Want to know how to spend your next $1?
Don’t waste another dime on bloated channel reporting and vanity metrics.
Don’t waste another dime on bloated channel reporting and vanity metrics.
Bainbridge Growth breaks down the cooler brand's ecommerce evolution.
YETI in the wild. (Photo by Tony Webster, used under a Creative Commons license)
This post originally appeared on the blog of Bainbridge Growth. It is being republished by The Current with permission.
YETI Inc. was founded in 2006 in Austin, Texas, by avid outdoorsmen Roy and Ryan Seiders. The YETI founders were disappointed with camping equipment that could not perform at their expectations. First the duo rolled out their original hard cooler, serving as the flagship product in their self-described “high-performance, premium-priced product portfolio.” Since its launch, the company has built out several other products including their soft coolers and the extremely popular drinkware segment featuring tumblers, ramblers, and mugs. The ever-present theme of these products is their double-walled vacuum insulated design that can hold high or low temperatures for hours. YETI is made up of 823 employees as of the end of 2021 and does not own or operate any manufacturing facilities. Production is executed by a global supply chain of third-party operations.
YETI's market breakdown. (Image via YETI)
In FY 2021, their three segments of Coolers & Equipment, Drinkware, and Other represented 39%, 59%, and 2% of net sales respectively. The “Other” category includes all YETI branded apparel gear and miscellaneous items (i.e. keychains, bottle openers). The company’s sales lean towards their online channels, with direct to consumer representing 56% of sales in 2021 and 53% in 2020. “DTC” is defined as selling to consumers on YETI.com, country and region-specific YETI websites, as well as Amazon Marketplace sales, plus their B2B ecommerce corporate sales program that allows for bulk orders of logo emblazoned batches.
YETI’s ecommerce strategy is currently focused on improving the reactivation of older cohorts and driving a deeper and broader purchase basket within and across product categories. A revamped Yeti.Com and Yeti.Ca were unveiled in early April of this year, with a focus on mobile user experience. Early responses have been positive and shown improved conversion rates.
The wholesale channel makes up the remaining 44% of 2021 sales, with the largest wholesaler representing 10% of gross sales in 2021 out of 2,900 total wholesalers. In Q1 2022, sales increased by 19% to $294M compared to $247.6M in the same period last year. The channel breakout was +23% YoY for DTC and 14% for wholesale respectively.
YETI's total and DTC sales. (Image via Bainbridge Growth)
International sales represented 13% of total revenue in the period. Brand strategy for international is laser-focused on alignment based on local pursuits & communities (YETI’s term for categorized outdoor hobbies/interests). For example, snowboarding is a key community for growing the Canadian business. Marketing to this group of enthusiasts helped international drive 45% YoY growth which is a 3x increase from Q1 2020. YETI CFO Paul Carbone mentioned on the May 11 call an informal target of at least 20% for international sales’ proportion of total.
Gross profit margin in Q1 2022 contracted from 58.6% to 52.7% primarily due to higher inbound freight costs and a one-time adjustment related to a prior year’s freight cost. The comments around inbound freight costs were the most notable mention of the recent quarter. The 590bp YoY drop in gross margin was mostly due to two freight expense overruns that contributed to 680 bps of contraction partially offset by higher pricing. Higher freight rates drove 400bps and another 220bps hit came from late invoices that landed Q4 ’21 expense in the Q1 ’22 period. (60bps margin contraction from Other freight items)
The spike in inbound freight and transportation costs has already been an ongoing theme mentioned by management teams in the retail sector over the last month of earnings reports. YETI still reiterated their guidance of 55% GM for full year and 20% operating margin during their May 11earnings call comments. The 55% gross margin full year includes 140bps in margin upside from taking price and an assumption that the very recent improvement in freight rates they’ve seen continues through the second half of 2022.
Aside from freight, and a positive response from customers on the price increase, the third major point to take away from YETI’s Q1 is the massive growth in inventory. During the Q&A session on the May 11 call, management positioned this jump in product-on-hand as a positive development. The $413M in inventory is “40% in transit,” and is intended to help fully restock the Amazon fulfillment network within their DTC channel. This wave of incoming stock is also going to allow the company to “return to pre 2020 inventory levels” that should in turn give their sales team the chance to once again present their full range of products and colors to wholesale customers.
A look at YETI's inventory (Courtesy photo)
YETI called their end of Q1 2022 inventory position a return to pre-2020 levels, but we can see above that they are at a higher inventory level than at any point over the last five Q1 periods. Going forward, we will observe if YETI can sell all of this inventory now sitting on the balance sheet. If they eventually are impacted by any kind of consumer spending slowness, that will significantly hurt the inventory and asset efficiency metrics that Bainbridge builds and help DTC founders keep top of mind.
All that being said, this is YETI. Other than Crocs they are by far the most successful brand building, and category-making company in our DTC index. Their philosophy of YETI is that the brand spans everyday use to the most extreme and dangerous outdoor pursuits. This makes for “utilization of incredible content about people, products and places.'' Ultimately, YETI’s unending focus on the pursuits and hobbies of customers is how the YETI brand withstands all the copycats and continues to be a massive success story.
The feature, which embeds Prime checkout and logistics with DTC brands, is set to be available for all US merchants on Jan. 31.
Buy with Prime is moving to wide release. (Photo via Amazon)
Amazon’s much-discussed new program for direct-to-consumer brands will no longer be invite-only later this month.
Amazon on Tuesday announced that it will launch Buy with Prime, which embeds Prime services on direct-to-consumer ecommerce stores, into wide release for all US merchants on Jan. 31. An integration with BigCommerce will help roll it out.
In April 2021, Amazon made an ecommerce splash as only it can when it rolled out the new service. Buy With Prime allows brands and retailers to embed Amazon Prime checkout on their off-Amazon stores, and offer Prime benefits like free shipping and returns along with it.
With Tuesday’s announcement, Amazon shared a few updates that will be added with general release. Amazon said Buy With Prime will include a new tool that offers the ability to display ratings and reviews from Amazon on a DTC site. This will launch alongside marketing capabilities that include advertising for products on Amazon’s marketplace, and a badge that can be displayed on DTC stores. Amazon also claimed that the service increased shopper conversion.
“We’ve been working closely with merchants since the launch of Buy with Prime and have been thrilled to hear the results it’s helped drive for them so far,” said Peter Larsen, Amazon vice president of Buy with Prime, in a statement. “We’ll continue innovating and investing in new features, such as Reviews from Amazon, to help merchants of all sizes succeed and give Prime members the shopping benefits they love, whether it’s on Amazon or beyond.”
On initial release, many analysts were in agreement about Buy with Prime: This could be a game-changer. It means the Amazon brand is now extending beyond the #1 ecommerce marketplace's own site, and the Amazon's vast logistics network is available to many more companies that don't sell directly on Amazon. With a simple button, Amazon can extend its reach through the bits of ecommerce, and add to its client base of merchants on the atoms side.
If you felt like Amazon was already everywhere, this could make it even more ubiquitous.
Amazon’s track record in ecommerce carries with it the expectation that it can bend the internet to its will, and decide to turn on new paradigm-shifting features whenever it chooses. But success isn't guaranteed for Buy With Prime, even though it's Amazon. The launch cycle indicates that this is a new program, and it's coming during a tougher time for brands that sell directly through their own sites, whether because of the economic pullback or iOS changes that made advertising more challenging.
So, this year we'll be looking for signs to prove its success. Here are a few burning questions to keep in mind as the launch gets closer:
DTC brands have long proudly stood apart from Amazon, building their own stores and in many cases communities. While Amazon had the crowded mall, DTC had the intentionally-placed and lovingly designed boutiques. This offered DTC brands not just independence, but control over how they executed ecommerce. Amazon is offering to lend its brand in exchange for a presence in the store, and even has additional advertising offerings and a badge to display. It is also now adding reviews, making the experience even more Amazon-like. But will brands want that? Will they fear that more Amazon will enter their store after this launch? Of course, another question is: Will they be able to refuse it?
In a related point, Amazon's checkout will give it a way to access the data of customers who buy using its Prime feature. How will it use that information, and, will it share that valuable info for marketing with brands? The answers could be make-or-break for many brands.
In an FAQ, Amazon said that it shares Buy With Prime data with brands, and collects data about how shoppers use the program.
"We do not collect information unrelated to Buy with Prime, such as non-Prime order information on your site," the company writes.
As we wrote back at launch, this feature looks like a direct bid by Amazon to move in with the entrepreneurial brands that are tried-and-true Shopify users. It's especially glaring at a time when Shopify is building out its own fulfillment network following last year’s $1.2 billion acquisition of Deliverr, and offering the "Shop Promise" badge to brands that use its services. Last year, Shopify already slid in a code-level warning to brands installing Buy with Prime about the potential for fraud and stolen data. With Amazon's wider launch, will it mount a more overt defense?
To be fair, it's still to be determined whether the companies will cooperate around this feature. On its third quarter earnings call, Shopify President Harley Finkelstein said the companies have been in communication about the implementation of Buy with Prime on Shopify, saying that Shopify wants to do it "the right way."
"What's important for merchants is they want to be able to manage their entire business from one centralized place," Finkelstein said. "They want all the information they need to make really, really good decisions. But at a high level, at a macro level, when great companies, or any company for that matter, makes infrastructure available to small businesses and does so in a way that levels the playing fields further for small businesses, that is a very, very good thing."