At the 2022 ICR Conference, John Merris, CEO, Solo Brands, provided a deep dive into the company’s direct-to-consumer model as it seeks to become the outdoors’ “digitally-native direct-to-consumer lifestyle disruptor.”
Merris said one of the big differentiators from other DTC-native players is that the company has in-sourced much of its business.
“We do all of our marketing in-house, and we’re not reliant on agencies,” said Merris. “We do all of our supply chain execution outside of some contract manufacturing. We build direct relationships with ocean freight carriers with small parcel carriers like FedEx and UPS, and the list goes on. So our ability to deliver for our customers is much higher than you might see in other digitally-native brands.”
But the big differentiator is that 84 percent of its business comes from its e-commerce sites.
“When you can do that much of your business through your websites, it allows you to create a very strong, loyal customer base that you can build relationships with,” said Merris. “That creates a feedback loop not only for product innovation but also for customer experience execution.”
Those one-on-one connections have helped Solo Brands, which went public last October, build more than two million installed base of customers and a social media following across brands of 4.5 million.
From a profit perspective, the model helped drive high free cash flow conversion at 97 percent in the first six months of its fiscal 2021 year on a proforma basis. Said Merris, “You operate much more profitably because you’re cutting out that wholesale margin that exists when you sell through retail in large part.”
Solo Brands’ 2021 adjusted gross margin is expected to be over 30 percent.
From a sales perspective, Solo Brands saw a 130 percent proforma 2021 net sales growth.
Solo Stove, its flagship brand, saw a 170 percent year-over-year organic growth in fiscal 2021. More than 45 percent of sales for Solo Stove come from word-of-mouth referrals.
Merris said all four of its brands, including Chubbies, Isle Paddle Boards and Oru Kayak acquired over the last year, have passionate followings, strongly emphasize direct-to-consumer, and embrace its mission to inspire moments that create lasting memories.
Said Merris, “We believe that the execution around creating good moments and lasting memories for our customers is a big driver to our long-term sustainable growth.”
Merris outlined five growth opportunities:
- Accelerate organic growth – brand awareness, new customers, innovation;
- Utilize scale and drive platform efficiencies;
- Acquire and optimize brands that extend Solo Brands’ reach;
- Expand internationally; and
- Strategically expand retail and corporate channels
Organically, Merris stressed that all four brands have untapped growth potential. He said, “I cannot overstate the earliness of our story and the TAM (total addressable market) opportunity that exists with all of our brands.”
Solo Stove, which generated $133 million in revenue in fiscal 2020, reached its millionth customer this past November yet only tapped about one percent of its total U.S. market opportunity. A core goal with Solo Stove is to increase brand awareness.
“I still think one of the greatest things which happens to me almost daily, but certainly weekly, when I run into someone that has no idea who Solo Stove is,” said Merris.” They ask me what I do, and then they look at me like I own a backyard landscaping business. It’s just phenomenal to understand and know where we are in our story and how much runway we have out in front of us.”
Oru, with $12 million in 2020 sales, and ISLE, with $21 million in fiscal 2020 sales, own about 3 percent of the $1 billion water recreation space. With $44 million in fiscal 2020 sales, Chubbies competes in the $124 billion outdoor lifestyle athleisure space.
Merris said all four brands have “very passionate customer followings” with a strong track record for product innovation, and all benefit from its DTC model that supports one-on-one relationships with customers and provides constant feedback to drive new ideas.
Said Merris, “We’re not waiting on retailers to provide feedback on how products are selling, which is allowing us to go out and accelerate this product roadmap that we’re executing on to deliver new products faster for our customers.”
Significant efficiencies are in marketing and supply chain as Solo Brands scales its platform. Said Merris, ‘We’ve been able to aggregate our spend, for instance, on ocean freight rates with container costs to help reduce costs drastically for the brands that have come into the platform.”
Other areas expected to drive efficiencies include aligning back-office structure, e-commerce capabilities, in-house fulfillment, diversified sourcing, and product innovation.
The M&A push began in 2021 with the acquisitions of Oru, ISLE and Chubbies.
“There are incredible brands that have strong passionate followings,” said Merris. “They’re early in their story with large TAMs, and we were able to buy them at a good value.”
He noted that the acquisitions have helped reduce the seasonality of the company’s business. He said, “Firepits are not as popular to sit around in July in Texas as they are in November and December, but Chubbies swimwear, Oru Kayaks and ISLE paddle boards are fantastic products for July and August.”
Solo Brands’ acquisition criteria for brands include:
- The brand has to be a category creator/disruptive brand with a competitive moat;
- The brand has to share Solo Brands’ DTC orientation or have an ample opportunity to expand DTC penetration;
- The brand has to have a chance to accelerate growth and drive efficiency through Solo Brands’ proprietary platform; and
- The brand has to have an enthusiast cult-like following, showing an emotional connection with consumers.
Said Merris,” We have a good healthy pipeline right now of opportunities for M&A with other founder-run outdoor businesses that are DTC, early in their story with large TAMs, profitable and with passionate customer followings. We’re going to lean into this, and you’re going to see us continue to look for opportunities down the fairway for us to bring in other brands.”
Internationally, Solo Brands launched in Canada in August and in Europe in October. The focus will be on those two markets in 2022, with entry into Australia planned for later in 2022.
Solo Brands hired a VP of international development and is establishing local infrastructure for marketing and customer service. It plans to replicate the U.S. model in overseas markets.
“The early signs are positive,” said Merris. “We’re seeing good momentum and very similar reaction from customers going online posting about sitting around the Solo Stove with their friends and family members and hearing, ‘Man, I’ve never seen anything like it. I have to have it’, and going out and buying one themselves. So the referral rate is strong, and we’re continuing to lean into what we believe will be a big opportunity on the international side.”
Finally, Solo Brands sees wholesale retail expanding from about 8 percent of sales to a range of 15-to-20 percent. Said Merris, “We’ve had a lot of demand coming from our existing partners like Dick’s Sporting Goods, Academy, REI, and Ace Hardware.”
The corporate opportunity consists of companies putting their logo on Solo Brands’ products for either key customers or employees. Said Merris, “This has been a fast-growing part of our business, and it opens up a completely new channel of customers that are unaware of our brand. So, a big unlock for us.”
Photo courtesy Solo Brands/Solo Stove