Vuori, an athleisure business that debuted in 2015, was based in a garage, marketed solely men’s shorts, and failed to attract investors.
After obtaining $825 million in November in a funding round that valued the firm at $5.5 billion, the Carlsbad, California-based store is now growing internationally with the support of a number of high-profile investors, including General Atlantic, SoftBank, and Norwest Venture Partners.
When it eventually files to go public, as individuals close to the firm believe it expects to do, it will be one of the largest initial public offerings (IPOs) in the retail sector. It has become the envy of established companies like Lululemon, Gap sAthleta, and Levi’s Beyond Yoga.
Regarding the recent funding round, Matthew Tingler, a managing director in Baird’s global consumer and retail investment banking group, stated, “It’s a notable deal for the category it’s in… you haven’t seen many deals in that market over the last couple of years, and the deals that have happened have been more, I’d say, challenged or more at value-oriented situations.”
Tingler, a specialist in the field of sports wear who was not involved in the deal, adding that Vuori is bringing a lot of enthusiasm and growth to the sector. In a sense, they have been battling the established brands like Lululemon and Athleta in the athleisure sector as a whole.
With its coastal California twist on athleisure, Vuori gained customers in a crowded market and saw strong sales growth and steady profitability as it transformed from a no-name brand to one of the most valuable private garment stores on the planet.
In an interview with CNBC, Joe Kudla, the CEO and founder of Vuori, stated that the company competes on the basis of a unique product, brand, retail experience, and materials. What makes Vuori unique, if you were to simply ask our clientele? They would claim that it’s because of our product, the fit, the comfort, the fabric, and the textiles we utilize. Great performance in our industry is ultimately the outcome of our obsession with product, product, and product.
Notwithstanding its achievements, Vuori still has obstacles to overcome. The business competes in the competitive athleisure market, which experts predict won’t expand as rapidly as it has in the past. While some anticipate a slowdown as consumers seek to dress up after years of dressing down, others view it as one of the fastest-growing apparel sectors.
As Vuori grows and deals with the pressures of being a publicly traded company, customers also appear to be concerned about whether the company’s products will remain the same.
Currently, the most common fear among Vuori customers, as seen on message boards, is if the fabric’s quality will decline. remarked Eatbigfish strategy director and challenger brand specialist Liston Pitman. In exchange for expansion, would they weaken the brand I adore?
Additionally, Vuori has the same problems as other companies that cater to consumer discretion. Retailers have been forced towork harderto win customer dollars, and demand has been unsteady as consumers think twice before buying things that may be wants rather than needs.
Vuori pulls ahead in the yoga wars
Since it is still private, not much is known about Vuori s financial performance. But analysts estimate that it generates around $1 billion in annual revenue, and the company says it has been profitable since 2017.
While its sales are a fraction of the $431 billion global athleisure market, Vuori has seen steady growth and has outperformed the overall sportswear market at least since 2020, according to data from Euromonitor and sales estimates from Earnest. As of the end of October, Vuori has grown sales by 23% so far this year at a time when the overall sportswear market is expected to grow by 4.3%. Last year, it grew 44% while the sportswear market expanded by only 2.4%.
Retail analyst Randy Konik, a managing director with Jefferies, said Vuori and fellow upstart Alo Yoga have been so successful in part because they re taking share from Lululemon, which he said has alienated its primary customer base as it has expanded into new categories.
Five years ago, Alo and Vuori were … nothing burgers, and that s when Lululemon was growing 20% a year, whatever it is, or more. Today, you look at the numbers and you re like, wait a second, the business is flat, said Konik,referring to Lululemon s largest market, the Americas. It s not growing, and yet it s coinciding with the hypergrowth of Alo and Vuori. So … in my opinion, the data proves that that is a market share issue.
Analytics firm GlobalData found that Lululemon s customers are now spending more at Vuori than they did previously. In 2018, 1.2% of Lululemon s customers shopped at Vuori, but that number grew to 7.8% as of the end of November.
Last week, the longtime category leadergave a cautious outlookfor the all-important holiday shopping season as it contends with slowing growth and product missteps. It wasn t asked about the competitive threats it s facing but acknowledged that its core customer is slowing down.
Competitive threat
Vuori s valuation and interest from private equity come as investors flee the consumer sector. Its success has left some industry observers scratching their heads and wondering: How can a leggings and joggers company be worth this much, in this economy? Analysts say it comes down to Vuori s business model, its ability to grow profitably and its product assortment, which has resonated with shoppers.
Kudla said the company was laser focused on growing profitably from the beginning because it really didn t have another choice. Unlike other direct-to-consumer brands that wereraising piles of cashat the time, investors weren t interested in the mens-only brand that Kudla was pitching.
So he was forced to bootstrap the company using funding from family and friends.
We developed a working capital model that would self-fund the business, and so we were built very counter to the trend of the time, and that resulted in a really great business with a lot of discipline, said Kudla, who was a CPA for Ernst & Young before he got into fashion. I managed the entire business through this complicated spreadsheet, so every decision that I made, I could forecast the cash-flow impact six months from today.
To save money, Kudla didn t pay himself for two years, ran the business out of a garage and hired employees who were willing to trade equity for compensation. Perhaps most importantly, he developed partnerships with his suppliers, which alleviated the cash-intensive burden of acquiring inventory and paying for it up front.
I started treating our suppliers like they were investors in the business, and really helping them see the vision for what we were building, said Kudla. I was able to convince our early factory partners to give us really great terms so that I could receive the inventory, sell it, collect cash from my wholesale partners, or sell it direct to consumer and then pay for the inventory, and that strategy ultimately led me to building a working capital model that self-funded our growth.
While Vuori started out as a purely online business, Kudla wasn t precious about partnering with wholesalers at a time when many founders in the direct-to-consumer space were against the idea. By getting his products on the shelves at REI in the brand s early days, he was able to build awareness and acquire customers in a way that didn t drain Vuori s balance sheet.
We got profitable in 2017, we started generating free cash flow … there was no institutional capital involved in our business, no venture money involved in our business, until 2019, when we were already very profitable and on a pretty strong growth trajectory, said Kudla.
Years later, Kudla s approach almost feels prescient. Many of the DTC peers that Vuori came up with are now teetering on theedge of bankruptcy, unable to make the unit economics of their business work. Investors no longer have patience for companies that have no path to profitability.
Now, most brands and retailers recognize that selling only online often doesn t work. It has proven critical to partner with wholesalers andopen up stores, alongside building direct channels online.
I like how [Vuori is] going about growth, said Jessica Ramirez, senior research analyst at Jane Hali & Associates. With REI, it was one of their top accounts, and I feel like it was a different way of going into wholesale, but very targeted wholesale, so knowing that that is a customer that would be purchasing a particular kind of activewear.
Vuori s investment from General Atlantic and Stripes in November is further evidence of a robust balance sheet. The deal was structured as a secondary tender offer, which allowed early investors to sell their shares and cash in. None of it went to the balance sheet, and Vuori didn t need new funding for its aggressive growth plans, which include expanding into Europe and Asia and having 100 stores by 2026, said Kudla.
We re going to continue growing the business the same way we ve always grown the business, which is very calculated with a lot of discipline, he said.
Trouble at Lululemon
In many ways, the brands jostling for share in thecrowded athleisure spacecan blur together. They all sell leggings, they all sell sports bras, and they re all looking to win over consumers with their unique blend of comfort, style and performance. The same can be said for the broader apparel industry, which is why havingproducts that stand outseparates theindustry s winners and losers.
Fans of Vuori say the brand s quality, fit, fabric and comfort are what sets it apart from competitors and keeps them coming back. Meanwhile, product missteps at Lululemon have been blamed for a sales slowdown in its largest region, the Americas.
In the three months ended April 28, Lululemon s comparable sales in the Americaswere flatafter the company failed to offer the right color assortment in leggings and the sizes that customers desired.
In early July, Lululemon launched its new Breezethrough leggings, designed for hot yoga classes, but ended upyanking them from the shelvesafter it received complaints about the product s unflattering fit. Its lack of desirable new products is also limiting how much Lululemon s core customer is spending with the brand, the company said when reporting fiscal third-quarter earnings Dec. 5. The company said it expects its assortment to be back in line with historical levels in 2025, which Truist anticipates will be the key driver for better U.S. sales, especially as it laps easier comparisons from the year-ago period.
It seems that they ve snoozed on where the customer is going … you have to remember that today s consumer isn t necessarily a loyal consumer, said Ramirez.
Fabric does matter, movement matters … if someone you know mentions there s another brand that, Oh, you know it held me in better, or I was able to run quicker, I didn t sweat as much, I didn t feel as gross, these very, like, small things that do matter in your performance, people will give them a try.
Additional reporting by Natalie Rice
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