Duluth Trading Company's Blueprint for Success in 2023 and Beyond

Duluth Trading Company is known for its durable, quality products and cheeky marketing campaigns that connect with its primarily male customer base. That formula has served the company well over the years. However, Duluth Trading Co. recognizes that to continue to grow the business it can't rest on its laurels. The business must evolve to attract new customers and retain existing ones. During a session at the ICR Conference in Orlando, Fla. earlier this month, Duluth Trading Co. leaders Sam Sato (CEO) and Dave Loretta (CFO) reviewed the company's recent performance as well as outlined future growth opportunities. Here are some of the highlights from the session.

Q4 Performance

Loretta noted that Duluth's business was choppy during the holiday season. Sales were down year-over-year in the low teens. Traffic was down, however, conversion of that traffic was high. Furthermore, Duluth is beginning to see some positive momentum in its women’s category, a key growth area for the business. Loretta noted that Duluth is in a relatively clean inventory position, which leaves it poised for a strong Q1. That Q1 performance will be aided by efforts made at Duluth to address its cost structure, including investments to automate certain warehouse operations to cut costs. However, it's not going to participate in a race to the bottom when it comes to pricing.

"Consumers are making decisions with their pocketbooks," said Loretta. "However, we won’t go below a price point that degrades the integrity of the brand."

Sato echoed Loretta's thoughts, telling the audience that Duluth will stay the course with its tech and logistics investments to help the business grow long term.

"We’re not looking to be overly price competitive to reap short-term gains," Sato said.

Big Damn Blueprint

In late 2021, Duluth Trading Co. announced the launch of its Big Damn Blueprint, a strategic plan focused on digital growth and expansion. For example, strategic acquisitions and expanding wholesale partnerships were both cited by Sato as part of the company's Big Damn Blueprint. The acquisition of Alaskan Hardgear, subsequently rebranded to AKHG, has enabled Duluth to expand its target customer audience beyond workwear into outdoor gear and apparel.

"We want to be viewed as a multibrand platform: identify the end use for our target consumer," said Sato. "Duluth is workwear, AKHG is outdoor activity. The key is finding overlap between the brand’s customers."

In addition to expanding its product assortment into new categories, Duluth is focused on bringing more women shoppers into the fold. Sato noted that women’s products currently account for about 30 percent of Duluth Trading Co.'s sales, and he believes there's more opportunity there. The retailer is placing an emphasis on innovative product design for women, through both its Duluth and AKHG brands. Sato envisions women accounting for nearly 40 percent of the company's total sales in the near future. With that focus in mind for product development and brand marketing, Sato noted that new buyers coming into the company are pretty evenly split between men and women.

For now, Loretta identified the average Duluth customer as a male in his mid 50s with a household income of a little more than $100, 000. The age demo is continuing to age, therefore Duluth has purposely pivoted to marketing to a younger customer. It's targeting consumers, both men and women, in their 40s and early 50s. And most of Duluth's customers are hobbyists and lifestyle shoppers, which aligns nicely with its AKHG brand. Loretta noted that only about 20 percent of Duluth's customers are in the trades.

How Brick-and-Mortar Stores Fit Into the Future

When Duluth Trading Co. went public in 2015, roughly 85 percent of the company's revenue came from e-commerce sales, said Loretta. Today, the revenue split between online and offline channels is closer to 60/40, with the majority of sales still taking place online, but the gap is narrowing. Data collected from its website and other digital touchpoints is helping to inform Duluth's offline strategy, including store locations and the merchandise assortments within those stores.

Sato noted the benefits for Duluth in having a significant brick-and-mortar footprint to complement its online business, including customer services (BOPIS, BORIS), customer acquisition, and e-commerce growth in the geographic areas where it opens a physical store. However, the company has slowed its brick-and-mortar expansion in the last year-plus for a couple of reasons, according to Sato: one, it wants to capture more data on the in-store customer to inform future store locations and, two, Duluth has prioritized investments in automated fulfillment centers that yielded more short-term gains.

"We also recognize that going too fast with stores can create pressure on the P&L and cash flow," Sato told the audience.