Markets

In a big year for retailers going public, here are a few companies that stood out

Some for good reasons, others...have some work to do, experts told us.
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Francis Scialabba

· 6 min read

It might have been another weird year, but that didn’t mean companies shied away from going public. In fact, for retailers, the timing has been right, said Daniel McCarthy, professor of marketing at Emory University. The pandemic has forced many to shake up their business models, and investors are on the hunt for the next big thing.

  • There were at least 17 major retail IPOs (and direct listings) this year, up from 12 in 2020, which was a record year for public offerings across industries.

“Obviously, there’s been some turbulence recently. That notwithstanding, the markets have been quite generous, especially in terms of being able to hit some pretty high IPO price valuations,” McCarthy told Retail Brew.

So, which companies are sitting pretty? And which have some work to do moving into 2022?

Going strong

Warby Parker: The DTC darling made its public debut in late September, with its stock price soaring 30% on its first day of trading. (It’s since dropped from those highs, but still has a nearly $5.2 billion market cap, as of December 17.)

But that initial jump isn’t what solely struck Michael Maloof, Earnest Research’s director of data analytics.

“Warby Parker has consistently grown share, and—more importantly—consistently grown their customer base,” Maloof told us. The company “does an excellent job” of turning new shoppers into ones that come back, he added.

  • Repeat shoppers made up 42% of its customer base in 2020, up from 38% in 2019.

McCarthy, too, said he was impressed by Warby’s unit economics, and sees its run as a potentially positive sign for other DTC companies looking to go public.

“The stock price performance that we’ve seen in companies like Warby Parker are an indication that those strong underlying fundamentals are being valued...by public markets investors,” McCarthy said.

Figs: Yup, another DTC company. It IPO’d in May, priced at $22 a share, and investors were happy to scrub in.

Thanks to its biz focus—selling scrubs is probably useful during a global pandemic—Figs is in a good position, Maloof said. The company has an extremely niche offering, which “bodes well for repeat purchases going forward.” That’s expected to continue, especially with Covid not letting up.

That said, Maloof thinks Figs might have to get a bit creative with its product offerings.

“As long as healthcare workers are putting in those hours, I think this definitely has room to grow,” he noted. “Longer term, to add more customers or to just increase sales, they’re going to need to branch out.”

+1: Though not a traditional retail IPO, Maloof also shouted out Affirm. The BNPL company’s stock price shot up more than 90% after it went public in January, and is still riding high at $98.77 (as of December 17).

Affirm has gained momentum heading into the holidays, Maloof said, noting a 25% YoY increase in transactions per customers in October and November, per Earnest data.

  • “They’re adding new customers and the customers they have are making more transactions on the platform. That to me is just very promising for them,” he said.
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  • But 👀 on the probe into some BNPL platforms by the Consumer Financial Protection Bureau.

Working on it

Rent the Runway: The fashion rental platform started strong when it went public in late October, but lost steam by the end of its first day, with shares down 8% to $19.29. The company’s stock now is trading below $10 (as of December 17). Maloof and McCarthy cited a few reasons why.

Rent the Runway’s model took a big hit during the pandemic, losing some 50,000 members of their subscriber base. While that’s recovered a bit (the total is now ~150,000), CEO Jennifer Hyman said women returning to the office will help its comeback.

  • The company also wants to expand into international markets and introduce new product categories.

Roughly 116,000 of Rent the Runway’s subscribers are active customers (as of Q3), but those numbers are still fairly low by McCarthy’s estimation. As the company scales up, it needs to show it can make the economics work in marketing channels like Facebook, he said—otherwise, concerns of “how big can this business really get” will grow.

  • “They put a lot of emphasis on how profitable they are when you ignore the cost of the clothing or the depreciation of the clothing. I’ve taken issue with that since day one,” he said.

Maloof made a similar point on subs, but believes the company took a good step when it introduced resale earlier this year, which doesn’t require a membership.

“The struggle for Rent the Runway is to grow the customer base so that more people are signing up, but also growing the types of events and types of clothes they can deck you out with,” Maloof said. “Without a doubt, they are very far off from pre-pandemic customer counts. [But] the people who remain are very loyal. That group has propelled the transactions per customer on the platform higher than pre-pandemic levels.”

Sweetgreen: The salad chain had a huge showing on the NYSE in November, soaring 77% in its debut to $49.50. For most of December, Sweetgreen’s stock price has hovered around $30.

Still, Maloof and McCarthy both think things are a bit complicated for Sweetgreen. There’s opportunity for growth. But McCarthy said that the chain is among a few companies that didn’t provide enough information on its unit economics in its S-1 to illustrate the full picture of its financial standing.

  • “It is kind of a little bit more of a mixed bag,” he said. “It’s just hard for investors to really get their arms around exactly what’s going on with those businesses.”

Maloof added that Sweetgreen hasn’t returned to pre-pandemic sales levels because of decreased foot traffic, per Earnest data.

A return to the office—and lunch rush—will be important, Maloof noted. But for now, moving into the suburbs to meet customers where they are is a solid strategy.

  • Sweetgreen wants to double its 140-store footprint in the next three to five years.

“Where do people have lunch? Now, if it’s at their homes, you need to be closer to there,” he said.

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