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Where Will Clorox Be in 5 Years?

By James Brumley – Aug 5, 2020 at 10:00AM

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This old-school consumer staples icon has plenty of modern-day tactics to continue driving growth.

It would be easy to assume this is an "as good as it gets" moment for Clorox (CLX 1.79%). Last quarter's top line surged 22%, as consumers clamored for cleaning supplies for the entire three-month stretch -- but that demand surge clearly can't be sustained. In addition, CEO Benno Dorer is stepping down. Veteran exec Linda Rendle is qualified enough, but any new chief faces a learning curve.

Clorox is up 50% year to date, so now seems like a great time to take profits, and many shareholders did so following Monday's earnings release. But is that the right move? This is a company on the verge of another evolution, and investors may want to stick with it.

Man looking into the distance with binoculars

Image source: Getty Images.

A deliberate, relevant plan

There's some information that's largely been lost to harder-hitting coronavirus headlines. Clorox -- the name behind the bleach brand, as well as household staples like Liquid Plumr, Kingsford charcoal, and Fresh Step kitty litter -- recently wrapped up a seven-year overhaul that prioritized investments in its best brands, better targeting healthcare-related opportunities and tightening up its supply chain. Dorer led that charge well.

While all companies were caught off guard by the sheer speed and depth of the COVID-19 contagion, Clorox was able to adapt with relative ease. The biggest bottleneck after the pandemic got rolling was the lack of available manpower. Even so, the company's 2020 initiative not only worked but left the company well-positioned.

Much has changed over the course of that past seven years, however, but Clorox has already answered the call. It's called IGNITE, which was officially unveiled at October's analyst day event. The framework hasn't been able to garner much attention from investors distracted by a myriad of other news. It's worth a look, though.

IGNITE emphasizes the use of technology that the previous initiative didn't, and calls for a rethinking of the company's portfolio in a way that puts people on par with profits. The biggest leap Clorox is making with IGNITE, however, is a deliberate rethinking of how consumers now think... and buy. Sustainability is a priority, and the company understands it must work with retailers to get them on board with the new-and-improved company.

And it already is. For example, in a recent interview with DigiDay, Clorox CMO Stacey Grier explained the company is working with retailer Walmart's media group to connect the purchase of a grill with the purchase of Kingsford charcoal.

Direct to consumer

The Clorox Company's future also includes more direct-to-consumer (TDC) business. It's a tricky path the organization must walk down very carefully so it doesn't alienate its retailing partners. Its DTC business is largely limited to its small Nutranext and Objective brands of health supplements and personal care goods.

That may not be the case forever, however. Clorox brands Brita and Burt's Bees are also part of the company's direct-to-consumer business that bypasses retail stores, and DTC chief Jackson Jeyanayagam has loosely alluded to the idea that an expansion of the approach might be in the works once the company masters the art.

Other consumer staples names have already taken the plunge, and for good reason. PepsiCo, for instance, now sells boxloads of breakfast goods and packaged snacks online in addition to in stores. Early this year, Procter & Gamble announced its intent to acquire women's shaving brand Billie, which is exclusively a DTC name. Both may be eyeing the recent and expected growth of DTC. Digital-marketing research outfit eMarketer believes direct-to-consumer sales in the U.S. alone will grow to $17.7 billion this year, up from 2019's $14.3 billion and en route to 2021's estimate of $21.1 billion.

As more and more consumer staples companies delve into DTC operations that strain existing relationships with retailers, it becomes easier for Clorox to do the same.

Rendle only makes it easier

In short, Clorox is on the right track. The swell of revenue that unfurled during the first half of 2020 is certainly a tough act to follow, but Clorox has an act to follow it. It's plugging into ideas very relevant in 2020 that weren't much of a factor as recently as 2013.

As for the advent of Linda Rendle as CEO, any leadership change has the potential to be disruptive. This isn't a huge change though; she's been an executive with the company for 17 years now, but at the age of 42 versus Dorer's age of 56, she may actually be more in touch with the average consumer than Dorer has been.

Look for Clorox to be even more of a lifestyle-oriented, repeat-business-driving brand five years from now than it is today.

James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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