I’ve always had a strong viewpoint that digitally native vertical brands are a dime a dozen and those who will have successful exits are the ones who are vertically integrated, own manufacturing, strong defensible positions and/or are durable/consumable businesses built on recurring revenue and more enticing LTV metrics. With the recent news on Lululemon acquiring Mirror for $500 million it proves there is still an appetite for strategic buyers to pay premiums for DTC startups. In this case, I estimate LULU paid 5x-6X revenue which is a phenomenal outcome for the founders and investors. LULU was already a minority investor in the company which gave them intel into the business that other competitors likely didn’t get. Why corporate VC gets a bad rap sometimes, a good strategic investor can bring a lot of value.
I’ve been following Mirror now for a little over a year; Lerer Hippeau (one of Casper’s investors) also backed the company, and I was cautiously optimistic about the space. The world is littered with examples of failed fitness products that came and went. Hardware can be tricky, just look at GoPro, Sonos, Fitbit, etc. For a similar comparison, I’ve also been watching Peloton as this was also a durable/consumable business with lots of recurring revenue and after meeting John Foley (CEO of Peloton) last Oct post IPO it was clear he had big ambitions for the space.
Even prior to the Mirror deal, I have always seen LULU and Peloton as competitors on a converging path. They both have very similar customer targets, have shunned selling through distributors or retailers, and are seen as aspirational fitness leaders in their respective categories. While Peloton is primarily hardware/software, they do have a nascent clothing line and as their core customer base grows, it’s very likely they would be able to further line-extend their brand into the apparel space and LULU recognizes this. While LULU has over the years created ancillary revenue drivers outside of apparel, what keeps the lights on is their main business. Peloton was too expensive to invest in or acquire, while Mirror was more affordable, relatively. I wouldn’t be surprised to see Peloton ramp up their apparel business; they’ve already got retail stores, albeit significantly less than Lululemon, as well as venture into live streamed yoga classes further turning up the heat between the two companies.
I’m curious to see how this plays out and if LULU remains the main aspirational fitness company in town or if Peloton, with their similarly loyal base, will be the new athleisure sports company moving forward.