RYU Apparel: Letter From CEO & President Marcello Leone

VANCOUVER — May 10, 2019 — RYU would like to send our shareholders the following letter:

To Our Shareholders,

Respect Your Universe is a vertically integrated innovative performance brand for urban athletic apparel. We exist to keep the body in motion and to give motion style, in the cities we love with respect to one’s self, others and the planet. With this clarity we endeavor to scale Respect through all that we touch, thus leveraging our business to do good in the world. This comes to life through the Brand, Business, People, Community and our Planet verticals as we continue to grow and scale.

After another growth year, I want to express my sincere thanks for your ongoing support and confidence given to our business and teams.

Coming up on nearly three and a half years into this journey, RYU is a brand on the rise, amidst an unprecedented time of change, in the retail world in which we exist. The retail landscape has been tough for many established and more conservative brands; however, during challenging times comes opportunity: a focused and well positioned company can thrive and RYU is taking advantage of this opportunity in the current and future environments to come. Our performance has been exceptional in building an early stage brand, as we are on track to exceed or hit our internal targets against the five-year benchmark, previously laid out at the beginning of RYU’s Phase 1 (2016 to 2018).

One of the top retail analysts in the sports apparel industry, recently, told us: “The RYU brand is bigger than the business…and that’s the hardest thing a company can ever accomplish in its infancy.”

Although, our stock may not reflect our strength, the brand is healthy and gaining global traction, due to the build out of a strong foundational plan and strategic investments.

We are experiencing considerable enthusiasm in the new retail markets we enter, constant growth of our E-commerce platform and are recognized as one of the most influential brands on social networks (https://influencedigest.com/fitness/top-20-fitness-apparel-brands-on-instagram/).

We are focused on building a resilient company for growth and long-term impact. Our decisions are carefully considered, as we invest in the infrastructure to support this growth. Moving forward we will not rush the expansion of the company in an effort to ensure our mistakes remain inconsequential. Considering an average of about 90% growth year over year for the last three years, we believe our execution and vision are working.

With the end of 2018, we have accomplished our Phase 1, the “Investment” stage of our journey, which consisted of setting the foundation by investing in human capital, laying the infrastructure frameworks for E-commerce and retail stores and in those intangible factors to build the Brand, such as brand awareness community events, retail experiences, PR efforts and much more.

Surely, building a brand is capital intensive, but keep in mind that most brands that achieve overnight success in the eyes of the consumer, usually have been on the market fifteen to twenty years, or more. The concept of “overnight” is often inaccurate.

We are, therefore, now entering RYU’s Phase 2 – “Focus” (2019 to 2020), that will keep us busy for the next 24 months.

We attribute RYU’s consistent growth to our company’s four foundational drivers:

  1. Direct to Consumer Focus
From the start of RYU, we aligned the business to have a “consumer-direct” approach – allowing RYU to serve the urban dweller in a more real, premium and personal way.

This places greater emphasis on the consumer’s behavior and highlights opportunities with the greatest returns. In addition, it brings to life the key areas of the industry, such as innovation, seamless service and speed to market. These efforts and targets are igniting the second phase of our plan for growth and profitability for RYU.

To deliver on our ambitions, we’ve defined new measures of success as we transition to the second phase of RYU. We expect our digital revenue to increase +100% year over year, and ultimately increase from the current 14% to over 40% of our total revenues in the years to come.

  1. Supply Chain integration
We have a unique global sourcing approach that allows us to refine our supply chain, invest in automation, negotiate minimums with long-time vendors and partners, while exploring new technology that further elevates our products. The positive impact of these efforts has increased the value to our guests while also growing our gross margin. These same teams develop and design the exclusive “fit block” of Urban Athletic apparel that RYU prides itself on, and are also partnering directly with our mills, suppliers and manufacturers to deliver exceptional value at superior price points.
  2. Creative Design and Category Distinction
One of the most exciting aspects of the last few months is the continued innovation of product, functionality and design.

We have improved our fit, maintained our comfortable unique “fit block”, and our product continues to make our guests look and feel better.

All of the above is being created with a consciously active eye on environmental impact. We keep working only and exclusively with Blue Sign certified companies, using low-water-dye processes and to keep the impact as minimal as possible. In addition, due to the relationships we have established with our manufacturing partners, we can afford to experiment more and offer our guests innovative capsule collections.

  1. Aspirational Omni Channel Shopping Experience
We offer premium performance apparel to our consumers through a seamless and integrated omni-channel experience. This is delivered through the blending of technology and an aspirational experience in the most desirable urban hubs in North America and on RYU.com. Amongst all of these efforts, the continued commitment to infrastructure, discipline and focus remains unrivaled as we capitalize on the opportunities that drive long-term value. We are structured to deliver best-in-class experiences while building brand towards profitability.

It is very rare to have the deep expertise across all four of these above-mentioned areas. Underpinning all our efforts is a commitment to the infrastructure, discipline and agility we need to capitalize on the opportunities ahead that drive long-term value.

The keys to our success have always been to focus on our powerful business model, understand how external factors affect us, and develop strategies to take advantage of these changes. Thanks to this deliberately methodical approach, RYU has had another tremendous year in developing the foundation for future success.

Looking ahead:

Over the last 3 years, consumer expectations have accelerated, retail has scaled vertically, and the globalization of trade has transformed the retail environment. RYU’s business model takes full advantage of all of these disruptors and intends to step change in the performance apparel category, with the strength set this past year. More recently, the retail space has been disrupted by the rise of automation and technology, of which our business model has been built upon.

Our relationship with technology runs through everything we do. From the design of our product to the services we deliver in our stores, we are leveraging this innovative sector to elevate our guests’ experiences with RYU. The build-up of this digital foundation allows us to predict the guest’s needs and exceed expectations in all that we do through personalization, empathy and service.

As mentioned, during Phase 1, we invested profoundly in our brick & mortar locations: we currently have 9 open, in Vancouver, Toronto, New York City, Venice – LA and Newport Beach.

Our goal for the next 24 months is to let the brand mature, maximize our full retail potential and develop the infrastructure we put in place.

We intend to add two more locations, in the next few months, in a market that we want to continue to expand within, California, while we are always alert of the market, ready to take advantage of opportunities, should they present themselves. During this period, Phase 2, our attention will be on the existing locations and making sure all systems are functioning properly, before beginning to actively look for new markets.

We are adopting a similar approach when investing in human capital: we shaped our team at our Vancouver HQ, as well as in all retail locations, by attracting amazing talent, who chose RYU, versus more established brands.

Therefore, we foresee our costs remain somewhat fixed for the next 24 months (resulting in $11Million of less expenditures over 2019 & 2020, combined), specifically due to the completion of the investments made during “Phase 1”.

Today, we are embarking on the second phase of our journey, one with tremendous opportunity. We see significant potential to drive our E-Commerce channel and capitalize on the foundational investments made in the “Phase 1” of developing the RYU brand.  We will be adding to our portfolio by reaching new markets through premium real estate and online. We will persist building on our exclusive brand, design, innovation and category expansions that are tailored for both Him and Her. We continue to invest in our people, while our values allow us to leverage our business to scale Respect to the world.

Phase 3 – “Accelerate & Lead”, starting in 2021, will be about growth and acceleration, when our brand presence and innovation will be in full effect, with RYU being a globally known brand, realizing its full potential.

As I look back on the year, we have certainly faced our challenges and I can confidently say that we are as well-positioned for an inflection point due to each and every one of you. We believe in the value proposition we offer, and the brand of Respect is greater than anything in the market. Our team embodies this, and we all deeply embrace this as we consider the organization from our distribution centers, support offices and stores and community brand experience events.

We have received many questions regarding our current valuation. I’m disappointed, as we all are, that the stock price has not truly reflected our performance, investment and valuation to date. My commitment to you is that we remain focused on solving for our consumers, employees, partners and investors on equal measure as we build upon this brand.

Our revenue runway target, from FY 2019 onwards, remains year over year growth of 80% to 100%.

We will continue to work tirelessly to make the right decisions for the long term and continued delivery of RYU. Over time, I trust that our stock price valuation will reflect our results, as we are experiencing the positive day-to-day brand feedback from our guests.

I’d like to express my appreciation to everyone associated with RYU, internally or externally, current or past for everything that you do and have done. RYU would not be where it is without you. I could not be more excited about what we will achieve in the years ahead. Building a global iconic legacy-lasting brand requires patience and continued persistence. That is our commitment to deliver.


Marcello Leone, CEO & President

Posted May 10, 2019

Source: RYU Apparel Inc.