Memo: Anatomy of a DTC Acquisition

We strive to have a rhythmic and healthy heart. Athletes push for lung capacity. The consumer packaged goods industrial complex champions the importance of one’s gut health. And here we are, ashamed of the way our own brains work.

There is a pang that I feel when I allude to my own mental health struggles in public. There is a stigma associated, an acknowledgment that none of us are as strong or as tough or as sound as we believe ourselves to be. Ten years ago, I would have thought it was a failure to express any thoughts on the matter, publicly or privately. Five years ago, I would have burdened my best friend for help at the risk of an intensity in responsibility that isn’t healthy to distribute or accept. But today, I try to communicate to those who listen that it’s just a part of being a human being, a creator, a parent, an entrepreneur, and a soul.

I have had dozens of head injuries and resulting neurological issues. I suffered from post traumatic stress, crippling social anxiety, and a depth of depression that I wouldn’t wish on my worst foe. Many young women and men are taught to train to peak physical performance and to ignore any signs of mental or emotional weakness. Some coaches say things like, “Silence the brain.” Imagine thinking this way for three decades. It is, above all else, an acknowledgment of our failures as a society that the body adapts to work and rest and nutrition. This is all changing and it will continue to in the years to come.

Your brain deserves the same attention as the rest of your organs and the world is finally catching up to the fact that it can be as injured or as malfunctioning as any outwardly visible muscle, bone, ligament, or tendon. Enter one of the quiet but meaningful acquisitions of the past year: Hyperice’s deal with Core Meditation. For the first time in an industry overcrowded by health and wellness devices, one company chose to marry physical recovery with mental improvement. From the acquisition announcement:

Core is designed to help people find calm, improve focus and inner strength. Unlike other meditation apps, Core is both an app and a handheld meditation device designed to track heart rate and stress levels

Sarah McDevitt, CEO and co-founder of Core, is a friend of mine. The 5’11” guard and former New York University basketball player is one of those quiet and steady stoic types who rarely wears her weaknesses on her sleeve. Over the few years that we’ve known one another, I have observed how she’s handled her own pressures. She must have been under incredible stress for a time. Her growth plans were halted by a once in a century pandemic. Her team turned over. And the conversation around the importance of meditation was on the fringes of the health and wellness industry. Few took it seriously before recently.

Core was incubated within the walls of Bolt VC in San Francisco (also an early believer in Tonal) by co-founder Brian Bolze and McDevitt. The value of Bolt’s early involvement was priceless: the access to facilities, technical designers, and developers helped to establish Core as an entrant into a field rarely pursued by independent operators. In a 2019 memo, I covered the prospect of her success:

Core is launching a meditation device that actively measures its effects by tracking HRV, a measure that allows consumers to quantitatively measure the strain on their central nervous system. Entrepreneurs and other high risk professionals have used this measure to discuss their levels of stress and depression for a time; however, HRV’s interest is growing quickly in non-athletic spaces.

But adoption was always going to be a problem without tens of millions in capital to spend on demand generation. She simply didn’t have that. She also didn’t have much luck. Her meditation trainer was well-designed and well-received, winning an honor at 2020’s CES convention. But the question has long been: how does Core compete with meditation apps and less capable but wider-known physical devices? The antidote for anonymity is usually the highest visibility partnerships you can purchase, which is buy-in from professional athletes and entertainers. It is not customary for venture firms (outside of perhaps A16Z) to be able to provide such introductions. And at a certain point, there isn’t a venture raise that can fund a company’s way into the world of professional sports. At just $4 million raised since 2016, the company was undercapitalized and underappreciated. But on occasion, luck and timing do begin to work in your favor.

The Luck and Timing of Now

By the time that Naomi Osaka had announced her decision to sit out at Wimbledon, McDevitt and team were already in conversation with Hyperice CEO Jim Huether. Another fortuitous connection would emerge. Jason Stein of SC Holdings is a fierce advocate and board member at Hyperice. He’s also an NYU basketball alum. Sometimes, luck swings in your favor and the shared experience between the McDevitt and Stein certainly helped.

In many ways, Osaka jump-started the current national conversation around mental health when she announced in May that she would not participate in mandatory press conferences ahead of the French Open. She later withdrew from the tournament, explaining that “I am not a natural public speaker and get huge waves of anxiety before I speak to the world’s media” and that she had faced “long bouts of depression” since 2018. [1]

Several weeks later, Simone Biles announced that she would be bowing out of her upcoming events at the 2020 Olympics, shocking fans and citing the need to prioritize her mental health. In one statement, she disappointed many of those observers simply by doing what was right for her. The online chatter around both Osaka’s and Biles’s personal decisions was insatiable: cable news hosts lamented them as figures with poor character. Trolling was even more relentless from gentlemen who might have once scored a single basket or remembered catching a single, JV touchdown pass back in high school.

But what these very public displays of defiance represented was a shift away from the shame of mental health concerns. Two of the strongest and most accomplished athletes in sports chose to mend the invisible scars. Just a decade prior, it would have been unlikely to see athletes make these decisions at the tops of their games. Now here we are, with mental health atop the list of athletic concerns. And as the national conversation continues to develop, Core has a new resource in Hyperice to bridge the divide between the mental and physical. More importantly, Hyperice and Jason Stein offer access to elite athletes and entertainers. Just a year ago, Stein’s SC Holdings invested in Mav Carter and Lebron James in Springhill Company, for instance.

When I was notified of the company’s decision to join Hyperice, I was ecstatic. Not only for Sarah McDevitt and team, her previous investors, and her new business partners but for the message made to the greater athletic community. The timing of the marriage between physical and mental health disciplines are long overdue. The shame around it is still dissipating; you can still sense the hesitancy in athletes. A recent statement by Aaron Rodgers:

The mental side of it is so important for all of us athletes. I don’t think it’s talked about enough. But taking time to work on yourself is, I think, the best gift any of us can give ourselves.

In three years’ time, athletes like Rodgers will no longer tip-toe around the anguish of depression, anxiety, and post-traumatic stress. He will give a full-throated analysis of his mental health, no differently than he’d discuss a strained MCL or tendinosis. The commercialization of mental healthcare will be viewed as before and after its stigma and 2021 will be a pivotal year in that story. The Hyperice acquisition of Core will be remembered as a part of that change. A little company with $4 million in funding and fewer than 10 employees lived up to its original goal of impacting a greater industry. Its original investors and supporters should be proud that the Core team set aside the ego and thought big enough to partner with one of the prominent and well-connected companies in athletics. It’s a category that will be redefined.

Por Web Smith | Editor: Hilary Milnes 

Memo: A DTC Brand Takes Over

This week, NOBULL began its time as the title sponsorship of the CrossFit Games. The event was associated with Reebok for ten year. There are a number of narratives here – the founding team at NOBULL were once Reebok employees. It’s a story with endless examples of rivalry but the main one is one oft seen in retail. The generational brand gave way to the challenger. They’ve earned their time in the spotlight. Now, we will see what NOBULL does with the opportunity.

Direct-to-consumer startups are designed to be disruptive by nature. Their purpose is to see the opportunities that larger corporations have gotten too big to identify themselves, improving on process and product in doing so. At CrossFit, the changeover in sponsor is giving a DTC challenger the chance to go toe-to-toe where an incumbent left shoes to fill. CrossFit CEO Eric Roza sought out NOBULL to take over as CrossFit’s main sponsor, letting Reebok’s time lapse. The brand pulled out following the former CEO’s remarks.

Roza had a choice to make. As he recently told Footwear News, he could have given the company more time to recover before seeing who else he might have to choose from on the market. But he was a NOBULL fan, in large part due to the brand’s DTC spirit. He said in the interview:

I love their nimbleness and that I had a friendship with the founders, not just a business relationship. When I met them, I had an interest in investing in them, so they knew I was a bit of a fanboy. I loved that they were a direct-to-consumer play, they were e-commerce forward. The fact that they were digitally-native, really good at direct marketing and native to CrossFit with styling I really liked, made it the right decision for us.

NOBULL’s nimbleness, digitally-native and eCommerce forward traits made it the most attractive partner to CrossFit, proving that DTC challengers have real potential in shaking up the markets they’re in. That’s especially true when it comes to partnerships with brands who are looking to borrow some of that DTC spirit.

Reebok is making its own moves. The brand last week launched a Bonus Program that offers prize money to athletes who take first or second place in a CrossFit event wearing a Reebok shoe – directly incentivizing athletes to disregard the new sponsor’s shoes with a financial bonus. According to Reebok, nearly 200 athletes have taken them up on the challenge. NOBULL, in response, reminded Reebok who had the title sponsor spot. CMO Todd Meleney told Morning Chalk Up, “Since the beginning we’ve been in favor of anything that supports the athletes and the CrossFit community. As the title sponsor of the CrossFit Games, that’s the case now more than ever.”

In all, this is as much a story about Reebok’s failure (the company is looking for a buyer) as it is NOBULLs rise as an enterprise-level brand. Click on the above graph to read Retail Dive’s narration of Reebok’s rise and fall. Reebok’s sales fell to a 15 year low, meanwhile Nike and Puma (who suffered similar pandemic struggles) only fell to three and five year lows respectively. Meanwhile, at No. 109, 2PM estimates NOBULL’s revenue to be well into the nine figures just seven years into their life cycle.

By Web Smith | Editor: Hilary Milnes | Art: Christina Williams and Alex Remy

Memo: Olympic Fashion

With a market value north of $8 billion and an annual revenue mark that should surpass 2020’s mark of $6.16 billion, few are comparable to Ralph Lauren. And that may be why its reception at this year’s Tokyo Olympics has been as chilly as its cooling blazers. The New York Times’ chief fashion critic Vanessa Friedman recently reported on multiple advancements:

The navy jackets of the flag bearers Sue Bird and Eddy Alvarez incorporate what the brand has dubbed RLCoolant technology. [1]

The brand also graduated from synthetic fibers to manufacture technical denim, a much-welcomed advancement in an industry that companies like Ministry of Supply and Mizzen + Main pioneered in 2011.

Oh, and the “jeans” (of course, they had to have jeans: Ralph-the-designer even wears his own faded denim to black tie events) are made from a special new material the brand says is “free from synthetic plastics.” [1]

As a veteran of both the preppy wear and technical wear industries, I applaud these improvements. They deserve the spotlight, as does the company’s emphasis on domestic manufacturing. These are welcomed advancements and no one can test the market quite like RL. But the masses don’t see these developments as worthy of its great, international stage. Though Ralph Lauren has done a notable job outfitting the American athletes since 2008, a world of change has happened since. The brand is not suffering from a technical or a supply chain deficiency; it’s suffering from a cultural one. In The New Prep, I explained that Ralph Lauren, Tommy Hilfiger, and Brooks Brothers are at risk of being relegated to cultural irrelevance:

For retailers like Ralph Lauren and Tommy Hilfiger, African-American streetwear culture co-opted their styles. That new base of organic interest drove the two brands to extraordinary heights in the 1990s. Ralph Lauren Corporation (and its $5.5 billion market capitalization) remains a beneficiary of that accidental cultural impact.

Few could have predicted what has happened since 2008. Brands like Aimé Leon Dore, Noah, KITH, Telfar, Todd Snyder (owned by American Eagle), and Rowing Blazers have each contributed to a rewriting of what it means to be preppy. In ways – each their own – the brands acknowledged what Ralph Lauren didn’t during its most pivotal growth stage. There is a new American sportswear, according to GQ’s Rachel Tashjian. It’s authentic and inclusive.

The culture that accidently sparked a revolution for Ralph Lauren in the 1980s and 1990s has all but consumed preppy culture today. In the Hamptons, Rebekah Mercer lives in the same community as Sean Combs. At elite preparatory schools, teenage students arrive at their campus entrances in Jeep Wranglers listening to hip hop and wearing Jordan 1s with their school-issued plaids and khaki. The scenes harken imagery more from New Jack City than Cruel Intentions. Their pop culture idols have brown and black skin. And if they don’t, they were influenced by artists who do. On weekends, high school and college wardrobes of the preppy are influenced by StockX or Golden Goose. The very definition of American Prep has so far diverged from Lisa Birnbaum’s 1980 cult classic The Preppy Handbook that it might as well be a different genre of fashion altogether. Except it isn’t. It is truly prep.

A 1990 article in Utah’s 171-year-old daily paper Deseret News began:

If the 1980s were a movie – and the metaphor is almost unavoidable given actor/president Ronald Reagan’s domination of the decade – the credit lines would have to include costumes by Ralph Lauren. [2]

Fast forward to the Tokyo Olympics and Ralph Lauren’s expression of American preppiness is one of 1980s tradition, not 2020s reality. And when you present a notion of culture that doesn’t accurately reflect America, you see countless responses like the one below:

Mike Sington on Twitter: “Why is Ralph Lauren always selected to design the Team USA Olympic Opening Ceremony uniforms? Our American athletes are a diverse group, they’re not a bunch of preppy white people headed to Newport or the Hamptons. pic.twitter.com/JaTCH6tEu9 / Twitter”

Why is Ralph Lauren always selected to design the Team USA Olympic Opening Ceremony uniforms? Our American athletes are a diverse group, they’re not a bunch of preppy white people headed to Newport or the Hamptons. pic.twitter.com/JaTCH6tEu9

The problem with an overdone caricature of high society is that it bolsters the insinuation that places like Newport, The Hamptons, elite schools, and prestige industries (once notable for 80s yuppie culture) are devoid of others. It’s simply not true. There are Ivy educated bankers of color on Wall Street. There are culturally and ethnically-diverse students in the best schools. Very few dress like they’re mooring their schooner after a weekend on Block Island. Suggesting that Ralph Lauren’s version of American prep is today’s reality is to say that those who currently inhabit the culture do not belong. So where does that leave us?

While Ralph Lauren’s fortunes are much better than Brooks Brothers, there is undoubtedly a new guard.

It was presumably tweets like these that warranted a response from one of the most accomplished fashion writers in the industry. In that tweet, I noted:

This is probably the last year that Ralph Lauren outfits the Olympic team. The next design cycle will likely be a consortium of brands that define today. Noah, KITH, Aime Leon Dore, Todd Snyder, Rowing Blazers, Fear of God, Telfar, et al.

This wasn’t wishful thinking by any means. To be clear, it is unlikely that Friedman was referring specifically to my suggestion, but I take issue with the reasoning that she used to justify Ralph Lauren’s continued involvement. Friedman’s contention is simple: RL’s moat is economies of scale.

Vanessa Friedman on Twitter: “All those people calling for a new official Olympic outfitter for Team USA instead of more Ralph Lauren – I get it, but remember: they have to be able to afford making free clothes for 615 competitors plus coaches etc. There are limited designers with that budget. / Twitter”

All those people calling for a new official Olympic outfitter for Team USA instead of more Ralph Lauren – I get it, but remember: they have to be able to afford making free clothes for 615 competitors plus coaches etc. There are limited designers with that budget.

Scale isn’t as much of a moat as one would think. There are a number of individual brands birthed in the digitally-native era who could accomplish this on their own. These aren’t merely independent design houses, they are financed businesses in most cases. Skims, the company founded by Jens Grede and Kim Kardashian has raised $154 million over its two-year lifespan. The company made news by earning the role as the “official underwear provider of the US Olympic team.” Rowing Blazers outfitted a much smaller contingent in El Salvador’s Olympic team, a nod to the recently re-capitalized company’s American ambitions. And Telfar Clemens, the Queens-born, Liberian-American designer successfully outfitted Liberia’s Olympic team – a nod that he, too, would rise to the occasion if the US Olympic Commission chose to consider a redefinition of today’s American culture. The popular designer was recently thrust into the mainstream after Beyoncé was seen with one of his bags. As Beyoncé does, so does America.

The economics of the opportunity are nothing to minimize, to Friedman’s point. And while few brands have the balance sheet to supply 80 garments to 615 Olympic athletes, there are ways in which a task like this can be met. Step outside of fashion for a moment and you may find your solution.

This week, NOBULL has an annual event in its name, the rights to which were for 10 years synonymous with Reebok. The MLS Cup Champion Columbus Crew moved to a new stadium after a change in ownership and a reinvigorated interest in its role in the city’s culture. When the $314 million Lower.com Field was announced to the surprise of many, NOBULL was but three years old. According to Columbus Business First, the deal is valued at $3-4 million annually. The Olympics opening ceremony presents a similar opportunity.

It is not likely that you will ever see a fashion label name a stadium or a sporting event, but Halston (1976), Levi’s (1980 and 1984), and Ralph Lauren (2008 – forward) established a close enough proximate. If given an opportunity to elevate one’s brand on an international stage, it’s likely that a modern retailer would take the chance and raise the requisite amount to afford the project. This includes the 10% USOC royalty, official rights, and the cost of goods required to ship an entire season’s volume of units to an Olympic host country. In return, that brand receives earned media, opened doors, top of funnel interest, and perhaps the great story of Summer 2024.

There will be a brand that rises to fill the big shoes of Ralph Lauren. When their interpretation of classic Americana is televised and streamed across the globe, it won’t feel like a caricature of American preppiness. It will look like America. If Ralph Lauren chooses to hand the baton to the next generation of American brands, there isn’t a label that wouldn’t design, manufacture, and ship that honor. In fact, there are at least a few brands actively awaiting the opportunity. They’re prepared.

Por Web Smith | Editor: Hilary Milnes