In the latest episode of Stocks Neat, which is our final episode of 2022, Steve and Gareth are discussing small cap stocks and why they might be an interesting place to be investing in 2023. Small caps have been hit harder than the rest of the market, so many are already looking very cheap as we head into an expected recession. There is no new whiskey tasting this time, but Gareth and Steve recap their favourite bottle from previous episodes.
Harvey Migotti, co-Portfolio manager of the Forager International Fund joins Steve for a deep dive on Yeti, one of the small cap stocks in the fund portfolio, and why they believe this is a great business to own. Make sure you don’t miss this interesting discussion.
Steve on the Yeti water bottles to Gareth: “You’ve bought a few supposedly indestructible water bottles for the kids this Christmas – this should be the true test of the Yeti product”
Explore previous episodes here. We’d love your feedback. If you like what you’re hearing (and what we’re drinking), be sure to follow and subscribe – we’re doing this every month.
Drink of choice:
No Whisky Tasted this Month
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Disclaimer:
Just a quick reminder, this podcast may contain general advice, but it doesn’t take into account your personal circumstances, needs, or objectives. The scenarios and stocks mentioned in this podcast are for illustrative purposes only, and do not constitute a recommendation to buy, hold, or sell any financial products. Read the relevant PDS, assess whether that information is appropriate for you, and consider speaking to a financial advisor before making investment decisions. Past performance is no indicator of future performance.
Steve Johnson:
Hello and welcome to Stocks Neat. I’m Steve Johnson, Chief Investment Officer here at Forager Funds, and today we’re here to talk about the case for small caps in 2023. It’s been a horrible calendar year for small caps on the ASX. They’ve underperformed the All Ordinaries Index by some 17%. As we sit here recording today, that All Ords Index is almost flat for the year, whereas the Small Caps Index is down 17%. There are reasons for that: rising interest rates hurting small cap more than large, the risk of recession coming and those large companies being viewed as more resilient, and particularly on the ASX, a big skew towards large mining companies amongst the big index which have performed relatively well. But what does it all mean for 2023? I read an interesting article last week making the case for small cap outperformance from here. I’ll post it in the notes so people can have a read, but I’m here with Gareth Brown to talk about the contents of that letter. Hi, Gareth. I don’t see a whiskey bottle in front of you.
Gareth Brown:
No, it’s Christmas. I think there’s going to be enough drinking this month. So, I’ve got an earl gray tea. I’m not exactly sure who Mr. Earl Gray was, but I hope the Socts liked him.
Steve Johnson:
And I’m on the green tea on this side of the table. We’d love to give you a good recommendation for the Christmas break, but we’re a bit under the pump here at Forager and a lot to get done both today and for the rest of the week, so we’re on the tea.
Gareth Brown:
We did talk briefly about our favorite whiskey of the year. I don’t know if I’d call it my favorite, but the surprise package for me was the Oben. Reasonably priced, very nice. A hint of smokiness not but not crazy overpowering. I will definitely be buying a bottle of that at some stage.
Steve Johnson:
I took that one home and the wife was very, very impressed with it as well. It disappeared pretty quickly in our house, so if you’re looking for a Christmas present or something for yourself over the break, that’s probably my recommendation of the year as well. Gareth, they say you never ask a barber if you need a haircut. We’ve got a portfolio that’s pretty heavily skewed towards small cap and I’ve been pushing to skew it even further that way. I’ve got some credibility on this front. I’ve written a number of articles for LiveWire in 2019 in particular making the case for large cap stocks over small cap stocks. Copped plenty of justified criticism for not following my own advice, but yeah, the market does wax and wane about this stuff. There were some really interesting points in the article I’ve posted though, and the first won’t surprise anyone: that’s that starting valuations matter a lot and they’re looking relatively attractive.
Gareth Brown:
Yeah. I think it’s worth quickly discussing that when we’re talking about massive underperformance. You are talking about two points in time, the start and the end. Now, we had a small cap market that ultimately was very overpriced 12 months ago. We didn’t trade that the way we should have, but the starting point here for the bad returns is, things were very expensive not that long ago in small cap land.
Steve Johnson:
And we’ll come to a little bit of that later I think talking about individual stocks, but I’ve been astonished as you go through, there’s a lot of companies out there that are share price is down 80% and I still look at it and go, “This looks expensive to me,” and that is not a usual sign and it is a reflection of the magnitude that we’ve had. But there’s a chart in there suggesting that the relative multiples of earnings here are at lows that we haven’t seen since 1992.
Gareth Brown:
Well, it’s actually better than that. I think they didn’t start tracking until 1992, so it is the lowest that they’ve seen going back at least to 1992, but probably further again. So that is the valuations of small caps versus larger caps on a PE basis.
Steve Johnson:
Yeah, and I would argue a further point, particularly post this recent recovery. We touched on it in the latest monthly letter, but overall market levels in terms of multiples are not screamingly cheap. You look at MSCI World Index at 17 times earnings. It’s not nuts at the other end either, but it’s not like you’re making a comparison here with a market that’s not screamingly cheap either. So it doesn’t of its own mean it’s cheap in absolute terms.
Gareth Brown:
Correct.
Steve Johnson:
I guess we have stated in our own portfolio though, we’ve mentioned that the multiple of earnings and the amount of growth that we expect out of that portfolio in the coming years. There are plenty of stocks I think that reflect what you’re seeing in this chart. Are you seeing it widespread when you are looking for new ideas and running screens?
Gareth Brown:
No, I think that we’re finding geographic pockets: the UK is quite cheap for the smaller cap stuff. We’re finding it in certain sectors, but yeah, the whole thing versus larger businesses tends to be a cheaper… Harvey’s going to come in later and talk about one of the American stocks in our portfolio that’s a smaller cap. I found a few of them in the UK that we’ve added over the last few months. These are generally at the higher quality end, businesses that can grow quite significantly that were trading at let’s say thirties multiples not that long ago of earnings, and now they’re more like fifteens and less. There’s a lot you need to do to adjust these earnings, especially in America, that surge of stock-based comp is ever present, especially in the technology and the let’s say newer parts of the market. But looking through that, there’s some stuff that’s definitely worth finding.
Steve Johnson:
Yeah, I see and we talk about this a lot. You’ll meet with someone or you’ll see something on Twitter or you’ll read someone’s report and it says, “This stock’s a great business and it’s growing and it’s trading on 10 times earnings and,” then you’re actually on look at it-
Gareth Brown:
It’s 20 times.
Steve Johnson:
… and you wonder where the 10 times comes from. And particularly that stock based compensation, the response in the US to investors want us to focus on actually making money here and free cash flow is, “Well, we’ll just give more of the company away in stock based comp,” and every company I look at it’s going up and not down.
Gareth Brown:
Yeah, some of that gets baked in from the year before. It’s not necessarily… It’s a bit like turning the Titanic. So I’m hoping that this changes over time, but until boards and managements have a realisation that you can’t go giving away that much of a company, and you can’t disguise that much of your cost base, a lot of these things are un-investible. We’ve probably talked enough about stock based comp recently.
Steve Johnson:
We’ve had enough rants. It’s been the topic of 2022. But look, I think as a general principle, the starting valuation for mine is more important than anything else that we’re going to talk about here. You pay the right price and it compensates for a lot of ills, and it’s not really widespread. It’s not every single stock I look at, I think you’re going to make a good return out of that, but there’s enough really interesting opportunities out there and I think there’s enough stocks down 80%, 90% that one in 20 of those is going to be an interesting candidate for some really, really good returns over the next five and 10 years.
Gareth Brown:
We talked about it that a lot of that unwind was necessary because these prices were overpriced 12 months ago. A lot of people now starting to worry about recession, economic downturns, inflation still as well. There was some interesting data in that article talking about the returns into recessions, and it’s not necessarily how most people think about it, I don’t think, but it actually, it does gel with that anecdotal experience we’ve had over the years, which is, it’s often a small cap sector that gets hit hardest and gets down to ridiculous prices, and then as a result of getting too cheap, it’s the first to recover into more normal economic times.
Steve Johnson:
Yeah, or even this is maybe not quite as bad as we had assumed here. You get a couple of results through the recession and it’s, “Okay, this company’s revenues and profits are down, but they’re not down anywhere near as much as the price reflects.” So you get that recovery. I was talking to Alex Shevelev about this because my experience has been in terms of market selloffs, you look back at 2020, that little one we had in 2016, certainly the financial crisis… Well, I’ll come back to the financial crisis. But I’d had this assumption that the bigger, more liquid stuff recovers first because it’s what people start jumping into once they get confident that things are going to start to recover, because they can. Shev made a really interesting point. He said, “I would distinguish between an economic downturn and a liquidity crisis.”
Gareth Brown:
I think you might be confusing Shev and me there, mate. That was a conversation we had yesterday.
Steve Johnson:
Was it?
Gareth Brown:
Yeah.
Steve Johnson:
About liquidity crisis?
Gareth Brown:
Yeah.
Steve Johnson:
Oh, okay. There you go. I’ll give you that.
Gareth Brown:
Shev might be a very wise person to come up with a very same point. The bounce back out of a liquidity constrained environment might look different to one where people are rightfully worried about economic conditions.
Steve Johnson:
But when I think back to the financial crisis and that’s why I just paused there for a second, I had four stock portfolio in my own name at that point in time and RHG was a very big part of it, but by the time the full market hit its low, what was that March, 2009, my portfolio was up 40% or something from that already by the time the market was hitting its low because things had just got so stupid, RHG got down to four point something cents at one point and was trading at 20.
Gareth Brown:
That was from memory, that was on the 30th of June, right? That was a tax loss selling situation.
Steve Johnson:
It was, that’s correct. Yeah.
Gareth Brown:
That was 2008 or even 2000… Yeah, that was 2008. So, nine months before the rest of the market. And you do see that, things like tax loss selling probably come into play here over the next few weeks in the US, and all those other countries that have a 31 December tax year, and it will have a more extreme impact on the smaller end or at least it could.
Steve Johnson:
Now, the other thing that was perhaps a bit counterintuitive out of this was how small stocks performed in the inflationary environment of the 1970s. Again, you would’ve thought, I would’ve thought bigger, larger businesses with pricing power are going to cope better, but there’s some really interesting data here about, for people that are not familiar with it, ’73/74 was one of the worst bear markets on record, bad for small cap stocks as well, but some really interesting data after that.
Gareth Brown:
Yeah. Then, it was five years of being the best performing asset class. Now, that can be intrinsic to some characteristic of small caps, or it could just be that it had a horrible year or two in ’73, ’74. Typically, the best performing asset class over a five-year period is the worst performing one in the period preceding when you start measuring it. So, we’ve been thinking a fair bit about that. What else might be at play here? Well, small businesses, they tend to be more adaptable than the larger businesses. They can push up prices immediately if they think they can get away with it. They don’t have to worry about the 12-month price list or anything like that. They can rotate into the parts of their businesses that are performing relatively better. They can move that quicker. They can lay off staff generally easier than the big businesses that manage out people, so to speak. There’s more often large amounts of skin in the game as a percentage of the total, just insider CEOs that own a lot, which I think helps in that environment.
And then mergers and acquisitions, so they are very often targets. The price gets too low, the buyers turn up. That’s much more likely happening in the small cap land than the larger areas, and I think you guys are seeing that on the Aussie fund in particular at the moment.
Steve Johnson:
Yeah, the environment at the moment is I think a particularly ripe one, because the private equity funds had raised enormous amounts of capital going into this downturn. I would argue they’re largely just fortunate about the timing that things have happened. They were planning on deploying that money, prices have halved and more, and now I don’t know whether they were planning on public equities or just buying private assets, but I think now the public market environment is a particularly attractive one for them because they can pay a pretty healthy premium to the current price and still be able to make lots of money out of it. I think just on that flexibility one, it’s not just true of small business, I think people underestimate the response to difficult times. And from an economy-wide perspective, I’ve had this argument for a long time that part of the productivity problem in Australia is actually the lack of recessions. It’s not something that I wish upon anyone because job losses and things come with it, but it’s where a lot of efficiency and improvements come from is necessity.
Gareth Brown:
Yes.
Steve Johnson:
You go through a difficult environment and you make changes that you need to change. And I think a lot of people, it’s easy to sit there with a spreadsheet and I can say the revenue’s going to fall by this and that’s going to cause the margin to fall by that. But it’s a very dynamic system out there and the good businesses and the good managers are usually able to manage that environment better than you expect when you sit there with a spreadsheet.
Gareth Brown:
How can I make do with what I got or even a smaller budget than last year to achieve the same thing? It’s a very different mindset that you think about how Silicon Valley’s been the last five years. It’s just been, how do I come up with the money to pay these inflated salaries to get more engineers on the payroll? It’s now, you’re trying to get more out of per capita productivity.
Steve Johnson:
All right, well with that as a bit of background, I thought we’d get our colleague, Harvey Migotti in to talk about a new small cap stock that’s in our International Fund thanks to the selloff that we’ve seen over the past 12 months, and a brand that may or may not be familiar to a few people and one that might be particularly useful for you leading up to Christmas. So, we’ll just sub you out quickly, Gareth and we’ve only got two microphones in here at the moment so I’ll get you back in after Harvey comes in and has a chat.
Steve Johnson:
Hi Harvey, and welcome to your first appearance on the Stocks Neat Podcast, getting in last minute in 2023. And there’s a reason for that I’ve got you in before Christmas, because our listeners might be able to give this stock a Christmas boost with their shopping. To be honest, I had never heard of this product, but since you and Chloe started researching it and getting it out there, I’ve been noticing it all over the place. I went for a run around Sydney’s Centennial Park the other day, and it’s 3.55 kilometers around the white fence of Centennial and I saw three people carrying Yeti water bottles, and I’m seeing them all over the place. So that’s the stock we’re talking about. It’s a US listed company called Yeti. Harv, can you tell us a little bit about it?
Harvey Migotti:
Yeah, sure. And thank you for having me. So for people unfamiliar with this small cap US company, Yeti is an authentic lifestyle brand that makes premium, high quality coolers and drinkware. So think camping, fishing, backyard barbecues, water bottles for hiking and gym sessions, and so forth. The company was founded in Texas in 2006 and since then, it’s developed somewhat of a cult-like following amongst certain consumers. It’s generated a high level of consumer affinity scores. For example, if one looks at Amazon reviews, almost all of their products have five stars or four and a half stars with thousands of people reviewing them. This isn’t just a company giving themselves 50 self-reviews and then hoping for the best. It rarely offers discounts in their products. It’s priced at a premium, and unlike most consumer brands, it’s grown well over 20% year on year for the better part of the last decade.
Moreover and very importantly, the consumer brand awareness across the US, which is its core market and it is where it was founded, continues to increase every year still. It’s still not very well known out there, it’s not quite as prevalent as a Lululemon, where I guess 80%, 90% of people out there know what Lululemon is. Yeti products are not just about utility and superior quality. Our research, and we’ve done a lot of it and spoken to a bunch of people and a bunch of people in the industry and a number of consumers, visited a bunch of stores, it suggests that people buy their products, such as the Rambler drinkware bottles to flaunt the brand itself, i.e., It’s become a bit of a status symbol for those in the know.
Steve Johnson:
Yeah, it’s started out with what we call eskies here in Australia or cooler boxes, really high-end ones, pay $300 for a small one and pay $800 I think for a large esky, which blew my mind when I first saw it, but the sector was really ripe for this when you think that nothing had changed-
Harvey Migotti:
It’s very sleepy.
Steve Johnson:
… about the esky for 20 or 30 years. It was very sleepy, it was probably a really high margin product and the guy who founded this business basically was one of those frustrated users of someone else’s products that said, “I’m going to go build this myself,” and they started out just doing cooler boxes basically and have parlayed that into a whole heap of other products. Gareth and I were just talking about small cap valuations and saying just because something’s down doesn’t mean it’s cheap these days because the starting points a year ago were crazy in some situations. We’ve got Yeti’s share price down 60% over the past year. Where does that leave the valuation today?
Harvey Migotti:
Well, the stock is currently trading at a price to earnings of approximately 15. That’s right at the bottom of its historical range over the past four years. The market’s obviously been concerned, and rightly so, about consumer discretionary spending. And it’s assumed that many of these companies have been facing a tough end of the year and an even tougher ’23. Although it’s clear that consumer spending is slowing relative to the last few years, especially ’21, ’22, we saw huge COVID boost across multiple sectors, especially in recreation, gym, and so forth. Expectations here actually remain achievable, and the longer term story, more important for us, looks very attractive still. In fact, the recent quarterly results which were published a month ago showed us that the business and the demand for the products remain quite robust.
Steve Johnson:
Yeah. We’ve been looking at a lot of stocks here in Australia that are COVID beneficiaries trading on seemingly low multiples of earnings, but where we’re very concerned that those earnings aren’t sustainable, particularly on the margin front. You’ve got a few different moving pieces here at Yeti. There’s the sales question about whether there was a COVID boost. Margins though have been problematic for them because logistics, shipping, all those sorts of things have been very expensive. So there’s a few, I guess offsetting factors is the best way of putting it.
Harvey Migotti:
Yeah, that’s a 100% true. Just on the margin point you mentioned, they’ve had a 500 bps headwind just from freight and everything else.
Steve Johnson:
That’s 5% in non-financial jargon.
Harvey Migotti:
… Non-financial lingo. Which is significant. That’s significant for a business that manufacturers and sells products in the retail sphere. So, that is going to be coming back. We’re seeing those freight rates and container rates and everything normalise. So, over the next few years, you’ll see that start to come back into the margins, which is great and helps provide some tailwinds into a tougher environment. But there’s plenty of other potential here for the secular to offset these cyclical headwinds that we’ve discussed.
So there’s obviously investor skepticism about the product. Why would people need multiple premium drinkware bottles for example? Evidence suggests that a lot of people actually do, and they end up buying them. And one of the reasons for this is that Yeti is a great product innovation story. They pretty much created a whole new category with the introduction of backpack coolers. This is soft materials that actually feel like a backpack. They’re nice, they’re easier to lug around than a box, like an esky type box. And they continue to innovate similar to this on numerous fronts. They constantly release new colours and better performing products in their drinkware category. A couple of years ago they released coffee mugs that keep your coffee warm for multiple hours or whatnot, and this has resulted in existing customers coming back for repeat purchases, not just different coloured bottles, but all different sizes and whatever else that have different uses.
Steve Johnson:
Sorry, it’s been interesting to go through the research piece. There used to be a song on Triple J that had the chorus, “I lied about being the outdoor type,” where they were pretending to love living outdoors just to impress someone of the opposite sex and feel, we’re a bit like that when we turn up at the BCF store and pretend like we know everything. But that’s been the interesting piece for me. I was a skeptic about the prices here and the potential for that to come under pressure from competition. But the more work we’ve done, the more evidence there is that the brand is very powerful because it is a really high quality product, and people are willing to pay for that. And then, once that becomes a status symbol in and of itself, it becomes much more sustainable than just the products always need to meet that brand criteria. But once you’re there, it’s very hard to compete with.
Harvey Migotti:
No, that’s right. And we actually went through a recent survey of over 1,200 people in the US and it suggested that the repurchase intent amongst brand-owning households, i.e., households that own a cooler or drinkware product or whatever from the Yeti, is strong and indicates no loss of momentum for the business. In fact, 84% of these households said that they intend to continue repurchasing Yeti products in the future. Half of those pointed to product innovation or product renovation as a driver of repurchasing intent. That is very powerful. And moreover, and one part that we’re particularly excited about is the existing international expansion story here. So unlike many other premium brands, think Lululemon and many others out there, UnderArmour, whatever else, they have 30-40% of sales coming from international markets. Yet, Yeti here is very underpenetrated with non-US sales for the company running at just over 10%. They’ve had some good success in markets such as Canada and here in Australia.
Steve Johnson:
What did the CFO say to you when you met with him about it?
Harvey Migotti:
Yeah. The only problem with Australia is that there’s not enough Aussies.
Steve Johnson:
They spend a lot of money, but there’s not enough of them.
Harvey Migotti:
Yeah, so if you look at sales in Q3 which was published a month ago, their international sales grew 60% year on year organically. That’s just phenomenal in an environment such as this. So there’s plenty of untapped potential, not just there, but also in AsiaPac, the Middle East and Europe, Japan and Korea for example, markets that are absolutely ripe for this kind of product, and consumers would be warm to, but the company’s been very cautious in the way they expand and we quite like that. It gives you a long, decent runway for growth here without stuffing the channel or getting a big boost in sales one year, and then next year you have a hangover. We’re seeing that in a lot of stocks at the moment. So essentially, we feel we’re in the early innings of this international expansion story here, and we like their approach to it. They’re being cautious, they’re doing it carefully, they’re not going to every single store. We’ll discuss later on in the call three of the stores that have their presence here in Australia, but they’re not everywhere, and that’s a good thing. They’re keeping their premium brand image.
Steve Johnson:
Yeah, I think it’s a really good example. We were talking earlier about how small caps can do really well through a recessionary environment, starting with a low price, low expectations being one of the important keys. But you’ve just talked about a bunch of things there. It may well be a difficult 2023, and we’re not too fussed about it, really. We think this business can be twice as big in five- or six-years’ time as it is today. Whether the next 12 months are difficult or not, but there’s every signal here that good management, good products, adjacencies, geographic expansion can offset what might be a difficult consumer environment out there. We talked about a number of other things that can contribute to small caps doing well in a difficult environment, skin in the game being another one of them. What does the ownership of the company look like here, and particularly management alignment?
Harvey Migotti:
Yeah, so the founders that started this business back in 2006, they sold out, they sold it to private equity prior to the IPO. These guys helped drive the business forward, growing it tremendously, then it became public. Here’s the good news: the CEO is outstanding, and I think this isn’t just our view, this is the view of many people that we’ve spoke to: former employees, competitors, just speaking to analysts in the street and some other investors, and that’s the general view of him. He comes from Danaher. Danaher’s bred some best in breed managers out there. The company’s very good, it’s a very high quality industrial, and trades at a very high premium, and rightly so.
So he has a decent amount of skin in the game. He’s about over $10 million worth of stock plus options, and he’s been there for a number of years now, and it looks like he’s super happy to continue driving this forward. So that’s a big positive for us. And it sounds like the rest of the managing team from all our research is also high caliber going down the chain. It’s not just him. And we always love to hear that because sometimes you can have a great story but you get the wrong management team or the wrong CEO in place, and it’s very easy to ruin a good track record.
Steve Johnson:
Yeah, for sure. I think perfect world in terms of ratings on our scale would be big shareholder here that still owns 30% or 40% of it or something like that. But next best is a proven track record from a bunch of people that have got enough skin in the game to make it life-changing for them, which we think we’ve got here. And then finally, the other thing that happens in recessions and difficult environments is the opportunity to get out there and buy other businesses cheaply. Is there potential for this company to be doing that?
Harvey Migotti:
Yeah. Well, they’ve said that they’re definitely open for smaller bolt-on M&A transactions that can help expand their footprints into adjacent products, i.e., buy some small companies that do something similar to what we’re doing now, rebrand it to Yeti, push it through the distribution channel, put their innovation and R&D over it to improve it and so forth. That would be obviously great. But what we’d really like is that they’re being very tactical and very disciplined about this. We’ve often seen really good cases in investment pieces ruined by large scale M&A, or over expansion, or taking on too much debt, and it doesn’t feel like that’s happening here. So if anything, smaller bolt-ons, maybe we can expect some. The nice part about this business is so far they’ve done almost everything in-house, organically. We really like that they continue driving potential expansion into other adjacencies themselves, but if the opportunity comes along, they’ve signaled that they might do it, and with valuations where they are and a tougher environment come through, we might just see some interesting businesses come up for sale at attractive multiples.
Steve Johnson:
Yeah, they seem very aware and very public about the fact that the Yeti brand is everything to this business and that anything they did would need to be under that brand as well.
Harvey Migotti:
100%.
Steve Johnson:
That’s fantastic, Harv. Thanks for dropping in. I’ll sub you out now and get Gareth back in. Hope you have a great Christmas and we’ll see you next year.
Harvey Migotti:
Thank you. And for all of you listeners out there, get out to your local BCF, Macpac, and Weber stores, and stock up on some Yeti Christmas products. We certainly have here at Forager. And if you do happen to see them, have a speak to the sales staff and see what they think about them. Have a test and look around.
Steve Johnson:
He’s on commission. Thanks.
Harvey Migotti:
I wish.
Steve Johnson:
I’m joined back in the studio by Gareth. G, welcome back. You’ve bought a few supposedly indestructible water bottles for the kids this Christmas. This should be the true test of the Yeti product.
Gareth Brown:
It is. The Brown stamp of approval. Look, like you, I really hadn’t heard of this brand name at all before we started talking about it not that long ago, six weeks ago, eight weeks ago. Now I’m seeing it everywhere, right through the fishing community and camping community, obviously where that durable ice box is important. One of the problems my wife and I have had over the last however many years my son’s been at school is water bottles. They just keep breaking.
You spend $30 on them and they last two months, I think maybe three or four months is the record we’ve had for any one water bottle in our household. So, I’ve decided to go out and try the Yeti product there, and I got to the cash register, I bought three of them, they cost $40 each. So they’re not cheap. And he told me they’ve got five-year warranty, so it’ll be interesting to see if they go anywhere near five years in my house. But if they make it to 12 months, the dollars are definitely worth it versus the alternatives. So, looking forward to reporting back in the months ahead.
Steve Johnson:
Yeah. You’ve got a lot of, I guess, experience and a liking for businesses like this. I think this one’s still pretty early in terms of proving itself up, but would you draw parallels with other businesses out there?
Gareth Brown:
Yeah. Absolutely. The obvious one is something like an ARB Corp in Australia, Tulay, that make bits that attach to cars, but mainly for transporting bikes around where quality is important and the customer, most of their customers sit there and say, “This product is at least two x better than the alternative,” and they’re happy to pay something additional for that. Yeti probably takes that to a new level on the pricing. I didn’t know there was such a thing as an $800 ice box prior to two months ago. But I can see it, if you want to put something on your boat that you can actually stand on and make it part of the furniture as such, it makes some sense that you might spend that kind of money for a product rather than a $50 thing that falls apart and leaks.
Steve Johnson:
Yeah. And I think that space of proving to other people that you own high quality products and that you’ve paid a lot of money for them, it seems to be a thing.
Gareth Brown:
Mate, I talk about this all the time. It’s the Louis Vuitton for Texan fishermen. There is something there that you see in those European brands that rich people, and I guess women in particular are attracted to that, there’s an alternate universe where the same thing’s at play. I want people to see what brand’s on my bulbar or what brand my bike rack and roof racks are. There’s definitely something like that going on where branding is very important. I think it’s led by quality: quality and durability is what creates the brand name in a space like that. And then, you can sell a bunch of other products along the same lines.
Steve Johnson:
Yeah, it’s an interesting business, fairly small for us in terms of weighting at the moment. And like I said, I think there’s some proof points to come here, but it’s a business I can see us owning for a really long time, hopefully, and growing alongside of it. That’s it for us today. Thank you for tuning in, and thank you for tuning in this year. We both hope you have a wonderful break and safe travels if you’re traveling away from home. I’m really looking forward to a relatively open, COVID-free Christmas with the family this year myself. And G-
Gareth Brown:
A little bit of nice weather hopefully as well.
Steve Johnson:
You’ve got a nice, well-deserved holiday coming up, so enjoy your break and time with the family as well.
Gareth Brown:
Thanks very much.