'It's really about quality over quantity': Pattern Brands' Suze Dowling on the new roll-up brand playbook

0:06Hello, everyone, and welcome to the Modern Retail Podcast.

0:30which is a holding company that holds some really interesting brands, including Open Spaces, Equal Parts, Onsen. Correct me if I'm saying this wrong. Gurr. Gear. Gear. I will say people, it's funny, people come up to me and start growling and saying, Gurr. And I have to say, no, it's gear. So Stan Spaget it right. Kitchen gear. Okay. That makes sense. That makes so much more sense than me reading it from all these articles. So gear, I apologize in advance to the gear people who are listening to this. But Pattern has been around for a really long time. It was Gin Lane back in the day, which Suze was also a part of.

1:04And I want, like, we're in a really interesting time for holding companies. And I'm sure Suze is aware of that. You're talking about, at Shop Talk, about marketplaces and just growth and all that stuff. And so I want to dive into all of that. But Suze, how are you doing? I'm good. I mean, I'm a little exhausted and I feel like... Yeah, this is Tuesday of Shop Talk, which is like essentially the last day. There is a Wednesday, but like this is the real like denouement, I guess you could say. Exactly. It's the full day. We were just saying before we started recording that I should have worn more comfortable and less cute shoes.

1:36So, but doing good. And it's been a really stimulating couple of days. It has. I agree. There's been a lot of, I've had a lot of meetings. I watched a lot of good panels. I'm excited to see your panel tomorrow. But let's go into, just for the listeners out there, your background. Because, you know, you've been at Pattern slash Gin Lane for a long time. Sort of what led you, you know, this can be a double, you know, question of, you know, what was your professional background? But also this company has had a lot of evolution. So you can talk about that as well. I mean, honestly, I think that's the perfect example of me and of the business in that.

2:10So you might be able to hear an accent still, even though I'm convinced I sound American and that I'm actually Australian. Though I did pass my American citizenship test last Tuesday. Wait, really? Oh, my God. Was it hard? Honestly, I had to, I got myself some flashcards, studied my civics test, now know a lot of interesting facts. But I'm technically not an American citizen yet because I need to be doing the oath and getting sworn in. But I'm approved. All right. But so, you know, 12 years ago, nearly, I moved to the States and actually met one of my co-founders two days in. Oh, wow. And the rest is kind of history.

2:47So, you know, my background originally was actually always in brand, but worked in PR and more traditional forms of media in Australia. And that was really what led me to digital in that I really wanted to be somewhere that felt like it was on the cusp, that there was so much more to explore. And so worked in digital in Australia before kind of leaping over here. With Gin Lane, you know, really what we did there was brand building and marketing, but with a focus on millennial first D to C businesses. And so it really taught us a lot about the power of digital, the power of building a brand, and most importantly, what we call direct with consumer versus direct to consumer.

3:29I.e., how do you build a relationship with the customer and have that be a two-way dialogue? I mean, I feel like you guys are the reason why the DTC aesthetic exists. I think, thank you. No, that's definitely a compliment. Like you created a cultural moment that like, and like to even like when that cultural moment was beginning to go, you evolved into something different. And I think that's very commendable. We have a statement and it's funny because I'm so not a sports person, but we always say go where the hockey puck is going versus kind of where it started. And I think, you know, credit to especially my co-founders for, you know, all being brave enough together to, I think, jump in and say, here's what we think the future is going.

4:14And, you know, we always say, you know, change is scary, but change is growth. And I think that's really important where you need to be really clear on your end goal, but flexible in how you get there, because so much of today is about evolution and agility. And so was it, when did it become apparent or when would the strategy shift from we're going to be a branding studio to we're going to be a holding company that acquires brands? You know, it wasn't something that happened overnight. It was definitely something that was honestly probably many years of conversation. Like when I first think about the name Pattern, we actually started talking about the name Pattern back in probably 2013.

4:55It wasn't until late 2018 that we first raised our seed round and started to kind of move into taking steps towards really creating pattern. We actually ran our agency and pattern in parallel for the first 9 to 12 months, which definitely kept us busy. But it was really because I think we saw an opportunity to take control of our destiny. we saw an opportunity to operate brands in what we felt was going to be a smarter way because we saw the problems that were happening in D2C, right? There was these really quite significant valuations that didn't necessarily have the backup behind them, no clear path to profitability, and building pretty significantly sized teams to operate them.

5:44And so our philosophy with Pattern was, what about if you had a one team, one cap table model, where you operate internally as a shared services organization, almost taking some of our learnings from agency days, and really build a portfolio of brands that hopefully serve one core common consumer and can really be an ecosystem of brands in some ways. So how did you, like, when you decided to make that switch up until now, has the rubric for brands changed? I'd say a good brand is always a good brand, but the nuance within that and our understanding of that has certainly evolved. And certainly our business model has evolved.

6:27You know, originally we started out incubating brands. Open Spaces is a brand that we incubated. I think really for us, COVID was a pretty big game-changing moment of we couldn't travel internationally, which meant we couldn't walk factory floors and see, you know, firsthand that incubation process. But we still wanted to expand the brand family. At the time, there was also a lot going on in the space and obviously Amazon aggregators. We said there's some really smart opportunities here, but we also kind of foreshadowed what some of those potential challenges may be for them and said, let's do this instead in a D2C, you know, Shopify manner.

7:09And so, you know, to date we've completed six acquisitions. And really I'd say I'm very proud of it because we look for brands that are truly brands, that have very distinctive IP, that serve a real customer need. And really we try and take all this goodness that exists and say, how can we amplify that? How can we scale that with our portfolio internally? So I was writing and researching and talking with people about aggregators over the last few weeks, as I'm sure you can imagine many people have been doing that. It's a hot topic. It's a hot topic. It's a hot topic for not the reasons it was a hot topic three years ago.

7:48But one of the aggregator founders said to me something, and I've heard this from other places, that like the real currency is IP. And that's something that a lot of the players, Thrasio, et cetera, they never talked really about that. And like this person specifically said patents. We don't look at brands unless they have patents, which I thought was sort of a very interesting, specific thing to say. It sounds like you have thoughts. I absolutely get that. And I think there is a world also where it's like, how do you use IP and then commercialize it across multiple brands? I think for us, certainly IP is one component that we look for in a brand.

8:25And that for me, I'm product obsessed. I really, really love products. And so I really look for products that are unique and distinctive and that I believe should exist in the world and are not super easily replicated. So there's tooling and molds and formulas involved. But I don't think that's the only thing. I also think that the brand, and again, coming from a brand background, I am biased. But I do think the brand that they've built, the credibility with their customer base, and importantly, their customer base and their customer file, those are all very valuable assets that you're acquiring alongside.

9:00And then for us, ours is a family of brands. We've been very clear in how we've built this brand family where we describe them as siblings of one another. And so we have gear, as we're going to say, that's in the kitchen. We have open spaces in organization. And so we say they each have their own really distinctive personalities that can be celebrated, but also they sit really beautifully together. I would say that sets us apart from some of the other aggregators that perhaps haven't had such a clear portfolio category strategy. Oh, and that was the question that I had just about the overall portfolio.

9:38Because with Amazon aggregators, in my mind, and I'm not an expert at all, I'm very much chalet person, but like, I understand fundamentally how they could work in terms of shared services in the sense that like, you're all selling on Amazon and you can share a marketing team and then learn how to do SEO. I will say, it makes it much easier when there is some commonality that you can find between them. And so for us, if you think about our mission at Pattern, it's to enjoy daily life at home. It's about those micro moments of your day and how can we make them just a little bit more special. That's something that is unifying across the brands.

10:19I think also for us, we look at who's kind of the core common consumer that we're going after. And we have a very clear picture. We call her Mia. Mia. Does that stand for anything? No, it's just, you know what? She's Mia. She's Mia. There's sometimes when you're doing persona work that you just feel like this name just fits. It just works. And so that is Mia for us. And that's our core common persona. And then there's a number of personas that are, of course, supporting. But I think when you think about then a marketing team, they're able to say, okay, I really understand Mia and I understand how to meet her needs.

10:51And I'm going to take her on this journey across multiple brands. I would, I guess, challenge that for some of the Amazon aggregators that also had 50 brands, 100 brands, that they were able to find those same synergies in how they operated. I do agree on the operations and logistics and supply chain side. yes I mean ultimately there's a lot of opportunity there I mean that was my question you kind of answered it but if you want is like the the idea that you have that there is a commonality with the brands and they are brands that stand up on their own is different than than the aggregators because they just believe that it's a it's I mean it's essentially they think that they can put in a formula and if the and if they see the numbers it'll work and yours is not as much of a formula to play.

11:40Well, I would say, look, we firmly say we have a pattern playbook in that there is a playbook and there's a set of activities that we can take a brand through. I think we do believe that it is helpful because ultimately at the end of the day, we're all humans and we're selling to other humans. But if you're working across seven brands in a portfolio, it is helpful to try and find what is the grounding force that is the commonality. I know my consumer, I'm able to meet her needs, but then also to really be able to say, well, this brand has a really distinctive identity and personality, and I'm going to play that up in the marketing.

12:14It's how I think hopefully we're still able to really authentically communicate with the customer for each of the brands versus having them be very one note. And how do the brands, you mentioned that they're like siblings, like how operationally do they interact? Are they, do they each have their own standalone teams? Like how does that work? So we are actually fully shared services. So we do have general managers that help to own the focus and brand level P &L. And so they will often oversee one to three brands, depending on, you know, product category, skew count, et cetera. But really as a team, you know, we are very much sharing resources across all.

12:55It's not to say that all team members spend an equal amount of time on the brands because that is something where someone may spend 80 % of their time on this grouping of brands and 20 % on another. But I think part of the benefit of Pattern is that we are able to provide the brands with access to honestly much more specialized resources than they would perhaps otherwise be able to access because we are this shared services team. We're going to take a quick break and we'll be right back. So you're talking specifically about marketplaces at ShopTalk where we are right now. And this is not meant as, I mean, like it is a plug, but it's also a question I genuinely have.

13:34But like part of how the pattern brands work, the pattern brands brands work. That's a mouthful. Yeah. Is that they are DTC, but they're also on, sold in many places. So how, like, how do, do they all have to sell on the same marketplace? Like, how do you make that all work together. Yeah. No, they don't all have to sell on the same marketplace. Again, I think it's about looking at what's right for that brand and that product base. I think one of the things that's been really fantastic and almost an evolution in our own understanding is the power of merchandising and how important the merchandising team members are in really critically thinking about how do you create the sense of exclusivity on D2C perhaps?

14:17How do you think about, again, meeting what customer where they are and providing them an offering. And again, looking at your sales channels as really an ecosystem that is connected. I think a lot of the time people think about marketplaces and just want to put everything up everywhere. And that's not necessarily the way that I would recommend approaching it. I also think the order in which you launch specific marketplaces, you know, it's something you need to be really careful and thoughtful, you know, in how you approach alongside the product offering on each of the relevant marketplaces. Ultimately, focus is better, I would say, because you still need to maintain, optimize, etc.

14:55And it's very easy to lose focus. We always say a pattern, focus on impact. Has operating as a holding company opened up efficiencies in terms of sales distribution? And so like if you have a brand that has sold well in Walmart, for example, I don't know if a product sells in Walmart, but like does that send a message to their merchandiser that the next brand would? Oftentimes it's similar connections in retail. So for us, because, you know, historically all of our products and brands have been in kitchen and homewares, those are very similar buyers, if not the same buyer a lot of the time. So, I mean, it's fantastic in some ways in that it means you get to build a really deep relationship with the buyer and expose them to multiple brands in the portfolio.

15:43But it also holds you accountable and to a certain standard because what you do in one brand will reflect across your portfolio. And do they, like, do, like, have the conversations gotten easier, I guess I would say? I mean, certainly, yes. I think with time and also, you know, you want to build your case studies. You want to build those proof points. And I think with each of those new milestones, of course, it does get easier. But I also, it's always an adventure in that it's like something where you're like, oh, wow, this is so easy. And then something new pops up and you're solving a new puzzle.

16:20But honestly, that's what I love about it. I always say I just, constraints breed creativity and you want to solve a puzzle. And so it'd be a little boring if everything was just. Everything worked. I mean, what would we do with all of our time? That's true. A life of pure leisure sounds terrible. So I believe in 2022, you raised the Series B. You had mentioned the seed round in 2018. Is that correct? So with the Series B gave you a good chunk of capital. Did that change velocity or strategy? Or how have the last two years been? And what has the focus been? For us, it's really been about expanding the brand portfolio.

16:59So we're seven brands today. And I think when we raised our Series B, I think we were maybe two or three brands at the time. So we've really added to the brand family. But I think in a really hopefully careful and pretty methodical manner for us, it's really about quality over quantity. But it's been an exciting few years. We have expanded more Omni, really coming from D to C. We've made some very careful decisions about what to sell on Amazon. and kind of started to ramp up part of the Amazon business, part of our retail partnerships. And I think as I look to this year, it's very much about how do I really continue to grow the brands in the current portfolio.

17:44I'm very excited and kind of gung-ho on trying to make sure we build some mass retail partnerships over the next 12 to 18 months. So having some of the conversations there to see what opportunities there are. And then I think also now it's still about expanding the brand family as well. We are at a point where we're ready to meet Mia where she is in the home and we're expanding to say it's really her home life. And so now that we've really solidified the playbook, we're really looking at, of course, traditional home goods, but also expanding categories like parenting or pets or home care. which I'm excited to find what are the nuances in those types of businesses and how do we solve for them.

18:31How do you choose where you want to, like, do you have a list of parts of the home we should have a presence in? We do. We always say we want to build a complete pattern home and help, you know. So you have like a Barbie house that you just like point at things? Honestly, yeah, like a little bit. Like, not no. That's a pretty good, I was a kid that was obsessed with dollhouses. So we do. And, you know, it is something where, again, we want the brand categories to be really complementary in nature and not necessarily competitive with each other. But it's also about really understanding, you know, Mia's journey throughout her home.

19:08And so we say, how can we help Mia in her morning routines, in her evening routines? What are the areas that we think could be made just a little bit better to really help, you know, live our mission of enjoying daily life at home? And what are like the business metrics? I feel like every hold co has. It needs to do between seven and$10 million AR. You know what I mean? I mean, I'd say so. Look, certainly we look at revenue, though. The range I'm about to say is definitely one where you're going to be like, that's not a real range because it's so big. And that we're like, we'll speak to someone at 10 million in revenue, but we'll also speak to someone that's at 100 million in revenue.

19:45So, you know, it is something where I think revenue is one indicator. For me, it's also really kind of getting under the hood and looking at the fundamentals. What's the gross margin picture? What's your contribution margin? When we look at with marketing expenses, what's the size and engagement of the customer file? What do the product reviews look like? Do people really love this product? How set up is the supplier base and what's the stability there, but also opportunity? So it is really something where I think there's some surface level things that at first blush, you can say, okay, this is worth a little bit more of a conversation.

20:21But then it's really about digging in and making sure that you're very clear on where the business is today and what are the levers that you would be able to pull and at what time in kind of the post-acquisition journey. Got it. And do you have a target number of acquisitions you want to make this year or next year? Or how is that? I'd say less a target number. And again, for us, you know, quality over quantity. But this year, I would say we'll probably expand with one to two additional brands in the family. And that's really something where I'm excited by some of the conversations we're having.

20:58And I do think it's an interesting time in the market, you know, to look at obviously brands that are looking for perhaps strategic exits based on where they're at. This is probably a good time to be looking for a brand, I would be honest. You know, I'd say, look, it is a good time to be looking for a brand. And I think it's a very interesting time. There's a lot of very interesting brands out there. And I think, you know, D2C and VC funding has obviously had its challenges that have been pretty well documented. I think for us, we really want to be there for founders and we want to give them, you know, the exits that we believe they deserve.

21:40I wanted to ask, just because the funding environment has been so rough, it sounds like you guys are in a pretty good spot. So congrats on that. Thank you. Do you like the one thing that I keep hearing, especially on the Holdco front, is that debt has been the real issue. Is that what you're seeing? I think, look, debt is absolutely something that we always say, be really conservative with your debt because you can always take on more, but it's really hard to scale it back down. And I think for a lot of folks, they've seen perhaps some challenges arise if either they weren't able to grow the brands as organically as they had planned and perhaps that then led to some issues with debt covenants.

22:22Or B, they were perhaps excited by the prospect of debt and perhaps over leveraged themselves a little bit too much. Again, I think with all of these things, moderation is always good. Yeah. And so, I mean, can you give a clue? I guess you gave a few clues, but like thinking pet care, you're thinking like cleaning, like what are we thinking in terms of? Honestly, I'm as interested as you are to see exactly what the next brand is in that I think it'll be what's next versus perhaps what's a few brands down the line. For me, I certainly find, you know, some of the categories of either other rooms in the home and then ideas of, okay, are there perhaps replenishable items?

23:08Like that would be a fun new challenge that I think, you know, I'd love to take on. Talk to me, and we mentioned you've been testing out other marketplaces and you want this year to be a big year, especially on the retail front. Is DTC still pretty much the number one channel for all of your brands? I'd say the vast majority of our brands. We've definitely seen some of the brands have their moments outside of DTC where DTC is still the cornerstone, but are absolutely scaling and also scaling very profitably in other channels. I think it is really interesting, again, when you think about where is the customer finding you?

23:43What's the customer mindset? You know, is this something where they're shopping for a higher AOV item that has more consideration? If so, perhaps that's where, you know, D2C absolutely is the go-to. Is this an item that might be a little bit more of an impulse, you know, buy? Perhaps that's something then that you want to think about, you know, in-store as they're kind of walking to checkout. But certainly, first and foremost, as a business, we are D2C first. And I think always will believe in the power of having that relationship with the customer. I wanted to ask, I think it was a year ago, but it might have been two years ago.

24:20I'm always bad at it. Time flies. But you opened a store in Santa Monica, right? We did. We have a Paquetto store in Santa Monica on Montana Avenue. And so what have the learnings been from that? Are you still into stores a year into it? You know, I think for us, that store was really about honoring Paquetto's history. So Paquetto has been around for over 20 years, which in and of itself is a pretty big milestone. And they, you know, had a history of having a retail presence in Los Angeles. And so that was the primary reason for doing that, honestly, was to really respect and honor what was. It's definitely had its own set of challenges.

25:00Yeah, I can imagine. It's something where I think we've been really interested in what are the learnings that we can have from talking to customers on the ground. How do we also see we have a number of brands in the store, so how do we see them interact with other brands in the portfolio? But I more so view this as, I'd say, a marketing play in that it is absolutely great for building the brand and brand awareness. It is not a core part of our revenue strategy. Would you ever consider opening stores for other brands? Honestly, I don't know. And I'm a person that says never say never. So I definitely don't want to say no.

25:42But I will say, you know, stores have their own challenges. And I think that's where having a, you know, retail partner, it just takes some of the burden off. You know, in some ways, I'm almost like, why would I create additional operational workload if I don't have to? Yeah, no, I feel that. That makes a lot of sense. You do have some in-store wholesale channels, right? Yes, we do. Where are they? It's in a number of places. So an area that we've seen a lot of success is more specialty in boutiques. So we have thousands of boutiques that we work with actually globally. It's been fun when you're overseas.