When athletic brand Vuori launched in 2015, it was headquartered in a parking garage, sold only men's shorts and couldn't attract investors to give it the time of day.
Now, the Carlsbad, California-based retailer is expanding globally, backed by a series of high-profile investors including General Atlantic, SoftBank and Norwest Venture Partners, after raising $825 million in November in a financing round that valued the company at $5.5 billion. .
It has become the envy of incumbents such as Lululemon, gap Atleta and Levi Beyond Yoga, it is expected to be one of the largest IPOs in the retail industry when it eventually goes public, which is what people close to the company say it plans to do.
“It's a notable deal for the category it's in… There haven't been many deals seen in this market at all over the last couple of years, and the deals that have been done have been more, I would say, challenged, or challenged,” said Matthew Tingler, managing director at the Services Group. Baird, the global consumer and retail investment banking firm, said of its latest financing round: “More in value-oriented positions.”
“Vuori brings a lot of excitement and growth to the market,” added Tingler, the sportswear expert who was not involved in the deal. “In a way, they were capturing market share in the esports market on a large scale… They're challenging the legacy players in Athleta and Lululemon.”
Vuori store in the Flatiron District in New York City.
Natalie Rice | CNBC
As Vuori has transformed from a no-name brand into one of the most valuable specialty apparel retailers on the planet, it has seen strong sales growth and consistent profitability, winning over consumers in a crowded space with its California coastal sports and leisure offering.
“Vuori is competing on a different product, a different brand, a different store experience, different materials,” Vuori CEO and founder Joe Kudla told CNBC in an interview. “If you were to just survey our customer base (and ask), ‘Why is Vuori so special?’ they would tell you it's because of our product, it's because of the comfort, the fabric, the fabrics we work with, the fit. We're all about the product, the product, the product, and that's in Ultimately what leads to great performance in our industry.”
Despite its success, Vuori faces challenges ahead. The company operates in a crowded sports space that analysts don't believe will grow as quickly as in the past. Some see it as one of the fastest growing clothing categories, while others expect it to slow as consumers look to dress up after years of dressing up.
Customers also appear to be concerned about whether Vuori's products will remain the same as it expands and faces the demands of being a publicly traded company.
“If you take a look at the message boards now, the thing that Vuori consumers are most concerned about is, 'Is the quality of the fabric going to go down?' said Liston Bateman, director of strategy at Eatbigfish and an expert on challenger brands. “Are they going to 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 were forced to Work harder To earn customers' dollars, demand has been unstable as consumers think twice before purchasing things that may be wants rather than needs.
Vuori is moving forward in the yoga wars
Since it remains private, not much is known about Vuori's financial performance. But analysts estimate it generates annual revenue of about $1 billion, and the company says it has been profitable since 2017.
While its sales represent a small portion of the $431 billion global activewear market, Vuori has seen steady growth and has outperformed the overall activewear market at least since 2020, according to data from Euromonitor and sales estimates from Earnest. As of the end of October, Vuori sales have increased 23% so far this year at a time when the overall activewear market is expected to grow 4.3%. Last year, it grew by 44% while the sportswear market expanded by only 2.4%.
Retail analyst Randy Connick, managing director of Jefferies, said Vuori and fellow Alo Yoga were so successful in part because they took share from Lululemon, which he said alienated its core customer base as it expanded into new categories.
“Five years ago, Alo and Vuori were…nothing burgers, and that's when Lululemon was growing 20% a year, whatever, or more. Today, you look at the numbers and say, 'Wait a minute,'” Business is flat, Connick said., In reference to Lululemon's largest market, the Americas. “It's not growing, and yet it coincides with the hypergrowth of Alo and Vuori. So… in my opinion, the data proves that this is a market share issue.”
A customer exits a Lululemon store in New York on August 22, 2024.
Yuki Iwamura | Bloomberg | Getty Images
Analytics firm GlobalData found that Lululemon customers now spend more on Vuori than they did previously. 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, the long-time category leader He gave a wary look For the all-important holiday shopping season as it faces slowing growth and product errors. She was not asked about the competitive threats it faces, but acknowledged that its primary customer is slowing down.
Competitive threat
Vuori's valuation and interest from private equity comes as investors flee the consumer sector. Its success has left some industry observers scratching their heads and wondering: How can a leggings and joggers company be worth that much in this economy? Analysts say it's down to Vuori's business model, its ability to grow profitably and its product range, which has resonated with shoppers.
Kudla said the company was so focused on growing profitably from the beginning because it had no other choice. Unlike other direct-to-consumer brands Collect piles of cash At the time, investors weren't interested in the men's-only brand that Kudla was promoting.
So he had to establish the company using funding from family and friends.
“We had developed a working capital model that would self-finance our business, so we built completely against the grain of the time, creating a really great business with a lot of discipline,” said Kudla, who was a senior business officer. “. CPA for Ernst & Young before entering the fashion world. “I ran the entire business through this complex spreadsheet, so every decision I made, I could predict the cash flow impact six months from today.”
Vuori was CEO Joe Kudla's third attempt at a startup — and it could have easily been his last.
Source: Al-Jabal
To save money, Kudla did not pay himself for two years, ran the company out of a garage and hired employees who were willing to trade stocks for compensation. Perhaps most importantly, he developed partnerships with his suppliers, alleviating the cash-intensive burden of obtaining inventory and paying for it up front.
“I started treating our suppliers like investors in the business, and really helped them see the vision for what we were building,” Kudla said. “I was able to convince our early factory partners to give us really great terms so I could take inventory, sell it, collect cash from my wholesale partners, sell it directly to the consumer and then pay for the inventory, and this strategy ultimately led me to building a working capital model.” Which self-finances our growth.”
While Vuori started out as a purely online business, Kudla was precious about partnering with wholesalers at a time when many founders in the direct-to-consumer space were opposed to the idea. By putting his products on shelves at REI in the brand's early days, he was able to build awareness and customer acquisition in a way that didn't drain Vuori's balance sheet.
Vuori's Flatiron Shop.
Natalie Rice | CNBC
“We became profitable in 2017, and we started generating free cash flow… There was no institutional capital involved in our business, no venture money involved in our business, until 2019, when we were already very profitable and on a very strong growth trajectory.” Kudla said.
Years later, Kudla's approach seems almost prescient. Many of the DTC peers that Vuori has come up with are now swinging by The brink of bankruptcyare unable to make the unit economics of their business work. Investors no longer have patience with companies that have no path to profitability.
Now, most brands and retailers realize that selling only online often doesn't work. It has proven to be crucial to partner with wholesalers and Open storesin addition to creating live channels over the Internet.
“I like the way (Vuori) is going about growth,” said Jessica Ramirez, senior research analyst at Jane Haley & Co. “With REI, it was one of their most important accounts, and I feel like it was a different way to get into wholesale, but it was very targeted, so knowing that this customer was going to buy a specific type of athletic apparel.”
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 funds. None of it went to the balance sheet, and Vuori didn't need new financing for its aggressive growth plans, which include expansion into Europe. “We will have 100 stores by 2026,” Kudla said.
“We will continue to grow our business the same way we always grow our business, which is very calculated with a lot of discipline,” he said.
Problem at Lululemon
In many ways, brands are competing for market share Busy sports space Can blur together. They all sell leggings, they all sell sports bras, and they all look to woo consumers with their unique blend of comfort, style, and performance. The same can be said about the wider clothing industry, which is why it exists Products that stand out He separates Winners and losers in the industry.
Vuori fans say the brand's quality, fit, fabric and comfort are what sets it apart from competitors and keeps them coming back. Meanwhile, product errors at Lululemon have been blamed for sluggish sales in its largest region, the Americas.
Vuori's Flatiron Shop.
Natalie Rice | CNBC
In the three months ended April 28, Lululemon had comparable sales in the Americas It was flat After the company failed to provide the appropriate assortment of underwear colors and sizes desired by customers.
In early July, Lululemon launched its new Breezethrough leggings, designed for hot yoga classes, but they ended up being… Pick them up from the shelves After receiving complaints about the product's unflattering fit. Its lack of desirable new products also limits the amount Lululemon's core customer spends on the brand, the company said when reporting fiscal third-quarter earnings on Dec. 5. The company said it expects its lineup to return to historical levels in 2025, which Truist expects to be a “key driver” of improved sales in the United States, especially as it draws easier comparisons with the same period last year.
“They seem to have lost sight of where the customer is going…You have to remember that the consumer today is not necessarily a loyal consumer,” Ramirez said.
“Fabric is important, movement is important… If someone you know mentions another brand that says, ‘Oh, you know it made me better, or I was able to run faster, and I didn't sweat as much, I wouldn't,'” I'm not disgusted “Those very little things that matter in your performance, people will try them.”
-Additional reporting by Natalie Rice
