Sunday Stories 004

Since you guys LOVED last week’s Sunday Stories format, we’re back with another business breakdown.

This time, we’re digging into Seanecom’s mortal enemy (or motivating rival) YETI.

If you’re unfamiliar with YETI, they “are a rapidly growing designer, marketer, retailer, and distributor of a variety of innovative, branded, premium products to a wide-ranging customer base.” [S-1]

Basically, they make outdoor and recreational products. Here’s a quick overview of their portfolio:

Personally, I knew them from their coolers from back in their early days. I grew up in Michigan, so any serious hunting or fishing trip I was on had a solid YETI presence.

Why is YETI successful?:

• Their products are best in class

• Their customers are fanatics

• They have a robust omnichannel presence

• They’re constantly evolving their products

Let’s get into it.

Table of Contents:

• The YETI Backstory

• Product Evolution

• Channel Prioritization

• Growth and Financials

Two brothers, Rob and Ryan Seiders, cofounded YETI together. Both fanatic outdoorsmen, they wanted to design a cooler that kept up with their antics. Namely fishing.

“The whole idea behind Yeti … was to design a cooler that could withstand their fishing tactics--primarily, one they could stand on without fear of collapse as they sight-casted for redfish. The secondary goal was to afford them time for fishing and hunting. Work some, fish some.” [Inc Mag.]

They started their now-comprehensive product line with the Sherpa cooler, which took to the market like wildfire. Apparently, the cooler was so durable that even a grizzly bear couldn’t get through it.

"People in Texas will brag that their cooler is grizzly-proof, even though there's not a grizzly within 1,000 miles," says Roy. [Inc Mag.]

Their reputation precedes them at this point. Since their founding, they’ve expanded their products’ use cases, categories, communities, and more.

They’ve also consistently grown their communities via social media, email marketing, and earned media. To sum them up, it’s as if Bear Grylls got an MBA.

In the remaining sections, we’re going to look behind the scenes, dig into their numbers a little bit, and see if we can figure out what makes the nut crack.

YETI categorizes their product portfolio in three categories—Coolers & Equipment, Drinkware, and Other. They’re pretty committed to constantly improving the product, as one of their biggest value props (and guarantees) is how durable they are.

Their investment in constantly improving their products pays off in the long run, establishing a reputable case for durability. Some customers have even called their coolers indestructible, I’ve heard.

You can see their investments in new product releases above. As time has gone on, they’ve utilized their massive customer database to take bets on pursuing new categories like bags (more on that later).

In Q1 this year alone they’ve spent $60M investing in tech as well as new product innovation and launches. That said, as per Sean in the aforementioned thread, not every new category works out for them. If we compare last year’s sales to how much they anticipate investing in R&D this year, we’re looking at about 4% total.

YETI sells via a few key channels—DTC and Wholesale. Though, interestingly enough they consider Amazon in their DTC sales numbers as well. I guess they just mean e-commerce at that point.

Reading through their outlined strategy as well as their numbers via S-1 and 10-Q, they approach these channels in a balanced manner. In Q1 this year, DTC did $167M while Wholesale brought in $135.8M.

Their sales seem to peak in the second half of the year, which makes sense given when hunting season usually is. That, plus Q4 sales and gifting timelines make the category H2 heavy.

One thing I’m really interested in seeing more of is their outlined international channel growth strategy.

They detail that they’re anticipating consistent int’l revenue growth, with their FY22 international mix being 12% of sales. With the brands they compare themselves to (Lululemon, Nike, etc), seems they’re either going to have to continue expanding their category set or bring US-style hunting and fishing to the international market.

This will be super interesting to watch play out in real-time, because both of those strategies are difficult. As mentioned above, their revenue from bags, a broader category not limited to ‘traditional’ YETI customers, is likely a lagging category for them.

Lastly, they offer a customization service, which isn’t necessarily a new channel but this allows them to sell large corporate purchase orders.

Their growth strategy is pretty standard, but it makes absolute sense to me. Their customer is ‘standard'. They’re not ‘trendy’, and YETI doesn’t make products you can easily replicate. ‘Growth hacks’ might not work for them (though YETI team if you’re reading this I have a few crazy ideas… hmu).

Some highlights from the above screenshots:

• On track to hit $1.7B FY2023

• Adjusted Gross Margin of 55%

• Adjusted Operating Margin of 15%

• Consistent investment in international growth