Maybe a new owner can help save the vibes at Soho House

Founded in 1995 by British restaurateur Nick Jones, Soho House used to be the epitome of cool-members clubs, and its status in the US was amplified when the club’s Meatpacking location was featured in “Sex and the City” in 2003.

Its members included celebrities like David Beckham and Tom Cruise, and it was notoriously hard to join (and remain a member of) the club. In 2010, the New York Post reported that the club, which had 4,500 members at the time, had purged 500 members, and Jones hoped to reduce it to 4,000, saying, “We are trying to get the club back to its creative roots.”

Soho House was originally an escape from the finance and business worlds, with Jones saying that he wanted to see “less suits lounging about” and that the exclusivity of the club was part of its allure. Everyone wants what they can’t have, after all. That was nice while it lasted.

Today, Soho House has 208,078 members (and 267,494 total members, which includes lower-tier memberships like Soho Friends that provides limited access to clubs), a far cry from the company’s exclusive roots, and last December, the New York, LA, and London locations temporarily stopped accepting new members because they became overcrowded. While the explosion in growth led to an uptick in revenue, it came with a cost: according to more than a dozen New Yorkers interviewed by the New York Post earlier this year, Soho House isn’t cool any more.

Soho House’s issue is that it had no business being a publicly traded company. After Nick Jones founded the company in 1995, its majority ownership changed hands a couple times, first to British business mogul Richard Caring in 2008, then to US billionaire Ron Burkle in 2012. In 2021, the company filed to go public, planning to use the IPO proceeds to pay down debt and finance further expansion. However, since going public at $14 per share, Soho House has struggled in the public markets, with its stock price sitting at $4.90 earlier this week.

However, the stock jumped 54% today, up to $7.70, on news that a third-party consortium had offered to buy it for $9 per share. The offer came after Yucaipa, the investment firm of the company’s executive chairman, Ron Burkle, conducted a strategic review showing that the public markets were undervaluing the company.

A take-private deal would probably be good for Soho House, which has found itself floundering in the gray area between exclusive and mass market. Soho House’s origins valued exclusivity over everything, but public-company shareholders don’t care about “coolness” or “vibes” — they care about tangible metrics like revenue and profit, so Soho House prioritized growth over everything else. As a result, membership numbers exploded, going from 127,800 members in Q2 2021, when the company went public, to 267,494 members in Q3 of 2024.

Ironically, despite the uptick in members, which coincided with revenue growth from $124 million to $333 million in that time, the company has struggled to make money. Soho House has lost a cumulative $590 million since going public, only generating a profit in two quarters: $13 million in Q4 2022 and a measly $175,000 in Q3 2024.

Of course, this shouldn’t be surprising. An exclusive, luxury company can command high price points from an affluent customer base, and that branding power translates to strong margins. This is what has made LVMH so successful.

On the other end of the scale, mass-market companies with lower margins can succeed on high volume. This is how Walmart has grown to a $754 billion market capitalization. Walmart’s profit margin sits between 2% and 3%, but with trailing 12-month revenue of almost $700 billion, it still generates impressive profits. When you get caught in the middle, a formerly exclusive business that has grown to over 200,000 members, you lose the ability to play the luxury game (Soho House is “uncool” now!), but you’re still not a mass-market product.

Soho House chased growth without figuring out its unit economics, so while its revenue and membership numbers exploded, the company generated quarter after quarter of net losses. Three years after going public, the company has more than doubled in size, but still lost $136 million over the last four quarters.

Maybe a take-private deal would give the company a chance to take a step back and figure out what exactly it wants to be. Charging customers $5,200 a year so they can spend $25 per espresso martini at an understaffed, overcrowded bar in Meatpacking hasn’t been a winning formula.