Member Exclusive   //   August 8, 2023

DTC Briefing: The IPO market is slowly starting to normalize for consumer startups

This is the latest installment of the DTC Briefing, a weekly Modern Retail+ column about the biggest challenges and trends facing the volatile direct-to-consumer startup world. More from the series →

With the IPO market cooling in the past year, DTC startups are cautiously considering their exit strategies. 

In 2021, there was a huge wave of direct-to-consumer IPOs, with Warby Parker, Figs, Allbirds and Winc all having gone public. These startups were looking to ride their pandemic-induced sales growth and cash in big with a debut on the public markets. But since then, the performance has been rocky for many of these startups. Winc filed for bankruptcy in December, while Allbirds’ stock price is hovering around $1.45 per share.

In addition to market volatility, consumer startups are also grappling with higher interest rates and an overall drop in demand for many types of goods due to inflation. In turn, many DTC brands are biding their time when deciding whether or not to go public.

However, many investors and bankers are still characterizing IPO activity as a return to normal. They argue that 2021 was an anomaly, and that now, consumer startups are getting smarter about when they decide to go public. From heritage companies like Birkenstock and Claire’s, to startups like Skims and Away, retail players are trying to get its IPO timing right.

While the number of retail public offerings have decreased, there are still companies preparing to IPO. Examples include Birkenstock, whose rumored IPO could value it at more than $8 billion. L Catteron, the LVMH-backed private equity firm that owns a majority stake in Birkenstock, is reported to be in talks with investors that include Goldman Sachs and JPMorgan. Bloomberg reported that the listing could come as soon as September. However, the timing of the centuries-old company’s public debut will be dependent on market conditions. In July, legacy retailer Claire’s scrapped its IPO plans amid the shaky market. And in January, debt-ridden Mattress Firm also put a pause on its public debut almost a year after filing.

On the startup side, Kim Kardashian’s Skims is reportedly gauging the IPO waters. Skims just raised a $270 million fundraising round, hitting a $4 billion valuation just four years after launching. But, Women’s Wear Daily also reported that the funding comes ahead of a planned IPO due in the next six to 12 months.

Meanwhile, DTC startups that would have been hot IPO candidates several years ago are reportedly mulling other exit strategies, like a sale to a strategic acquirer. Earlier this year, Bloomberg reported that luggage startup Away is now considering a sale as an exit strategy following rumored IPO plans that cropped up in 2021. Away did not immediately respond to a request for comment on the alleged plans.

One sector in which there is expected to be more IPO activity later this year is e-commerce focused tech vendors. Klaviyo, for example, confidentially filed to go public and is eyeing $775 million in the listing. But still, other companies are recalibrating based on falling demand for their goods. Instacart, for instance, has been preparing for an initial public offering since its valuation catapulted to $39 billion in 2021. However, with Covid-induced grocery delivery stabilizing, Instacart has pushed the reported IPO multiple times over the past couple of years.

Arash Farin, managing director at Cantor Fitzgerald, said that while the number of high profile public offerings have dropped, there is still planned activity behind the scenes. 

“It’s not like there’s no activity whatsoever,” he said. “The first half of 2023 had 615 IPOs with about $61B raised, a 5% and 36% decrease year-over-year respectively,” Farin added, citing Ernst & Young data. However, Farin explained that what happened in 2021 remains an anomaly driven by historical elements – like low interest rates and strong consumer demand induced by a pandemic.

Farin said that investors and banks have also taken notice of the performances of retail startups that recently went public. For example, following the flood of those consumer IPOs, stock exchange delisting notices began to go out to digitally-native companies like Grove Collaborative and Boxed, the latter of which also filed for bankruptcy earlier this year. “I predict a number of companies being taken private,” Farin said.

Mike Duda, managing partner at Bullish agreed, saying that “we will not see an IPO flood of 2021 again potentially in our lifetime. Like never, ever again.” As far as the second half of the year, Duda said, “I do think something has to give, the stock market is up rather healthily this year.” But with the funding rush of 2018 to 2021, Duda said there will be some scaling companies getting caught in the investor riptide caused by the shift from “grow, grow, grow” to “be profitable,” in turn leading to some unceremonious exits.

On the other hand, Farin pointed to some successful public debuts moving forward at this time, including restaurant chain Cava and Kenvue, Johnson & Johnson’s newly-spun out health segment. Beauty tech startup Oddity, which powers brands like Il Makiage and Spoiled Child, went public in July and is trading well above its initial opening price. The company had been growing revenue at 50x to 100x year-over-year with healthy EBITDA margins. The challenge in today’s retail exits, Farin said, has more to do with the business model that heavily relies on raising capital to extend runways. 

“I believe we’ll continue to see more signs of IPO activity across the globe as the economy begins to improve,” Farin said, along with central banks completing their tightening cycles and the Chinese government taking steps to stimulate their economy.

Despite the slow down, industry watchers predict a pickup in activity when things start to improve – which gives companies time to carefully plan their exits. “In reality, a lot of bankers are giving clients advice to hold off so there is a ‘wait and see approach,’’ Farin said. “But I’m more of an optimist when it comes to outlook on public offerings.”

What I’m reading 

  • Express is investing in expanding its DTC athleisure brand UpWest, with plans to open three stores this year.
  • WSJ breaks down athleisure brand Feat’s disastrous email marketing campaign, in which the company pretended to be customers’ neighbors.
  • Business of Fashion unpacks Adidasrisky decision to recoup Yeezy costs with drops.

What we’ve covered 

  • How boxed wine startups like Juliet, Boxt and Gratsi are trying to build viable DTC businesses.
  • Founders of baby brands like Babylist, Bobbie and No Reception Club share how being parents have impacted their companies.
  • The Honey Pot Company is distributing its products for free at Beyoncé’s upcoming Atlanta shows.