Rundown: Harry's reported IPO, Ashley acquires DTC mattress group & Abercrombie eyes global growth

0:07Hello, everyone, and welcome to the Modern Retail Rundown, where we break down the most interesting retail headlines of the week. I'm senior reporter Gabby Barkow, and I'm here with editor-in-chief Kale Guthrie-Weissman. Hello, Kale. Welcome back. Yes, welcome back to you. How are you, Gabby? I'm good. I'm good. Yeah, this week has been pretty hectic. Would you agree? Oh, yeah. And then we got some news that hit late last night, and we were like, we have to talk about this. So we're ready. Don't worry, listeners. But we will never let you down with telling you about all the latest things going on in retail.

0:47Exactly. All right. Well, on this week's episode, we are going to be talking about razor brand Harry's filing to go public. So that's going to be the top story. And then, you know, for their news, Ashley Furniture acquired a mattress startup. So there's more consolidation, M &A happening on that end. And then lastly, we're going to be talking about Abercrombie. So, you know, put on your early aughts crop tops or low-rise jeans. Staghetti strap or I don't know. I don't know what people wore back then. Yeah. Yeah. We're going to be talking about how they're doing it and they have further plants to grow even more.

1:30So, but first up, let's talk about Harry's. So yeah, very late Thursday, the company confidentially filed to go public. Anonymous sources told Reuters it is reportedly going to be working with Goldman, J.P. Morgan, Barclays, Wells Fargo, all the big banks to help, you know, underwrite, shepherd the process. This is, I think, almost exactly four years after Harry's tried to get acquired and that was blocked by regulators. So that was a big day at Modern Retail. So I think this is just full circle. Yeah, no. And like that was a long and arduous process. And I'm pretty sure it was February of 2020 when the government was like, nope.

2:18And so now, four years later, the question has been ever since what will happen? And we kind of all knew what was going to happen. But here we are. Yeah. So at that time, and this was right before the pandemic. So I feel like everything is very fuzzy during that month or two. But Edgewell, which is the big razor company, was going to acquire Harry's for$1.37 billion. This was obviously a huge exit for the company. This DTC razor is one of the first two brands that got into Target. Very big. But why don't we take us back to 2013 when Harry's did launch as a DTC? Yeah, so it's very important to set the table, as I love to say, just to understand what led to this.

3:09Harry's has been, you know, one of the early direct-to-consumer, DNVB, digitally native, blah, blah, blah brands out there. It launched in 2013, as you said. You know, it's always been considered this way. And in my research for talking about this right now, I will continue to say it's been one of the most successful and early trailblazers in the business model space where it launched online, it had the branding, it capitalized on all that good, good, cheap advertising that the DTC brands used back in the day. But it also was able to grow its brand beyond just being an online player early on. It did a bunch of things that were maybe small, but really set the stage for what other brands would do.

3:57And I think it was 2013 in the same year, it opened a barbershop in New York City, which clearly this did not drive a volume of sales, but it was a great marketing tool and a great way to say like, hey, these online brands can have their own stores as well. It used that barbershop until 2018. It was one of the first digital players to see wholesale and big box as a really important avenue for growth. As you said, it started selling in Target. That was in 2016. So three years after it launched in 2018, it started selling in Walmart. But it also followed the playbook that all of the early players and mid-age adolescent players also did, which is it raised just a boatload of money, which meant that it had a bunch of investors who really wanted to return on capital.

4:47before the Edgewell acquisition was announced, the company had raised, according to PitchBook, $375 million. So a lot of money. And pretty much the question that every business journalist has been asking, certainly every investor has been asking, is when you raise that much money and you have such a big expectation on growing the sales year over year, what do you do? And the easiest answer was you get acquired so that everyone gets a fat paycheck and then it lives under a bigger brand. But then when the acquisition was next, pretty much the next question is, well, what do you do now? And Harry's has been laying the groundwork over the last four years to pretty much say, well, we're going to try to be a bigger brand sort of holding company leader in the overall CPG space so that we too can go public.

5:40And that's what we're seeing right now. And so that's me setting the table. Yeah. So to grow in the last few years, there's been a really big product expansion and brand expansion, actually. So Harry started out really as a men's razor. You know, they famously had a lot of women actually using their razors, but they eventually did launch Flamingo, which is their women's line. And then more recently, I thought this was really interesting, Kel. you mentioned, which is that they went into hair care in 2021. So kind of just becoming an overall grooming beauty brand. And at the time, this brand called Headquarters, it just seems to, the products seem to just be living under the Harry's brand.

6:28So I think they're just experimenting with different formats, different branding. But all that to say, it has still been growing after the block of the acquisition, which we'll talk about right now. Yeah, well, pretty much this was not an early decision. It was in whatever 2020, but it was one of the first major decisions in recent memory. And we're seeing a lot more of them now where the FTC is trying to stop huge companies from being acquired under the threat of a monopoly. And so this came as a shock. It's hard to remember 2020. We've lived eons since then. But I don't remember this being an expected move.

7:15Everyone just thought that this would be an accepted acquisition and everyone would move on. But it was blocked. right after that, or not right after that, I think it was about a year after that happened, Harry's raised an additional$155 million. And with that was this plan to grow its portfolio. You mentioned a few of the things, the expansion to hair care. I think Flamingo happened in 2019 or 2018, but that's part of this overall expanding the category. But Harry's also has made acquisitions. It acquired the deodorant brand Loom. And then there's also this thing called Harry's Labs, which was its incubator arm, which is another thing that if you're trying to appear like a leader in the brand space who can have many brands, you either incubate or invest in other brands.

8:01So there was one, we've actually, they were on the Modern Retail Podcast a couple of years ago, but Cat Person, which is a cat care company, Harry's invested in that. But pretty much all of these are different individual moves that show an overall strategy of trying to be a multi-brand portfolio and something akin to a P &G. And so clearly that is what Harry's has been trying to do. And now going public is the way you really sort of stick your flagpole in the sand and say, this is what we're going to become. Yeah. And diversifying beyond razors or shaving is kind of, they've been going in that direction.

8:40In 2021, they said that 43 % of their revenue came from shaving products. So yeah, I think, you know, that this whole expanding the portfolio has been happening in the background. And then of course, now we have this filing for an IPO, which comes at a very interesting time. I feel like we say that every time there's a filing this in the last few months because there, yeah, I mean, there's just not that many exits. I mean, at least for DTCs, there's just not, well, at least going public. Yeah, pretty much most companies who have said they were going to go public have been much quieter of late for a multitude of reasons.

9:23You know, it's the economic headwinds, we all have to say, yeah, you know, it's harder to raise VC money. And also we look at the players that have gone public over the last few years and they're not performing as well as I'm sure those companies hoped they would. And so, you know, a company has to go public if that's what is in their roadmap. But in many ways, given that it's been so quiet over the last year or two, I imagine Harry's is thinking that they can sort of buck the trend and maybe start making it a more appetizing market for other companies. Like pretty much, when you do this, you're hoping that you will be the one that shepherds in the new era that makes going public more pleasing for brands.

10:11That's what I imagine is going on. Yeah. So, you know, the biggest question is going to be, of course, if you're filing to go public, you are pretty confident of the financials. So revenue growing, it's just a matter of whether, you know, they can be profitable when they do go public, because that's been a big topic with DTC brands that have. Yeah. And like, I will say, we don't know with Harry's, like we really don't know. We'll see in the S1 exactly what their financials look like. The only detail we have from the current reporting is that the company is nearing a billion dollars in revenue.

10:49And that's, I think, a couple of years ago, the company said it was over$500 million in revenue. So its revenue is growing. But the profitability question is a huge one. And it's one that you reported on just this week that other companies are grappling with. Yeah, you know, it's because we always talk about how, you know, it takes a few years for these DTC brands that have gone public to turn a profit, you know, because the priority is growth, of course, continued growth, a lot of investment. For example, Warby Parker, while it is posting losses, it has been opening a lot of stores. That's a long-term investment.

11:32On the other hand, you have a brand like Figs, which is, I mean, it is a little bit of an anomaly because it's in a specific category. But I mean, they went public in 2021 also, and they have been pretty consistently profitable. So it's not that it's not happening. It's just been kind of on and off for a lot of brands. And then, you know, you have a company like Hims and Hers, which I find really fascinating because I think I spoke to them around four years ago also in early 2020, and they wanted to become, you know, a hundred million dollar brand. And, you know, they're public now. They do offer very, very hotly contested products or treatments like weight loss and, you know, all of that that's happening now.

12:24And so they've added a lot of services that have helped it grow exponentially in the last year or so. So, yeah, just kind of gradually moving towards profitability while they also try to grow top line revenue. Yeah. And I will say the one thing that Harry's has going for it that, you know, some of the other brands, not all of them, but it made distribution decisions early that set it up for big growth, i.e. going into big box stores, you know, in its general infancy. And so the fact that it has that as part of its playbook, I think, is definitely something investors will like. It shows that it knows how to grow brands.

13:07And for a lot of the other companies, especially DTC brands, whether they're public or not, they're doing this many years after and sort of teaching themselves how to do that huge growth and scale play. And so that's something that Harry's has going for it. whether or not it will resonate with the investors remains to be seen, of course. Yeah. So now, you know, we're just waiting for the documents to drop and then we'll know more. All right. Well, speaking of exits, let's talk about Ashley Furniture or Ashley, I think they've rebranded to acquired this digitally native mattress group. They own a bunch of brands called Resident Home.

13:52This, of course, when we talk about mattresses, we are going to get into it. Sometimes I feel like I sound like a broken record, but mattresses are sort of the poster child of the DTC brands that raise a lot of money, mattress in a box category. There's a million of them. They all market online, but we are seeing consolidation. I read a story last summer about that, And it seems like this is kind of a continuation of that. So some of the brands, people probably know that Resident owns is Nectar, DreamCloud, Aura, I believe is how you say, and Sienna. And they sell both through their DTC sites and through wholesale.

14:37So yeah, it's a pretty big company. As of 2023, they were valued at$800 million and are bringing in, I think, upwards of$500 million at this point in revenue. But Ashley is pretty much as legacy as you can get. So what do you think? Yeah, I mean, this is specifically for mattresses, but we're seeing this sort of return to its roots because the new business model didn't work out. I can't speak about that specifically to Resden because I don't know that intimately. But like, you know, a lot of the companies that were online only tried to grow, tried to rebrand themselves as more than just a mattress brand, but a sleep lifestyle brand or whatever, are now either getting acquired or they are, you know, inking wholesale partnerships with mattress firm.

15:31You know what I mean? They're doing the business as it has been done for decades, if not centuries. You know, Ashley, just to give a little background, it's been around since 1945. It has over 1 ,100 locations in 67 countries. But it's been trying to sort of rebrand itself. It's no longer Ashley Home Store. It's Ashley has a new logo. It all looks good. And so I imagine by acquiring a new digital brand, it's part of that reimagining, maybe trying to get a little bit better with its e-commerce know-how. But for a brand that is predominantly online, I imagine it is nice to be owned by a company that has over a thousand locations.

16:18And, you know, people do enjoy buying mattresses from stores. Like, I'll admit, I haven't bought a mattress in a while, but I bought it at a mattress firm because it was down the street. And that's their mattress firms literally everywhere. Yeah, I believe the stat is about 70 % of mattresses are still purchased in person or at a physical location. So it makes sense. But yeah, we could talk more about zooming out to the overall category for the digitally native segment and also kind of like the more big players that have also been merging or getting acquired. I think, you know, speaking of IPOs, Casper, to go back to early 2020, they went public in a really big IPO.

17:06And then by 2021, were taken private by PE firm Durational Capital. So that was one publicly traded company example that we saw, you know, just sort of like taking, yeah, going back to being privately owned. But with that, that's not to say that all the acquisitions have been negative. Last year, there was a really big one with Tempur-Sealy acquiring mattress firms. So this was obviously more on the traditional retail side in a$4 billion deal. Also, there's been consolidation on the startup side. You want to give us some of the names? They all have really hip names that are probably in Helvetica, probably spelled.

17:54Yeah, of course. In Helvetica, only sans serif. In 2023, Brooklyn Bedding and Helix Sleep, they were both acquired by a PE firm in 2022. And then the same firm bought out another DTC brand called Bear Mattress in 2023. So, you know, you're just seeing a bunch of consolidation. I actually, a couple of years ago, interviewed the CEO of Casper at an industry event. And I remember pretty much what she said. She was very, very honest and was like, look, there are these lofty plans for mattress brands. They wanted to go beyond just being a way to buy a mattress. They said they were lifestyle companies.

18:35That hasn't worked out. We just need to go back to our roots and be a mattress company and set our sights just on that. And with that, you know, at NRF a couple of months ago, both Casper and Brooklinen said they expect 2024 to be, quote, a tough year. And so it's going to be pretty much what it's saying is that the idea of being this huge industry that transcends just selling mattresses, now it's going back to we're more or less traditional retailers. This business model has been around for nearly a century, and that's what we're doing. Yeah. And I think with that, I'm sure we can expect more consolidation.

19:13I think when I speak to analysts in the space, that's kind of what they're expecting. And this seems like, you know, to loop it back to Ashley and resident, that seems like another example of that. So yeah, a lot of shuffling happening. from there uh let's go over to a company that is over performing uh for wall street at the moment abercrombie and fitch they're on the brink of becoming a five billion dollars a year in revenue company but let's break that down um maybe how we got here first for those not familiar with the whole rebrand plan that they did. I mean, Abercrombie has been really, you know, been able to tap into some of the trends with the younger generation, Gen Z, and millennials, of course, because that's what they grew up on.

20:10They pretty much rebranded and shed its early aughts reputation of, you know, being one of those mall stores, heavily perfumed. It reeks on you for days, darkly lit, limited sizing. it's now upped its fabric quality, its fits, its styles, and pretty much it's just been able to rebrand itself as a more modern brand. And it should also be noted that there is also definitely a nostalgia, especially among Gen Z, for the styles of the early millennials. And so it's sort of a mixing of the two where it's like, I imagine, I don't know, I just think it's like they rebranded when it was right, but then there was a certain looking back from the younger generations that also fit into this dynamic as well.

20:55Yeah. And, you know, of course, a lot of it is in the product itself. You know, culturally, we have moved in a very different direction. This was known as like a very, you know, all their marketing was just very overly sexual and very intense. And it was very logo-driven. I believe it was a moose that was embossed on. And it was really preppy, is my memory. It was the brand for preppy people who either did go to private school or wanted to act like they went to a private school. That was what I always associated it with. Right. And a little bit of a status symbol because it was on the high-end side, I guess you could say, for a mall brand for teens.

21:40But anyway, they took off the logos. They upped the styles. the fit really for more modern taste so like more neutral styles more you know trendy too and also of course I think this is really important because they have done a really good job making people forget that this company was heavily criticized just maybe about not even a decade ago for its exclusionary sizing like they only really cater to pretty much you know thin bodies. And now they have moved beyond that. So that's what I meant when I said, kind of like culturally, they have moved into the direction that we are all moving in, which is inclusion.

22:24And then, you know, all of that, of course, paid off because this quarter, you know, they hit, I think, another record in revenue, and they plan to grow even further. So give us the numbers, Kale. The numbers. Abercobie & Fitch's revenue was 1.45 billion, which was above the expected$1.43 billion. It was a 21 % growth year over year. Its net income hit$158.4 million compared with$38.33 million the previous year. So that's a huge jump. And for fiscal 2023, Abercrombie came close to that target, posting a full-year revenue of$4.28 billion. And this is anomalous when you're looking at the other apparel players, where a lot of them are saying sales aren't going as well.

23:17They're giving many different reasons about why they're not. But Abercrombie definitely bucked this trend and was able to post sales growth and hit targets that probably not that long ago seemed not that likely. Many of them are saying that. I mean, just in general, apparel is very soft right now and has been for a while. And on the profitability side, I believe a lot of that was due to efficiency. So things like cotton prices have stabilized in the last year or two, supply chain, all of that. So that helped too. And then, of course, it was a holiday quarter. So that helps. But$4.28 billion, that's inching closer to that$5 billion a year goal that they have.

24:05And it sounds like they expect that to happen. It's on the way. I think if we break it down, Abercrombie, of course, owns Hollister and Gilly Hicks. So it does have smaller brands that are also is driving growth with. But it sounds like this is an interesting stat. So CEO Fran Horowitz on the earnings call said that with Hollister specifically, 70 % of the sales are happening in-store. So teens do start browsing online and then they do make purchases in-store, which, you know, I'm just omni-channeled, you know, kind of like, of course. So yeah, the whole like teens love in-store shopping theory is being proven.

24:50And, you know, with Gilly Hicks, I'm not sure if people are familiar, that was sort of like their Aerie-esque brand. So like Intimates, Loungewear, that's moving into more of like an active lifestyle brand. So yeah, a lot of just rebranding overall, and that's being kind of baked into the Hollister umbrella. less. So yeah, these are key growth categories. But I think right now the focus is really on growing Abercrombie, you know, flagship and Hollister for the time being to achieve those goals. Yeah. And it's, you know, we'll see if they're able to keep posting that growth or stay with the trends.

25:31That'll be interesting. Should be noted that one other major apparel brand posted pretty, pretty good numbers. We won't get into it, but Gap had some pretty positive earnings. And one of the things that did return to growth at Gap, which I thought was interesting, was Old Navy. And so Old Navy was not doing well for a few years. Now it's doing much better than it was. And so maybe we're beginning to see an overall apparel rebound. But Abercrombie is still way, way, way outperforming its competitors. Yeah, so we should also know international growth is also going to be a really big focus. Which is interesting because even during the sort of slump, I believe they were still pretty popular in certain overseas markets.

26:12So I think just kind of building on that image overhaul too is helping with that. All right. Well, we can wrap up from there. That will be all from us this week. You can come back on Saturdays to hear more weekly rundowns. You can rate and give us a review anywhere you're listening to your podcasts. and come back on Thursdays for the Modern Retail interview show. Kale, who do you have on next week? Next week, I talk with the co-founder of a DTC beverage fridge company, Rocco. It's not just a wine fridge. They're also in the NA space. But it was a fascinating conversation just about being an online player, launching a new pretty expensive product, and looking an awful lot like the aesthetics of older DTC brands, but trying a new spin on it.

27:04It was a fun conversation. All right. And as always, thank you for listening.