Secrets To How Innovation Can Drive Impactful Growth With Bombas

An assortment of colorful wool socks are set on display in the apparel section of a department store.
Insight by

Dave Heath, CEO & Co-Founder of Bombas, a premium comfort-focused sock & apparel brand on a mission to help those in need, joins Oliver Chen, Retail & Luxury Analyst. In this episode of the Retail Visionaries Podcast Series, they explore strategies for innovation and growth through direct-to-consumer retail.

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Transcript

Speaker 1:

Welcome to TD Cowen Insights, a space that brings leading thinkers together to share insights and ideas shaping the world around us. Join us as we converse with the top minds who are influencing our global sectors.

Oliver Chen:

Comfort and purpose for everyone. Welcome to the Retail Visionary Podcast Series, a podcast about visionary ideas and people. My name is Oliver Chen. I’m TD Cowen’s New Platforms Retail and Luxury Analyst. In this episode, we will explore retail strategies for innovation and growth through the unique lens of Bombas, a premium comfort-focused sock and apparel brand on a mission to help those in need. Today we’re thrilled to feature Bombas’ Chief Executive Officer and co-founder, Dave Heath. Prior to Bombas’ 2013 launch, Dave led business development as one of the founding employees at Urban Daddy and later joined the new media acquisitions and strategy team at Yucaipa Companies. Additionally, Dave was featured on ABC’s Shark Tank and was named EY, Entrepreneur of the Year. Dave, it’s great to be here with you.

Dave Heath:

You too, Oliver, thanks for having me.

Oliver Chen:

I personally wear Bombas every day, as you know, and I’ve done so for over five years. Can you tell us what makes Bombas different and so successful?

Dave Heath:

When we first started the company, as many people might know, our whole story founded around our mission. I was working at this media company and I came across a quote that said socks are the number one most requested clothing items at homeless shelters. And, being kind of entrepreneurial minded, I went to school for entrepreneurship, my dad was an entrepreneur, I looked at that problem and I was like, “Wow, I want to find a way to help solve that problem.” Not really having any interest or experience in building an apparel company, I kind of went out and learned everything that I needed to learn about socks because I had this idea around buy one give one based on the popularity that Tom Shoes and then Warby Parker had made around that business model. I thought maybe this is a way to kind of help this community while also leaning on my entrepreneurial skills.

And so, I went out and I learned everything there was to learn about the sock industry. And, what I learned was that there was a massive bifurcation between low cost, low quality, commodity type products, stuff that, for the most part, I was wearing and I think a large part of the population wears, socks that you’ll buy 12 of in a plastic bag from Costco or Walmart. And then, I went into specialty stores, specialty athletic stores specifically, and saw that there were running socks and hiking and basketball and all these specialty athletic products that were retailing for anywhere from 15 to $35 for a single pair. I sat there and I asked myself, how could one product cost less than 50 cents a pair and then another product costs $40?

As I started to look at the athletic market, I realized there was a tremendous amount of innovation, obviously, that was put into these products to help athletes perform at their highest levels. So, things like seamless toe, arch support, comfort foot beds, articulation in the heel, the fabrics that the products were using, blends of natural fibers like merino wool and cotton and synthetic fibers that would help with moisture and temperature regulation. I came to this thesis around, well, why should athletes be the only ones that should feel supported and have all of these amazing technology innovations around foot comfort when everybody is really on their feet all day long, whether you’re a grandma chasing their grandkids around, a nurse who’s on their feet all day, a firefighter, a doctor, a real estate broker who’s running from house to house. I just thought of everybody deserves the level of comfort that athletes deserve.

So I took all of that innovation and I worked with a number of factories to figure out how I could take that innovation and put it into a product that you and I could wear to the office every day. That was the general thesis around how we built Bombas and this idea around if we could make a better sock that more people would buy, then we could ultimately then donate more product to those in need.

Oliver Chen:

David, your brand and the lifestyle brand as well as your customer base is very loyal and you’ve focused on customer lifetime value as well. What really drives this loyalty from your community?

Dave Heath:

You know, I think, a large part we get a lot of credit for our mission and I think our commitment and transparency around our mission. We’re in our 10th year of business, we just donated our hundred millionth item of clothing to the homeless community, and we’re regularly updating our community around the progress and the things that we’re fighting for using our platform, whether it’s email or social, as ways to kind of bring awareness to that community around the different struggles or opportunities that we’re seeing on the front lines when dealing with our 3,500 giving partners. Then, on top of that, we deliver and then stand by our incredible product, so we are certainly a product innovation and high quality product focused organization. We don’t let anything go out the door that has not been rigorously tested on our end or developed from our point of view as thinking about the end customer and how they would use our products.

Something as small as even the high-end products that you would buy, in the stores would be held together with what’s called a swift tack. And so, it’s this plastic tack that they stick between two socks. I’m sure, like you or like most people, I would get home and I’d rip that thing apart and sometimes it would pull the thread through and create a hole in the sock. So I was like, “Let’s develop packaging that doesn’t force the customer,” because not everybody’s going to take out a pair of scissors and neatly cut it. They’re in a rush. They want grab their product, they want to open it, so it’s just being incredibly thoughtful about that. And then, if you do have a problem with our product, we have this thing that we call the 100% happiness guarantee, which we will stand by all of our products for the lifetime of the product.

If you get a hole in your product after a certain number of wears, you can reach out to our customer happiness team and they will replace that product for you. We always joke that if your dog eats one of your socks, reach out to us. We know that life happens, and so we stand behind everything that we do 100%. I think it’s the culmination of a brand that feels incredibly authentic and transparent around their mission, a brand that is committed and regularly delivers on an incredibly high quality product, and then standing behind that incredible product from the lifetime or use of the product through how the customer uses it. Those are the three ways I think really culminate brand loyalty from our side.

Oliver Chen:

David, you’ve also had this decade of innovation and a lot coming as well. What about milestones? Which milestones most recently are you most excited about and which milestones going forward are you really looking forward to?

Dave Heath:

Yeah, I mean, I kind of mentioned it already. When we started this business, not having sold a single pair of socks, we originally had this milestone of donating a million pairs of socks, so much so to the point where I kind of promised and half jokingly bet one of my co-founders. I was like, “If we ever get to a million pairs donated, I’ll tattoo the Bombas logo on my body. I had no tattoos at the time. We thought it would take 10 years and it only took two. And then, the following year, we donated five million and the following year after that 10 million. Here we are, 10 years later, we’ve donated 100 million items of clothing to those in need across 3,500 giving partners represented in all 50 states. From giving partners that are small, as some that can only take 250 pairs a year, to giving partners that can take upwards of 10 million a year.

I’m incredibly proud of not only the milestone but the way in which we achieved that milestone, by ensuring that we have full coverage. We’re not just dealing with one large giving partner where we say, “Okay, we’re farming the giving side of our business out to a nonprofit.” We have 3,500 direct relationships with partners all across the country. That allows us to keep our finger on the pulse as to what’s going on in the homeless community so that we can then relay that information back to our customer base and continue the flywheel of building awareness and, hopefully, compassion and dignity around this. So obviously, that milestone represents probably the biggest in our most recent history. A couple years ago, we launched underwear and we’re starting to see great traction in that. So much so to the point where, in our women’s underwear business, we had a lot of women asking if we were ever going to make bras or bralettes.

And so, just last year we released the bralette for our women’s business. It ended up selling 10 times faster than we had originally thought and made the compounding silhouette that it matches for the bottoms in women’s underwear now our number one selling women’s underwear product in that category. So being able to continue to see the consumer evolve with us in our journey in moving from a socks only business for eight years to now being in underwear, to being in T-shirts, to being in flippers and soft comfortable footwear, it’s exciting to watch the brand evolve in that way. And so, while maybe not as distinct as saying hitting 100 million items donated, it’s also fun to see that. And maybe on the side, Shark Tank is in their 15th season and they just recapped the top 15 Shark Yank companies by revenue, and we’re number one, so it was also a fun little competition to see there as well.

Oliver Chen:

Yeah, that’s amazing, it all comes back. Also, these are very competitive markets you’ve been entering, especially bralettes, so congrats. On that topic, David, product mix, it’s an interesting question. It’s not easy to innovate into new categories. What do you see happening with the mix over time? How do you approach innovation to really fuel this development?

Dave Heath:

Yeah. We think about innovation not as stuff that’s developed necessarily in a lab under microscopes and crazy pieces of equipment. Innovation for us is really connecting with our customer and understanding our customer and how they use our products or will use our future products, and try to understand what are the biggest pain points from wearability, comfort, durability, the fit. This was really, I think, all kind of, when we go back to the beginning where we had some of our biggest competitive advantage, was the fact that myself and my co-founders didn’t come out of the apparel industry. We’d never spent a day in manufacturing so we didn’t come at this from thinking about, “Okay, what product can we make for what price point?” We did it the other way around. We just said, “Let’s create the absolute best product possible and, as customers ourselves, what are the things that we are constantly plagued with as a regular sock consumer?”

I was always frustrated that after a few washes my calf socks would stretch out and fall down. I was always annoyed with that annoying toe seam that would feel really ridgy, especially if you’re wearing a tighter pair of shoes. I was annoyed with the fact that, after a while, the fabric would start to feel like cardboard and get really scratchy and stiff. The same kind of design philosophy that helped us build our sock business, we just lent that same idea to how we’re building our underwear and T-shirt business, was think about the way the customers live and operate in our products. The interesting thing about socks, underwear, and T-shirts is they are typically the three items that you put on first thing in the morning and take off last thing at night, and they’re the three items that we all wear that are closest to our bodies, so comfort and movement in these items and the way that they perform throughout the day as that base layer almost is incredibly important.

That’s the way that we think about technology and innovation, rather than coming out and saying, “Oh, we’ve got this crazy new fabric.” We’re not really interested in telling the customer about the innovation, more so about how the product will perform in different types of environments that we’ll see our customers in, whether it’s our performance product like running, and hiking, and skiing or more of our everyday product that we call casual.

Oliver Chen:

David, another theme that we have here is what I call phygital, and the importance of digital meets physical as well. On that topic, what about your strategy in terms of channels? You’ve been a pioneer of direct to consumer for sure.

Dave Heath:

Yeah, we’re still about 93% direct to consumer through our own website. I think we’ve been both lucky as well as focused over the years as to making sure that digital is our first and foremost competency. Also, I think part of the period in which we grew up. Starting in 2013, we were really right at the precipice of Facebook and digital marketing starting to come online. Knowing that that was going to be our focus, we over invested in that area early on. I don’t mean just in terms of dollars, I mean more so in terms of technology and the thought processes around how we were going to acquire customers and then keep customers in our customer journey, but we certainly had the benefit. 10 years ago Facebook CPAs were like $3 when we started, so they were much cheaper than they are today.

By the time … I hear everybody, they’re all talking about, “Oh, digital marketing is so expensive,” and all this thing. I don’t disagree with that, it is. I think it’s incredibly hard for direct to consumer brands starting today to achieve what we achieved in the amount of time that we achieved it because the landscape was just so different. We had a really long period of time where CPAs were slowly building and rising, that we were building our business at that time. And, there is this concept of escape velocity where we got to such a size and scale in terms of our marketing organization, our marketing budget, our sophistication around technology and tools that we use, that when things like iOS 14 and some of the IDFA regulations around data started to come in, we were so large and had such a large data set of our own, given our customer base was so large, I mean millions and millions and millions of people, that we were then less reliant on the data that Facebook was providing.

We could use our own data pool to then figure out, “Oh, is this customer who’s coming in like the other customers that are in this data pool? Can we cross-reference and use data look backs and multi-touch attribution modeling and all of this kind of much more complex stuff?” Which, frankly, startups, you can’t do it because you just don’t have the size and scale and you don’t really have the budget to do it at that point. That has become a real differentiator for us, which is why we continue to find success in growing our business digitally. Now, I do agree with you on the side of phygital. 7% of our business is represented in wholesale and, if you think about 7% of our revenue, if you doubled that, because of the wholesale margin, it would be closer to 14% at retail. We still see that as being an important channel for us to be at because we realize that not all of our customers necessarily want to purchase our products digitally.

Some people want to still touch and feel a product, and then there’s also the impulsivity or being in the right place as the shopper is thinking about it. When a customer is going and thinking about buying shoes for themselves or maybe perhaps for their kids or their family, they might also then see our sock wall at Dick’s Sporting Goods or Nordstrom’s and say, “Oh, right, I should get myself or my family some socks to go along with these shoes.” We see incredible sell-through rate at our wholesale partners and, oftentimes, in most of the doors that we’re in, we’re the number one selling sock category. I think a large part of that is because of the digital marketing efforts that we do to promote our digital business we’re obviously getting some of that benefit.

We’re on Sirius Satellite radio, we spend money on TV advertisements, so if you’re in the car and you hear our Sirius Satellite Radio Ad, maybe you’re on the way to a Nordstrom’s or you’re going shopping at one of our other partner stores, maybe that helps them be top of mind and then help with that purchase, so we like this idea. We don’t really have any plans to do our own brick and mortar. I’m not sure that our category being basics, socks, tees, and underwear, necessarily justifies a destination type purchase for a consumer. We want to be more so where the consumer is already shopping for like-minded products and make sure that we’re represented there when they’re ready to make a purchase.

Oliver Chen:

Yeah. You really speak to the importance of first-party data and zero-party data and how that’s just become so much more important over time. A class I teach at Columbia is called New Retail Magic and Logic. On the logic side, supply chain is so important as well as inventory management. Could you speak to your thoughts on your supply chain and also, how do you manage pricing trends relative to the volatility that we see and cost of goods sold?

Dave Heath:

Yeah, so from a supply chain perspective, as we’re getting larger, diversification for us becomes incredibly important, especially you’re looking at the geopolitical landscape. It feels like, at any moment, any region could be disrupted for anything. It’s why, while we’re centrally mostly producing in Southeast Asia and China, Taiwan, we also have some manufacturing partners in Latin America, and Mexico, and Peru. We also have some manufacturing partners in the Middle East and Turkey so the diversification, especially as we get larger, is a key cornerstone of our forward-looking strategy to make sure that we don’t ever really have single points of failure. However, on the flip side of that, as we were talking about before, quality still remains our number one focus with our product so we are not determining factory partners based on cost, we are determining factory partners based on expertise and specialty.

Typically, South America is where we make a lot of our T-shirt product. They make beautiful T-shirts out of Peru, whereas our performance sock products are made out of factories in Taiwan, closer to some of the performance factory brands like Nike and Lululemon, whereas a lot of the core product is coming centrally out of China as one of the largest sock manufacturers in the world. We focus on where the specialty is but, then again, balance that with diversification so that we don’t really get caught. As it relates to the costing side of things, I think our business is somewhat unique in that we’re not dealing in highly, highly specialized products that require multiple inputs. There’s no zippers or buttons or a lot of inputs on our individual products so we’re less affected by a lot of that volatility.

Obviously, as cotton and oil and some of those things, we’re thinking about buying futures and buying into certain yarns and stuff ahead of time if we feel like the prices of that specific commodity might be going up. But, generally speaking, the volatility there has not had as big of an impact on us as it has with other brands. Obviously, the biggest impact was the supply chain logistics side of the business, the shipping during COVID and coming out of that. But, thankfully, all of that has normalized and we are back to pre-pandemic rates on all of our freight and shipping. At that point, we just ate the margin for the period of time until that normalized.

Oliver Chen:

Thanks for that, David, very helpful. Also, we’d love to ask you about the competitive environment. You and I have seen many, many cycles and disruption. What trends have been shaping the market competitively in the past five to 10 years that are noteworthy?

Dave Heath:

We have, for the most part, I think, been pretty insulated from competition directly. There’s certainly a lot of sock brands and underwear brands out there. I think a lot of them … Everybody’s kind of carved out their specific niche. There are a lot of other sock brands that tend to be way more fashion forward and rely more on collaborations and celebrity endorsements and things like that. Most of the underwear brands, at least when they started, tend to be mono-gendered so I think one of the things that has been unique about Bombas is that we’ve, for the most part, been an equally distributed gender brand from day one which, I think, as we started to get into underwear and started to get into T-shirts has given us a lot of, not credibility, but I think leeway to be able to speak to both parties because both genders have understood our product as a core comfort product, and then they’ve given us the permission to go into those other brands.

I certainly think, from a competitive landscape, it’s not the industry that we play in but you can obviously think about the success of a brand like Skims, being in the undergarments world. The Kardashian machine, it never ceases to amaze me how everything that that family seems to touch turns to gold. It’s hard to directly compete with that, which is why we don’t, because they just have friends in the celebrity world, and Kim Kardashian still drives a tremendous amount of awareness and validity with their customer base. And so, they’re getting all that marketing for free, which we would have to pay for if we went down that celebrity route.

I’m certainly impressed with what they’ve been able to do. And then, there’s other brands that are more focused on the fast fashion side and it’s just not been a world in which we’ve wanted to chase. We’re not competing on price, that’s not our brand proposition. We’re competing on ultimately quality, which we then ultimately think translates into value, because our products last a lot longer, which then in turn makes them a lot more sustainable. And then, obviously, backing everything up with our brand promise around our guarantee gives, hopefully, our customers comfort in spending a little bit more with us knowing that at any point in time they have a problem with any of our products they can simply get it replaced for free.

Again, I think we’ve been somewhat lucky that we have carved out this nice little niche for us where I think, by the time we were as big as we were, other people that tried to come in, it became really hard for them to compete with us. And then, the big incumbents directly in our space, I think, they were slower to react, and then I think they have so much brand legacy with them that it’s become a hard ship to turn. And then, the truly, truly big companies, the Nikes and the Audis of the world, our product categories represent such a small part of their business that it’s not something that they’re inherently focused on. For the most part, we’ve been able to build our brand and build our business without really any direct head-to-head competition.

Oliver Chen:

That’s amazing. Last question, David. I think you’ve been very Gen Z focused in terms of mission and purpose. How do you think Gen Z may or may not be different from prior generations? And, related to this, congrats on your impact report. Would love to hear some of those key findings and any closing remarks you may have.

Dave Heath:

On the Gen Z comment, I think the thing that separates them the most, from what we’re seeing, is how they shop. They’re much more quick to shop. They don’t do a tremendous amount of research. The challenge with that is you get them to convert very quickly on things like TikTok or Instagram on a specific product or even a specific product category, but then it makes product education about your other product categories or other products very difficult because they came in to buy the red, white, and blue calf sock and they checked out on it and they leave. They’re not browsing, they’re not coming in. Everything’s done on a mobile device. Everything’s done with Qikbay. Conversion rates are insane.

If you can get the Gen Z, if you can get their attention, you can easily convert them very, very quickly but they are harder to ultimately build longer term brand value with because they’re easily distracted, they’re kind of onto the next product. They see what they like, they buy it very quickly so it’s certainly becoming one of the interesting challenges. They don’t engage with email notifications and marketing as much, so social is the world in which they live. And so, trying to figure out how to do retention-based marketing through social, which historically has been very expensive with that specific audience, I think is going to be one of the more interesting challenges. But what we are seeing is obviously they resonate incredibly well with our mission.

All of the transparency around our mission, which includes the impact report which was, for the first time last year, we surveyed all 3,500 giving partners that we had, and we released this very public impact report around the number of products we donate, where we donate them to, and what is ultimately the impact that we’re having on a giving partner level. And things like coming back that say 61% of our giving partners say that working with Bombas has been able to significantly increase their community engagement because they’re able to take our products out into their communities and use it as a conversation starter. They have also said that 99% of all of our giving partners has allowed them to increase their impact in the community that they work with. It’s validation of the work that we’re doing and not just saying, “Yeah, we donated these products,” but what does donating these products actually mean to the 3,500 giving partners that we work with on a regular basis? How is it impacting the communities and the people that they’re working with? Because we’re a couple steps removed, right?

We’re providing these products but, ultimately, we know that the products are ending up on the feet and on the bodies of people who really need them, and wanting to be able to close that loop for the customer and tell that story in a much more rich and data filled way. So, people can Google Bombas Impact Report and get the full download on all of the insights that we learned from that. But yeah, I think as my final takeaway, what has probably surprised me the most over the last 10 years is, in the beginning it was we were all focused on millennials, right? Because the millennials are the ones who care about the planet, and sustainability, and giving back, and companies that do good in the world. And then, now it’s Gen Zers. The truth of the matter is, we survey our customer base and we’ve got a large customer base over 50.

We’ve got customers in their 40s, in their 30s. Across the entire spectrum of age, everybody validates for us that the reason that they chose and still choose to support Bombas is because we’re a brand that does good. I don’t think that doing good is uniquely inherent to one generation, it’s just trying to find the people where doing good is important to them. I think as we continue to evolve as a society, I think more and more people, regardless of age, want to support brands that do good.

Oliver Chen:

Well, that’s a great note to end on, David. Thanks for sharing with us these ideas around mission, purpose, executing with impact, and also the evolution of what we’ve been seeing in retail, a cost distribution as well as marketing. Great being here with you.

Speaker 1:

Thanks for joining us. Stay tuned for the next episode of TD Cowen Insights.


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