When athleisure brand Vuori launched in 2015, it was headquartered in a garage and sold only men’s shorts, failing to attract the attention of investors.
Now, the Carlsbad, California-based retailer, backed by a string of high-profile investors including General Atlantic, SoftBank and Norwest Venture Partners, raised $825 million in a funding round in November that valued the company at reached $5.5 billion and is now expanding globally.
It has become the envy of incumbents, e.g. lululemon, Interstitial athletes and Levi’s Aside from Yoga, it’s expected to be one of the biggest IPOs in retail when it eventually files to go public, and people close to the company say it plans to do so.
“This is a notable deal for its category… You haven’t seen a lot of deals at all in this market over the last few years, and I would say the deals that have happened have been more of a challenge , or more in a value-oriented context,” Matthew Tingler, managing director of Baird’s global consumer and retail investment banking group, said of the recent funding round.
“Vuori brings a lot of excitement and growth to the market,” added Tingler, an expert in the sportswear field who was not involved in the deal. “To the extent that they’ve been capturing a broad share of the athleisure market… they’re challenging the traditional players like Athleta and Lululemon.”
Vuori’s store in New York City’s Flatiron District.
Natalie Rice | CNBC
As Vuori has grown from an unknown brand to one of the world’s most valuable private apparel retailers, it has delivered strong sales growth and sustained profitability, winning over consumers in a crowded space with its coastal California athleisure style. favor.
“Vuori competes on differentiated products, differentiated brands, differentiated store experiences and differentiated materials,” Vuori CEO and founder Joe Kudla told CNBC. “If you just look at our customer base (and Ask), ‘Why is Vuori so special? ‘ and they’ll tell you it’s because of our products, because of our comfort, because of the textiles, because of the fabrics we use, and because of the fit, we focus on product, product, product, and that ultimately Leading to outstanding performance in our industry.
Despite its success, Vuori still faces challenges. The company operates in a crowded athleisure space that analysts are unsure will grow as quickly as it has in the past. Some see it as one of the fastest-growing apparel categories, while others expect growth to slow as consumers look to dress up after years of dressing down.
Customers also appear concerned about whether Vuori’s product will remain the same as it scales and faces the demands of a public company.
“If you go to the message boards now, the biggest concern among Vuori consumers is, will the quality of the fabric deteriorate?” said Liston Pitman, strategy director at Eatbigfish and challenger brand expert. “Will they dilute the brand I love in exchange for growth?”
Vuori’s Flatiron Shop.
Natalie Rice | CNBC
Additionally, Vuori faces the same issues as other consumer discretionary companies. Retailers are being forced to work harder to win customers’ dollars, while demand has been volatile as consumers think twice before buying something they may want rather than need.
Vuori takes the lead in yoga wars
Because Vuori remains privately held, little is known about its financial performance. But analysts estimate its annual revenue is about $1 billion, and the company says it has been profitable since 2017.
While Vuori’s sales represent only a small portion of the $431 billion global athleisure market, Vuori has been growing steadily and outperforming the overall sportswear market since at least 2020, according to Euromonitor data and Earnest sales forecasts . As of the end of October, Vuori’s sales have grown by 23% this year, and the overall sportswear market is expected to grow by 4.3%. Last year, the sportswear market grew by 44%, while the sportswear market grew by only 2.4%.
Randy Konik, a retail analyst and managing director at Jefferies, said part of the reason Vuori and upstart Alo Yoga have been so successful is because they’ve taken share from Lululemon, which he said will continue to grow as Lululemon expands into new category, which alienates its primary customer base.
“Five years ago, Alo and Vuori weren’t even burgers, and Lululemon was growing 20% a year, whatever it was, or more. Today, you see those numbers and you think, wait a minute, business is flat,” Konik says, Refers to Lululemon’s largest market, the Americas. “It’s not growing, but it’s happening at the same time as Alo and Vuori are growing very fast. So … the data proves to me that it’s a market share issue.”
A customer leaves a Lululemon store in New York on August 22, 2024.
Yuki Iwamura | Bloomberg | Getty Images
Analytics firm GlobalData found that Lululemon customers are now spending more on Vuori than before. In 2018, 1.2% of Lululemon customers shopped at Vuori, but that number had increased to 7.8% as of the end of November.
Last week, long-time category leader It is cautious about the outlook for the all-important holiday shopping season as it faces slowing growth and product missteps. It was not asked about the competitive threats it faced but acknowledged that growth among its core customers was slowing.
competitive threats
Vuori’s valuation and private equity interest come as investors flee the consumer space. Its success has left some industry observers scratching their heads, wondering: How can a company of leggings and joggers be worth so much in the current economy? Analysts said this depends on Vuori’s business model, its ability to grow profits and the types of products that resonate with consumers.
Kudela said the company focused on profitable growth from the beginning because it really had no choice. Unlike other direct-to-consumer brands At that time, a large amount of cash was raised, and investors were not interested in the men’s clothing brand Kudela promoted.
Therefore, he was forced to use funds from family and friends to launch the company.
“We developed a working capital model that allowed us to self-fund the business, so we were building very contrary to the trends at the time, which resulted in a really great business with a lot of discipline,” Kudela said on entry. Prior to the fashion industry, he worked as a CPA at Ernst & Young. “I manage the entire business through this complex spreadsheet, so every decision I make, I can predict the cash flow impact six months from today.”
Vuori is CEO Joe Kudla’s third attempt at entrepreneurship, and likely his last.
Source: Mt.
To save money, Kudela didn’t pay himself a salary for two years, instead running the company out of his garage and hiring employees who were willing to trade equity in exchange for compensation. Perhaps most importantly, he formed partnerships with suppliers, which relieved the cash-intensive burden of purchasing inventory and paying up front.
“I started treating our suppliers like corporate investors and really helping them see the vision we were building,” Kudela said. “I was able to convince our early factory partners to give us very favorable terms so that I could receive the inventory, sell it, collect cash from my wholesale partners, or sell it directly to consumers and then pay for the inventory. , and that strategy eventually led me to build a working capital model to self-finance our growth.
Although Vuori started out as a pure-play online business, Kudla didn’t place much emphasis on working with wholesalers because many founders in the direct-to-consumer space at the time were opposed to the idea. By getting his products on REI’s shelves in the brand’s early years, he was able to build awareness and attract customers in a way that didn’t drain Vuori’s balance sheet.
Vuori’s Flatiron Shop.
Natalie Rice | CNBC
“We became profitable in 2017 and started generating free cash flow… We had no institutional capital participation in the business, no venture capital participation in our business, and until 2019, we were very profitable and on a pretty strong growth trajectory,” Kudela said.
Years later, Kudela’s approach feels almost prescient. Many of Vuori’s DTC peers are now teetering on the edge of bankruptcy, unable to realize the unit economics of their businesses. Investors are no longer patient with companies that fail to turn a profit.
Most brands and retailers now recognize that selling exclusively online often doesn’t work. Working with wholesalers, opening stores, and building a direct pipeline online proved crucial.
“I like the way Vuori is growing,” said Jessica Ramirez, senior research analyst at Jane Hali & Associates. “For REI, which is one of their top customers, I feel like it’s a different approach to wholesale but very targeted. wholesale, so know this is a customer who will buy a specific type of activewear.”
Vuori’s investment from General Atlantic and Stripes in November is further evidence of its strong balance sheet. The deal was structured as a secondary tender offer, allowing early investors to sell their shares and cash out. Said that by 2026, it will have 100 stores in Asia and Asia.
“We will continue to grow the business the way we have always grown the business, which is very calculated and very disciplined,” he said.
Trouble with Lululemon
Brands are fighting for market share on many fronts Crowded athleisure spaces blur together. They both sell leggings, they both sell sports bras, and they both hope to win over consumers with their unique blend of comfort, style and performance. The same is true for the wider apparel industry, which is why having products that stand out can separate the winners and losers in the industry.
Vuori fans say the brand’s quality, fit, fabrics and comfort set it apart from competitors and keep them coming back. Lululemon, meanwhile, has been blamed for product missteps for slowing sales in the Americas, its biggest region.
Vuori’s Flatiron Shop.
Natalie Rice | CNBC
Lululemon’s comparable sales in the Americas were flat in the three months ended April 28 as the company failed to offer the right legging color combinations and sizes customers wanted.
In early July, Lululemon launched new Breezethrough leggings designed for hot yoga classes, but ultimately pulled them from shelves after receiving complaints that the product didn’t fit properly. A lack of desirable new products has also limited Lululemon’s core customers from spending on the brand, the company said on Dec. 5 when it reported fiscal third-quarter earnings. level.
“They seem to have lost sight of where their customers are going… You have to remember that today’s consumers are not necessarily loyal consumers,” Ramirez said.
“Fabric does matter, exercise does matter…if someone you know mentions there’s another brand, ‘Oh, you know it keeps me better, or I’m able to run faster, I don’t sweat as much. , I don’t have ‘don’t feel so sick,’ these little things that matter to your performance and people will try it. “
—Additional reporting by Natalie Rice
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