How Vuori took a stake from Lululemon to a $5.5 billion valuation.

When athleisure brand Vuori launched in 2015, it was headquartered in a garage, selling only men’s shorts and couldn’t get investors to give it the time of day.

Now, the Carlsbad, Calif., retailer is expanding globally, backed by several investors including General Atlantic, SoftBank and Norwest Venture Partners, after raising $825 million in a funding round in November. which valued the company at $5.5 billion.

It has become the envy of such incumbents Lululemon, of the gap Athleta and Levi’s Beyond Yoga, and it’s poised to become one of the retail industry’s biggest IPOs when it finally files to go public, which people close to the company say it plans to do. is

“It’s a remarkable deal for the category it’s in… You haven’t seen many deals in this market in the last couple of years, and the deals that have been done are more, I would say, challenged. , or more in value-based situations,” Matthew Tingler, managing director of Baird’s global consumer and retail investment banking group, said of the recent funding round.

“Vori is bringing a lot of excitement and growth to the market,” added Tingler, a specialist in the athletic apparel space who was not involved in the transaction. “In a way, they’re taking a bigger share of that athleisure market … they’re challenging the legacy players of Athleta and Lululemon.”

As Vuori went from a no-name brand to one of the most valuable private apparel retailers on the planet, it saw tremendous sales growth and continued profitability, attracting customers in a crowded space with its coastal Californian location. won the

“Vuori competes on a different product, a different brand, a different store experience, different content,” Vuori CEO and founder Joe Kudla told CNBC in an interview. “If you just wanted to survey our customer base. [and ask]’Why is Woori so special?’ They’ll tell you it’s because of our product, it’s because of the comfort, the textiles, the fabrics we work with, and the fit. We’re all about product, product, product and ultimately that’s what drives excellence in our industry.”

Despite its success, Woori faces challenges ahead. The company operates in a crowded athleisure space that analysts don’t believe will grow as quickly as in the past. Some see it as one of the fastest-growing apparel categories, while others expect it to slow as consumers look to evolve after years of wearing clothes.

Consumers also seem concerned about whether Vuori’s products will remain the same as it faces the demands of being a publicly traded company.

“If you look at the message boards right now, the thing that Voorrie customers are most concerned about is, is the quality of the clothes going to go down?” said Liston Pittman, director of strategy and challenger brands specialist with Eatbigfish. “Are they going to destroy the brand that I love in exchange for growth?”

In addition, Vuori faces the same issues as other consumer discretionary companies. Retailers are constrained. Work harder to win customer dollars, and demand has been volatile as consumers think twice before buying things that may be wants rather than necessities.

Analytics firm GlobalData found that Lululemon customers are now spending more at Vuori than ever before. In 2018, 1.2% of Lululemon customers shopped at Vuori, but by the end of November that number had increased to 7.8%.

Last week, the longtime category leader Given a cautious approach Most important for the holiday shopping season as it combats slow growth and product errors. He was not asked about the competitive threats he faces but acknowledged that his core customer base is slowing.

Vuori’s valuation and interest from private equity comes 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 so viable in this economy? Analysts say it comes down to Vuori’s business model, its ability to grow profitably and its product assortment, which is resonating with buyers.

Kudla said the company was focused on profitable growth from the start because it really had no other choice. Unlike other direct-to-consumer brands that were Raising cash piles At the time, investors were not only interested in the men’s brand that Kudla was developing.

So he was forced to bootstrap the company using funds from family and friends.

“We developed a working capital model that would fund the business itself, and so we were built very much against the grain of the trend at the time, and as a result we were really very disciplined,” Kudla said. Good business,” said Kudla, a CPA at Ernst & Young before he got into fashion. “I managed the entire business through this complicated spreadsheet, so whatever decision I made, I could predict the cash flow impact six months from now.”

To save money, Kudla didn’t pay himself for two years, running the business out of a garage and hiring employees who were willing to trade equity for compensation. Perhaps most importantly, it developed partnerships with its suppliers, which reduced the cash burden of acquiring inventory and paying for it upfront.

“I started treating my suppliers like they were investors in the business, and really helping them see what we were building,” Kudla said. “I was able to convince our initial factory partners to give us really great terms so that I could acquire inventory, sell it, collect cash from our wholesale partners, or sell it directly to customers. to be able to sell and then pay off the inventory, and that strategy ultimately led me to create a working capital model that self-funded our growth.”

While Vuori started as a purely online business, Kudla wasn’t precious about partnering with wholesalers at a time when many of the founders were against the idea of ​​direct-to-consumer. 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 were profitable in 2017, we started generating free cash flow… We had no institutional capital involved in our business, no venture money involved in our business, until 2019, when we were already very profitable. were forgiving and on a strong path to growth,” Kudla said.

Years later, Kudla’s approach feels almost worthwhile. Many of the DTC colleagues who came with Vuori are now teasing him. On the brink of bankruptcyunable to work out the economics of his business. Investors no longer have the patience for companies that have no path to profitability.

Now, most brands and retailers recognize that simply selling online often doesn’t work. This has proven to be important for partnerships with wholesalers. Open shopsAlong with creating live channels online.

“I like it. [Vuori is] Growth is on the way, said Jessica Ramirez, senior research analyst at Jane Hawley & Associates. “With REI, it was one of their top accounts, and I feel like it was a different way to go wholesale, but very much Target Wholesale, so knowing that this is a customer that may be buying a certain type of activewear.”

Voorrie’s investment from General Atlantic and Strips in November is further evidence of a strong balance sheet. The deal was structured as a secondary tender offer, allowing early investors to sell their shares and receive cash. Allowed. None of that went to the balance sheet, and Voorrie didn’t need new funding for its aggressive growth plans, including Europe. Includes extension. and Asia and will have 100 stores by 2026, Kudla said.

“We’re going to continue to grow the business the way we’ve always grown the business, calculated with a lot of discipline,” he said.

In many ways, brands are scrambling to participate. Crowded sports venue Can fade together. They all sell leggings, they all sell sports bras, and they all seek to win over consumers with their unique combination of comfort, style, and performance. The same can be said for the wider apparel industry, here’s why. Products that stand out separates Industry winners and losers.

Vuori fans say the brand’s quality, fit, fabric and comfort is what sets it apart from competitors and keeps them coming back. Meanwhile, product missteps at Lululemon have been blamed for declining sales in its largest region, the US.

In the three months ended April 28, Lululemon’s comparable sales in the U.S There were flats After the company failed to offer the correct color assortment and sizes required by the customers in the leggings.

In early July, Lululemon launched its new Breezethrough leggings, designed for hot yoga classes, but sold out. Leaning them off the shelf After receiving complaints about the irregular fit of the product. Its lack of desirable new products is also limiting how much Lululemon’s core customer is spending with the brand, the company said on Dec. 5 when it reported fiscal third-quarter earnings. 2025, which the trust expects will be a “key driver” for improved U.S. sales, especially as it compares favorably with the year before. Duration

“They seem to have snoozed on where the customer is going … You have to remember that today’s customer is not necessarily a loyal customer,” Ramirez said.

“The fabric makes a difference, the movement makes a difference… if someone you know mentions another brand, ‘Oh, you know it stopped me better, or I could run faster. , I didn’t sweat as much, I didn’t’ doesn’t feel so awful, ‘It’s so, like, little things that matter in your performance, people will try them.

—Additional reporting by Natalie Rice