Yeti Holdings (YETI -2.49%), maker of high-end drinkware and coolers, had a great 2020. Shares of the stock are up over 100% in the past 12 months as consumers continue to flock toward the premium outdoor brand. The company is one of the only non-essential retailers to see a boost during the pandemic, but with a trailing price-to-earnings (P/E) ratio of 61.3, shareholders are betting a lot of growth is still to come. Here are a few things Yeti is doing to continue growing its business and increasing its staying power.

Person holding a steaming mug outside.

Image source: Getty Images.

Going direct to consumer

Over the past few years, Yeti has transitioned from selling its products wholesale through big-box retailers to going direct to consumer (DTC) through wholly owned retail channels. In 2015, 92% of the company's sales were wholesale, with only 8% DTC, but over the trailing 12 months ending in September 2020, 51% of total sales were from DTC. This is noteworthy because of the improved financial profile DTC offers. Yeti's gross margin has grown from 49% to 56% since 2018, which helped its operating margin expand to 24% last quarter.

The majority of Yeti's DTC sales are through its online store, However, the company is slowly opening retail locations across the United States. There are only eight stores open to date, and the concept hasn't proved it can work yet, but they could become a new way for Yeti to engage its customers and grow sales. Management has also talked about growing its presence on social media, specifically on Instagram and Tik Tok.

Yeti's Instagram has 1.5 million followers, and the company has hired 131 brand ambassadors to be a part of its marketing team, which is important for keeping the brand at the top of young consumers' minds. Plus, with the roll-out of social commerce features on Instagram and other platforms, Yeti's social accounts can become another DTC channel to sell through.

New products

The problem investors have with retail brands like Yeti is that most of its products are one-time purchases. Nobody is buying a cooler every week, let alone every year, so the company needs multiple products to get consumers consistently engaged with the company. Right now, 58% of Yeti's sales come from drinkware, with another 41% coming from coolers, making it a two-product company. Yes, both those products are doing great right now, but if the company wants to have staying power, it will need to continually release new products to satisfy customer demand.

The other investment Yeti needs to continue is advertising. If it is ever to get to the level of Apple or Lululemon, brands that certain demographics will pay up for just because they're from those companies, it will need to continue advertising across many channels. Lululemon sells leggings for $100 when competitors sell for $30. But customers still buy them. Apple sells iPhones for $1000 or more when other smartphones cost $600. But customers still buy them.

Yeti, through whatever magic it has with its brand, is able to sell coolers for $300 while competitors price theirs at $50. Few consumer-focused companies catch this pricing power magic, and Yeti needs to do all it can to make sure it doesn't lose it.

While it still is a long way from becoming as ubiquitous as Coca-Cola or Apple, Yeti Holdings is making the right investments in DTC channels, physical locations, and social media so that it may eventually become one of the top consumer brands in the world. If you believe in Yeti's pricing power and the power of its brand, it could be worth it to pay up for shares even though it is trading at a premium valuation.