Yeti (NYSE:YETI) made its name with nearly indestructible coolers that keep your food and beverages cold for a week, but it's quickly transforming itself into more of a lifestyle company. Its latest products are meant for everyday use around town, not necessarily on the tundra.
The new Crossroads backpack and tote are much more utilitarian in their design, look, and purpose. They indicate Yeti's willingness to continue branching out into the consumer market, though their premium price tag may limit just how far they can penetrate.
The common touch
The Crossroads backpack is what you'd expect for an everyday bag being carried around in an urban environment. It's made of nylon ripstop fabric and comes with pockets for a laptop, tablet, and a few other essentials, as well as a water bottle slot and a roomy space for sunglasses.
The Crossroads tote is similarly designed with various pockets for accessories, plus a shock-absorbing foam lining and room for two drink bottles.
But priced at $200 and $180, respectively, the backpack and tote aren't cheap, and there are equally functional bags at significantly lower cost, albeit without the Yeti name on them. The question is whether the Yeti lifestyle is worth that much more to consumers.
Accessories are hot
Yeti sells more drinkware than coolers, with sales totaling $117 million last quarter compared with $109 million for its outdoor gear. Sales of tumblers and mugs are also growing faster than coolers, 16% versus 9%, though they likely have lower margins than the coolers as well.
By introducing an everyday line of bags, the company can bridge the gap by creating a product that's relatively low in cost to manufacture but still commands a premium price tag. CEO Matt Reintjes told analysts on Yeti's second-quarter earnings conference call, "We believe there's a significant opportunity for the brand in bags, given its large global nature and high level of fragmentation."
Still, it's going up against well-known brands like The North Face, Thule, and Tumi, and far more functional and serviceable brands are available at lower price points. Selling a commoditized, undifferentiated product (beyond the Yeti nameplate) at a premium price may be a harder sell, even if the margins are there.
Yeti is moving its production out of China by the end of the year into lower-cost countries. It says it only went into China originally, because it was easy to get merchandise made there, but now that Yeti has grown, so has its capability to source goods from elsewhere.
At a crossroads
These Crossroad bags are the types of products Yeti needs, and undoubtedly there are those who will buy them precisely because of its reputation. But they might not have the same cachet in the broader consumer market, and by pricing them as it would its more purpose-driven gear, it could limit their appeal.
Balancing the need to grow sales and do it profitably is always a delicate act, and Yeti has so far managed to exceed expectations with product innovation. If it can succeed with these new products, investors can expect to see a lot more everyday merchandise to hit the market alongside its gear built for the wilderness.