For Solo Brands, being DTC represents more of a state of mind than it does an exclusive sales channel.
“A lot of people have in the last five years equated DTC to e-commerce,” said John Merris, CEO of the portfolio company that owns Solo Stove, Oru Kayak and Chubbies, among other brands. “We believe that direct-to-consumer is focused on the relationship… All direct-to-consumer is actually talking about is a brand’s ability to connect with its consumers.”
That thesis has translated to Solo owning a variety of brands that sell both offline and online, but Merris insists that they all are able to connect uniquely well with their target customers. He joined the Modern Retail Podcast this week and spoke about Solo’s growth over the last few years, what it’s like being a public DTC company as well as why he looks for in potential acquisitions.
One of the major focuses for Solo as a company is maintaining profitability. “We do not buy businesses that aren’t profitable,” he said. And this was one of the reasons his company decided to go public in late 2021.
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“We were just on a tear — growth was really solid, we were very profitable, we generated free cash flow,” he said. While the economy has certainly shifted since 2021, Solo has been able to maintain its profitability — at its most recent earnings its gross profit increased 11.4% to $54.4 million.
Merris considers Solo to be a brand that outperforms competitors. “Our business was pretty sound, it still is,” he said. “And I think that you see that now, in this environment, there are very few businesses — especially [those] that would consider themselves direct-to-consumer businesses — that are still growing and doing so profitably.”
Solo represents a small but influential group of companies trying to take a roll-up approach. Merris was clear that Solo doesn’t have targets in terms of number of acquisitions each year, but that it’s always looking for new companies to join that fold that fit its parameters.
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With that, Merris has yet to find company that has a business model analogous to what he’s trying to build. “There really isn’t any sort of conglomerate or aggregator — or whatever you want to call it — that we aspire to be like,” he said.
Here are a few highlights from the conversation, which have been lightly edited for clarity.
What Solo Brands looks for in a potential acquisition
“We have this really strong tie to the customer. And we’re just really passionate about the customer and our ability to deliver a good customer experience and to have a strong connection to our customers. So, brands that haven’t figured out how to create that aren’t very interesting to us. We’re not looking to buy a brand to teach them how to do that — we’re looking for brands that are already doing that. But all that aside, in terms of overall financial metrics, we look for businesses that are majority direct-to-consumer. So, half of their business or more is coming from online business versus in-store or other channels. In terms of growth and EBITDA, we do not buy businesses that aren’t profitable. We’re looking for businesses that are profitable, for sure, and have a good growth rate. They don’t have to be growing 100% a year every year, but we do need to see positive growth rate, we do need to see positive profitability”
Why Solo went public
“We were able to just go public on our own. I can’t remember exactly our size, but I believe that we finished 2021 at just over $400 million in revenue, or something like that — maybe a little bit more than that. And then we finished 2022 at like $500 million and change. So we were just on a tear — growth was really solid, we were very profitable, we generated free cash flow. And so even as we looked out at the retail IPOs that year, [it] was a pretty mixed bag, but there were quite a few brands that probably had no business going public. And we felt like there was going to be an opportunity to stand out there too. Our business was pretty sound, it still is. And I think that you see that now, in this environment, there are very few businesses — especially [those] that would consider themselves direct-to-consumer businesses — that are still growing and doing so profitably. And so I think I think we made the right call.”
Why there are very few roll-up businesses like Solo
“People ask me all the time: Who do we aspire to be like? Because, there are older roll-ups or portfolio brands or companies or whatever platforms — all the different words that are used, depending on what’s viewed the most favorably at that time. And the truth is, there really isn’t any sort of conglomerate or aggregator — or whatever you want to call it — that we aspire to be like. There are a couple that seem really interesting, but you wouldn’t necessarily consider them to be roll-ups. Deckers owns some really amazing shoe companies, like Hoka and Ugg. But you know those brands individually, you don’t know them as Decker’s — most consumers don’t even know what Deckers is. You wouldn’t see that. But that’s a good example of an aggregator, if you will, or a platform that I think is doing a great job.”