Outdoor Retailer (“OR”) Winter Market Recap

I attended Outdoor Retailer (“OR”) Winter Market in Denver late last week, and while a light snow provided some seasonal cheer and ambiance, the show itself was “meh.”  While understanding the rationale for an inaugural November OR show –namely allowing larger retailers (and influential members of the OIA) to get an earlier view of what brands and vendors have coming earlier in the selling season, this was a significantly smaller show than the traditional winter and summer ORs.  The footprint of the show itself was limited to the upper floor of the Colorado Convention Center and a reasonable, diligence pace allowed me to canvas the entire show in a matter of hours.  Given a limited number of exhibitors, lower attendance and lack of booth floor and booth traffic, there was an element of “snORe” in this OR.  Thursday and Friday morning had, relatively speaking, the most activity, but by Friday afternoon and certainly by Saturday, the crowds had really diminished (except for the “Life is Good” show late Friday – fantastic turnout!).  A significant number of exhibitors expressed disappointment in show activity and the rationale behind a show in the first place (particularly with OR’s Snow Show coming up in late January – two months from now).  It will be interesting to see if this show is viewed as viable and sustainable, and/or if significant changes are implemented next year.

Notwithstanding the above commentary, a few themes were prevalent:

  1. Tariffs – Tariffs on imported Chinese goods continues to be a major concern and will remain so until further clarity (and hopefully resolution) is provided. Companies are grappling with a litany of issues from attempting to push through price increases, making input changes and / or shifting production out of China, forecasting their own businesses and evaluating the impact on competitors and potential acquisition targets.
  2. Sustainability continues to be a large focus of the industry. Plenty of environmental and eco-friendly materials (e.g., PrimaLoft) and products were on exhibit.
  3. Transparent, mission-driven, “pick-a-side-and-take-a-stand” brands and companies continue to proliferate and play well.
  4. Diversity is on the rise. Messages of diversity, openness, access and inclusion (e.g., Merrell’s “many paths, one trail”) were prominent in panels, booth photos and marketing messages, etc.  The potpourri of body types, gender, races and affiliations was great to see.
  5. Softgoods and apparel dominated the show (including Asian textile manufacturers who, at least from my vantage point, appeared to be a significant percentage of exhibitors), with a relative scarcity of hardgoods. In particular, adventure travel gear, in general, and bags, specifically, were in vogue.  The much-maligned fanny pack seems to be making a comeback (I always thought they made sense – until George Constanza ruined them for me).  Kathmandu, recent acquiror of Oboz, and a first-time exhibitor at the show, embodied many of the themes discussed here.
  6. Also notable were those companies and individuals not at OR. Of note, companies that are moving towards, or have moved entirely, towards DTC models were, not surprisingly, in short attendance.
  7. Venture Out – always one of my favorite sections of the show, while smaller and in line with the rest of the show, once again delivered some super cool, functional innovation. In particular, love the HydraCell Power Cube!
  8. With a few exceptions, attendance from the private equity investing world – a cohort out in force for the January and July shows – was sparse.

All in all, OR was still a good use of time for two days (a bad day at OR is still better than a good day in the office!) but certainly room for improvement going forward.  See you in January!

Going Native: Is Consumer Backlash Impacting Walmart’s Newly Acquired Digitally Native Brands?

As many informed consumers and investors are probably aware by now, Walmart Inc. and its subsidiary Jet.com have been on a tear acquiring specialty ecommerce marketplaces and digitally native consumer brands in recent years.  Walmart has stated that it is trying to broaden its consumer base, targeting younger, more affluent consumers that increasingly buy everything from sundries to $300 dresses online.  Furthermore, in acquiring digitally native brands such as Bonobos, an e-commerce-driven apparel company headquartered in New York City that designs and sells men’s clothing, Walmart is investing in brands that could eventually migrate to larger format stores and/or 3rd party ecommerce marketplaces.  Bonobos CEO Andy Dunn recently provided a great analogy on CNBC, “It’s kind of like what Netflix did. They started making their own content. And we’re of the belief the same thing is going to happen in commerce.”

Consider the following relevant acquisition timeline (excludes minority investments):

2015:  yhd.com (marketplace in China)

2016:  Jet.com (marketplace), Shoes.com (marketplace), Hayneedle.com (marketplace acquired by Jet in early 2016)

2017:  Bonobos.com (brand), Modcloth.com (brand), Moosejaw.com (marketplace)

2018:  Flipkart.com (marketplace in India), Eloquii.com (brand), Barenecessities.com (marketplace)

While it is difficult to know exactly how well these digitally native brands are performing under their new ownership, the hyper transparent social media world would lead us to believe consumer backlash is widespread.  The complaints and boycotts are plentiful – with a general sentiment that Walmart’s signature cost-cutting measures and employee benefits policies will dilute product quality and overall brand ethos from the inside out.  On the flip side, consumers that have no problem with the new ownership tend to keep shopping and stay quiet (it’s just not fashionable to defend Walmart at cocktail parties).  Additionally, under Walmart, these brands are no longer startups and can afford to invest in showroom growth without raising outside capital, so trying on a pair of $100 Bonobos chinos becomes much easier as the number of showrooms increases markedly.

So what do we know?  ComScore data, cited by numerous publications earlier this year, reflected Jet.com site traffic down 32% since the Walmart acquisition and traffic to Bonobos.com, ModCloth.com, and Moosejaw.com down 7-12% in the prior 12-month period.  Taken at face value, those are abysmal traffic numbers for any ecommerce business.  But, what we don’t know and will likely never know, is how website conversions, repeat purchases, and average purchase (basket) sizes have changed since the respective acquisitions.  The CEOs of ModCloth (Antonio Nieves) and Bonobos (Dunn), of course, paint a rosy picture of life with Walmart, respectively:  “Business has been awesome, we’re seeing [it] in the numbers. The business is growing in double digits every which way: overall, new customer growth, repeat customer growth.”   “What’s most exciting for us is the fact that we’re lifting up the order values not just for new customers, but more importantly, for those repeat customers. The total price of the average order on the site, he says, is the highest it’s ever been.” 

In the absence of goodwill write-downs, it is very difficult for the public to know how small business units are performing inside of large corporations, however MHT will continue to monitor this M&A trend with Walmart and other omnichannel retailers for telltale signs of success or failure.

Direct Mail Marketing – Alive and Well

Despite rumors to the contrary, direct mail is not dead yet. In fact, it is alive and well. Direct mail remains an integral tool for increasing brand awareness and driving customer response.

Everyone will acknowledge that we live in a digital world, but the effectiveness of direct mail may surprise you. According to the Data and Marketing Association’s Response Rate Report, direct mail yields a much higher response rate than social media, online display, email marketing, and paid search. In fact, direct mail’s response rate is over 8x the next highest medium when using a house list:

Part of the reason direct mail is able to generate such high response rates is due to the ever increasing ability to target a specific audience and the unique user experience generated by a physical piece of mail. Constantly improving technologies and data sets allow mailers to get their personalized, influential message in front of the right people at the right time, which drives response.

The continued effectiveness of direct mail has resulted in the direct mail industry sustaining itself while other non-digital advertising channels decrease annually. Direct mail remains an extremely large and stable industry. According to IBISWorld, the U.S. direct mail advertising industry generates approximately $10.8 billion in annual revenue and is expected to remain at approximately that level for the foreseeable future. The industry is highly fragmented with nearly 2,300 industry participants, which implies an average revenue per participant of less than $5 million.

Looking forward – who will be the winners?

To standout in this crowded field, a direct mail vendor should incorporate advanced technologies into their offering to reach consumers using a multi-channel approach. Leading direct mail vendors are incorporating technologies such as advanced targeting, personalized URLs, text messaging, ringless voicemail, email and social media to reach consumers wherever they are in order to drive a response. If used properly, direct mail will remain a key element to a robust marketing strategy.

Industry participants with more than $20 million in annual revenue also maintain inherent advantages over smaller industry participants. Large companies tend to have industry expertise in multiple segments, which leads to better performance for their clients, provides diversification and enables more opportunities for growth. Larger businesses also benefit from economies of scale, which frees up cash flow to invest in growth. Scale advantages include lower input costs and the ability to spread overhead costs and capital expenditures over a larger volume of business. Having scale in today’s market environment creates a virtuous circle of better profits driving more investment in growth, which results in the rich getting richer.

What’s the punchline?

The outlook remains bright for those direct mail vendors that incorporate a multi-channel approach to reach their target audience, leverage their industry experience, stay on the forefront of technological innovation, and benefit from scale advantages. These businesses will be able to put themselves on a path to expansion as they gain market share at the expense of smaller, less sophisticated industry participants.

MHT Partners’ Business & Information Services investment banking practice represents founders, owners, and entrepreneurs undergoing M&A transactions. If you would like to learn more about MHT’s marketing services transaction advisory experience, please e-mail Kevin Jolley (kjolley@mhtpartners.com).