Solo Brands’ leadership called out ineffective marketing spending at the end of last year as a key issue in the company’s 16.2% Q4 sales decline.
During Solo’s earnings call, new CEO Christopher Metz commented on last year’s viral marketing campaign, which saw rapper Snoop Dogg teasing that he was “giving up smoke” on social media, only to reveal that he wasn’t stopping smoking marijuana, he was promoting Solo’s smokeless firepits.
Initially the campaign was seen as a big win for the company, but not long after Solo announced it was parting ways with then CEO John Merris, saying that the marketing campaign raised brand awareness but did not lead to the sales lift the company had planned.
Sales Conversion Key During Holidays
Metz, who became CEO in January, was asked what the company learned from how the Snoop campaign played out.
“It’s something that we studied very deeply,” he said. “We got a lot of brand awareness, and it’s what I would call top-of-the-funnel marketing. We were really showing our brand to new consumers for the first time.”
However, Metz said, in a key selling season like Q4, “you want to be spending more of your marketing dollars towards the bottom of the funnel.”
“Think of the top of the funnel as brand awareness, the middle of the funnel as brand consideration, and as you work down to the bottom of the funnel, it’s brand conversion,” he added. “You want to be spending across the full funnel throughout the entire year, but you really want to be converting in (the) key selling season.”
Connecting Marketing to Sales
Although Solo created brand awareness with that campaign, it wasn’t linked in any way to the company’s website, Metz said.
“If you went to our website, you wouldn’t see any connection to it,” he added. “We didn’t have a full product offering that connected back to that campaign. We didn’t roll it as much into our email and re-marketing efforts.”
Now, the company is taking a step back and not doing a “ready, fire, aim,” Metz said.
“We’re going to do it at the right time,” he said. “We’re going to take advantage of who we think is a terrific spokesperson that has a wonderful following that fits well with the Solo Stove brand. We just need to partner in a better way, and we need to be more effective in the way that we communicate and convert that consumer.”
Changing Marketing Firms
To achieve that, Solo has “taken immediate action” to restructure its marketing partnerships, Metz said.
“First, we are ending our marketing contract with an outside firm that has placed much of our media spend,” he added. “Second, we are also replacing our current marketing agency.”
Solo’s new marketing agency has “strong, full-funnel performance and digital marketing capabilities,” according to Metz. The agency also has deep experience working with D2C firms that also have an omnichannel footprint, such as Nike, Kohler, and Beats by Dre.
On a financial note, as a percentage of sales in the fourth quarter, SG&A expense increased to 48.4% of sales compared to 43% a year ago due primarily to increased advertising and marketing costs during the quarter.
Solo’s Q4 Results
While the company spent significantly more on marketing, Solo Brands’ net sales for the quarter ended Dec. 31 were $165.3 million, down 16.2%.
Sales were down on a lack of significant new product launches in the fourth quarter of 2023 when compared to the fourth quarter of 2022, according to the company.
By channel, direct-to-consumer channel revenue declined to $127.3 million, down 20.8%, while wholesale sales increased to $38 million, up 4.2%.
Gross margin decreased to 58.3%, or 150 basis points.
Solo’s Full-Year 2023 Results
For 2023, net sales were $494.8 million, down 4.4%.
Sales declined for the same reasons given for the decline in the quarter.
By channel, direct-to-consumer revenue decreased to $358.1 million, down 15.4%, while wholesale revenue increased to $136.7 million, up 45.1%.
Gross margin decreased to 61.1%, or 40 basis points.
Plans for Solo Stove
Regarding Solo Stove specifically, Metz said he admired what Solo’s founders and team built with the brand.
“However, like many entrepreneur-founded businesses, the appropriate processes and capabilities necessary to scale the business have not been built out,” he added.
Metz said the company is undergoing a “full strategic review” to make a long-term plan that is focused on revenue growth, product innovation, and talent acquisition.
“We have high gross margins, but we are not spending our marketing dollars effectively, and therefore, we are not achieving the return on ad spend we expect to help drive our growth,” he added.
Full-Year 2024 Outlook
Total revenue is expected to range from $490 million to $510 million for 2024.
Adjusted EBITDA margin is expected to be between 10% to 12% for 2024.
“We continue to be incredibly excited about the strength of our brands and believe in our long-term growth strategy,” Metz said. “As we focus on 2024, we see tremendous opportunity for both channel and category expansion in our business; however, we are mindful of the current uncertain environment and are not immune to the pressures on consumers’ discretionary spending.”
