Steve Madden: The Grown DTC Brand

TLDR:

eCommerce funding sucks.
Steve Madden is the brand, DTC Brands should idolize.

What do you think?

I’m an early stage VC. Over the past 3 years I’ve reviewed over 100 early stage DTC pitches and invested in 5. And now that money isn’t free, the Rev based financing options have disappeared, and VCs have abandoned the Consumer space we are back to the harsh reality…

Funding options for early DTC founders suck. I’m thinking if you’re business that’s less than $10m in revenue/year.

• VCs expectations of growth implode great businesses that need more time.

• Debt charges cripplingly high rates.

• PE doesn’t care about businesses that early.

• Crowdfunding works, but that’s a 1 trick pony for new product launches.

• Credit cards will help but that isn’t a real sustainable growth model.

All the fastest growing brands I’ve seen really effectively leverage a Line Of Credit (LOC) to rapidly scale. They flex the debt made available to their business as it scales scales and repay it as they grow.

You need to establish a lot of trust with debt providers for them to open these lines up making it very hard for an early consumer brand to get one. The cash flexibility allows them to scale rapidly.

So I have an idea that feels older than dirt, but I see so few providers offer it. Drop your answers in the reply. And let them rip. I want you all to tear down this idea.

Would you be willing to give up equity to 1) secure an LOC for your business and 2) at reasonable rates (Prime + a couple points) with reasonable payback terms?

This is what SAFEs were originally meant to tackle on the equity side, but let’s be honest they’re basically priced rounds without having to do the paperwork.

Let me know what you think. Now let’s get into the good stuff. Why Steve Madden is #BusinessGoals and what we can take away from their impressive earnings.

Steve Madden is the Grown Up DTC brand to idolize.

The current crop of aspirational DTC brands has so heavily distorted most founders perspectives. Too many think they can scale aggressively and raise a lot to become the next major success.

We’re seeing the carnage from that strategy play out in the market now.

Steve Madden is the Grown Up DTC brand more eCommerce companies should aspire to be. They are a shining star on Shopify Plus and know how to play their game well in their 30+ years operating.

Trading at $30/share with a $2.35B market cap its plugging away. Down -4.5% over the last 5 years the company is doing well.

I still don’t have enough cash to buy it, and honestly not sure why I’d need to. It’s a stable well run business, growing well and has a good trajectory. But that doesn’t mean there aren’t great insights we can learn from what they’re doing.

The Financial breakdown

The Financial TLDR:

Steve Madden is a mature, stable, profitable, growing business. For some reason that has become unsexy, but that is really impressive. Especially in 2022.

Steve Madden should be the business your business idolizes. (Other than the IPO scandal/Wolf of Wall Street thing). Growing so profitably at $2B+ they can give a dividend in a recession.

An actual dividend!

I’ve done 19 of these analyses this year. This is the first company I’ve analyzed that had a dividend.

Want to be like Steve Madden and have Dividends? Aka profit distributions. You should. That’s the goal of all businesses.

Steve Madden’s rough sales breakdown:

• 65% Wholesale

• 35% DTC

While it’s important to go direct in the early days and establish relationships with your customers, something Steve Madden couldn’t do in 1990 when it first launched, scale comes with Retail. Yes, it’s hard and expensive. But this is the 3rd or 4th week in a row we’re talking about Retail. There must be a reason for that.

Here are 3 lessons to take back to your business from Steve Madden’s Earnings.

1) Operational Excellence is the key.

Topline Revenue grew 14% YoY. COGS, GM %, OPEX all grew 14% YoY. That’s easy for me to type on a Sunday afternoon, but that’s SO hard to actually execute. At the same time it’s what’s required to grow at Steve Madden’s scale profitably.

Every part of the business moving in lockstep. There was no over-investment to grow into. Not sitting on a pile of inventory that was a struggle to turn.

14% YoY growth in every category shows how dialed in their operations were across the board.

Now this type of growth requires a ton of data. Knowing your business. Setting really well forecasted goals, and a level of predictability that not every early business has, but it demonstrates the power of operating at 💯 across the board.

The important callout from their earnings. While all their key stats increased 14%, what really matters is their Dividends increased 40% YoY. That’s not just profits. That cash in people’s pockets that’s the result of real disciplined operations.

Solution: Key to profitable scale; disciplined operations.

2) Architect the business around Repeat Customers.

I see too many early brands get lost in the mental trap of growing through other markets/audiences and so few realizing that top level growth comes from selling as many products to the same customers as possible.

Footwear/Apparel’s business models lend themselves to this very well, because people will rotate products, but Steve Madden executes this so well. The company may have many offerings, but their focus is clear.

Steve Madden’ catalog is architected around Women’s shoes. Yes, they offer Clothing, Bags, and Accessories. Even Men’s products. But everything about their buying journey is optimized to the hilt around how women look in the shoes.

You want those shorts? Here’s a photo of model where the photo is clearly showing off her lower half and their shoes in the photo.

You want a bag? Here’s another photo of a model showing them off with a pair of boots.

Want a skirt? …I’m sure you get the point.

They know their customer, what they’re going to buy, and why. Then brick by brick they’ve added elements to their business around that core audience.

Why that matters vs. jumping around?

They’ve built reinforcing layers on their business that make each progressive one more successful. There isn’t a massive bet on one side of their business that’s unsupported by the others.

Growth comes from stacking color-coded lego blocks on each other. And if they needed to pull back in tough times it'd be like peeling back layers of an onion, instead of chopping an arm off.

Solution: Stay true to your core audiences. Optimize everything for them.

3) Building a Real Consumer business takes time.

Steven Madden was founded in 1990. That’s a 30+ year old business that hit $2b valuation in the last decade. It didn’t raise a ton of money early on. It had astronomical success early on, but didn’t grow at 600% YoY.

The company has methodically been built over decades and with a lot of hard work. That isn’t to be discouraging, but hopefully the opposite. The best are playing this game in decades. Not months or years.

All the top brands are multi-decade projects, because changing culture and consumer behavior takes time. The COVID boom propelled a lot of businesses, but was completely anti-norm and left a lot of brands with bad habits.

Physical product business take longer than digital business to grow because of production and inventory turn. For the past 15 years it’s felt like Software and eCommerce businesses have been in the same class because Ecom was so software dependent, but they’re not. Ecom should and will take much longer to build.

Solution: Take time sustainably building your business.

Final Thoughts

There are so many great lessons to take away from this business. I could probably do 2 more newsletters on it, but we have a long list of other amazing brands to get to.

But the one last insight that really stands out for me…

Steve Madden is going to process ~$800m through their Shopify Plus store this year. That’s as much GMV as all Shopify Merchants processed back in 2012. If you’re store is on Shopify Plus you’re using the same infrastructure as a public company doing almost $1B through their DTC store.

Despite how expensive you may or may not think Shopify is that’s an incredible feat. Shopify really “armed the rebels” and are providing Enterprise grade tools to SMB brands.

I don’t know what Steve Madden’s Tech cost to GMV ratio is, but I bet their Shopify based tech stack is a helluva lot cheaper than Crocs or On Running, who both at the same scale on custom carts. When you think through tech, dev, maintenance costs at that scale there’s a considerable costs savings by building on Shopify.

🧠 The Takeaways

Steve Madden is growing at 14% across the board and plugging away as the Grown Up DTC brand.

1. 14% Growth in evert financial stat shows what true operational excellence looks like.

2. Grow through optimizing everything for your core audience. Expansion will come through solving more of their related problems.

3. Real Consumer brands take time to build. The goal is for your brand to last decades. Not exit in 5 years of founding.

👷 What can you do about this?

1. Check out Steve Madden’s playbook and tech stack. Everything they use is available to your brand.

2. Challenge yourself to grow your key financial metrics (Rev, COGS, GM % OPEX, NI) at the same YoY %.

3. Start tracking what your dividends distributions are quartlery. Doesn’t need to be official, but how much money is going into the owners pockets every quarter? What are the trends?

The best ideas in business are usually approaching your same problems with a different approach.

Jeremy Horowitz

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