and get her products into various retail locations. Soon, Nilsson will be able to get closer to her goal of expanding the brand into the national marketplace, especially since Nordstrom now carries Rags items, and she now has a deal with Disney.
Rachel has stuck with her tactic to provide limited quantities of items that are exclusive to the website. That strategy has led to increased engagement on Instagram because followers have to pay attention so they know when to shop for Rags’ unique items. Although Rachel’s appearance on Shark Tank greatly contributed to her exposure, her adept use of Instagram as a sales platform has helped to drive customer loyalty. Followers see the Rags founder as authentic, passionate, and inspiring, and their experience with her products reinforces that she’s selling high quality and fashionable items. There may also be something rather aspirational about what her followers see on Rachel’s Instagram. She’s a mom – just like them – but she’s also living out her dream after having started with nothing. It’s a literal rags-to-riches story, and wouldn’t it be cool if that could happen to them?
Disclaimer: The information provided in this article is strictly informational; INSIGNIA SEO is not affiliated with Rags to Raches, SharkTank, or any of its subsidiaries.