Issue No. 87: Why Mirror Sold

Courtney Powell

A few weeks back, lululemon acquired Mirror for $500M. When the news broke, we wrote a quick analysis of how the partnership might play out. Today, we’re going deeper to explore lulu’s ambitions, Mirror’s motivation for selling, and how, in hindsight, Nike, Peloton, and COVID-19 sealed the deal.

TL;DR: Even if this acquisition doesn’t pan out, everybody wins. Here’s why.

Calculated Risk

M&A is a mixed bag. In the case of activewear retailers, buying into digital fitness via high-profile purchases has proven futile. So why did lululemon, a fast-growing apparel company, roll the dice on Mirror? One word: Nike.

Nike is the king of activewear. Try as they might, foes like adidas, Reebok, and Under Armour are no match for the swoosh. For its part, lululemon hopes to become a worthy adversary — if for no other reason than to remain in the good graces of Wall Street. On both accounts, Mirror factors heavily into the equation.

Putting this competition into context, lululemon trails Nike by an order of magnitude. Nike has a $152B market cap. Over the last 12 months, they’ve done $37B in sales. Meanwhile, lulu’s market cap is $37B, and the company had revenues of $3.85B over the same period.

While shares of the yoga pant maker have outperformed Nike in recent years, lulu might not ever reach the scale of Nike. But beating Nike outright isn’t the point. Ultimately, lululemon is in competition with itself, where Nike represents the upper bounds of what’s possible.

Just Keep Growing

To prove that they haven’t peaked, lululemon has one mandate: just keep growing.

Moving beyond the yoga niche and expanding its total addressable market, the company’s five-year strategic plan, released in April 2019, charted the path forward: “double men’s, double digital, and quadruple international” revenues. Add self-care products, a foray into footwear, and the opening of a 20,000-square-foot experiential store (complete with yoga studios and a restaurant) into the mix and grow they shall.

A few months later, in November of 2019, lululemon invested $1M into Mirror’s $34M Series B-1, a bargain for a foothold in connected fitness. As part of the investment, and in keeping with its goal of becoming an experiential brand, lululemon ambassadors began creating workout content for the Mirror platform.

Flash-forward to March: when COVID hit, the table was set. With retail stores shuttered and fitness studios closed, shopping and sweating moved online. In a few short weeks, lululemon had seen enough; they were ready to go all-in on Mirror.

  • In the first week of store closures, 170K people joined lulu’s live workouts on Instagram.
  • Pre-COVID, 64% of lululemon guests used a digital workout option at home.
  • During the pandemic, as the coronavirus spread, that number jumped to 75%.
  • 86% of lulu customers who used an at-home option during the outbreak plan to continue or increase their new digital workout habit.

In April, lulu’s online sales surged 125%, a trend that’s expected to continue. Add in the fact that some 50% of Mirror users are also lululemon customers, and this deal checks a lot of boxes for the growth-focused retailer.

Why Mirror Sold

Last year, Mirror CEO Brynn Putnam told Fast Company she was building “the next iPhone.” Far from another connected fitness upstart, Mirror would be “the third screen in your life that you’re going to turn to for all immersive interactive experiences going forward.”

About seven months later, Putnam pulled the ripcord, selling her company amid a global pandemic — circumstances tailor-made for an immersive third screen.

So why did Mirror sell? lulu made an offer they couldn’t refuse. Putnam, a solo, female founder just secured a “W” for herself, her investors, and New York’s startup scene.

Beyond the obvious, it’s fair to ask, why now? In many ways, Peloton forced Putnam’s hand.

Pitching Mirror as the “next iPhone” was a strategic move that 1.) established a big vision worthy of $70M+ in funding, and 2.) helped the company duck the question, “how do you compete with Peloton?” Their answer was simple — we don’t.

When COVID hit, Mirror was pigeonholed. They weren’t the third screen, they were in direct competition with Peloton. And despite surging sales, Mirror’s growth pales in comparison to Peloton’s. Plus, there’s a growing list of Mirror-like competitors hitting the market. All of a sudden, an interactive screen didn’t feel all that innovative, or defensible.

Meanwhile, digital fitness companies are raking in funding. Hydrow, Aaptiv, and NEOU recently closed investments as Tonal and Tempo target new funds. If Mirror considered raising on the back of its COVID boost, they’d have to become a customer acquisition and retention machine, where every move is audited in relation to Peloton’s now public (and soaring) metrics.

In the end, joining forces with lululemon was more compelling than slugging it out with Peloton or adhering to the “third screen” narrative.

Lulu x Mirror

Upon announcing the deal, lululemon’s stock jumped, and onlookers have been quick to heap on the praise.

According to Bank of America analysts, Mirror could generate $700M in revenue and reach 600,000 subscribers by 2023.

To realize this lofty forecast, lululemon will sell Mirrors to its existing customer base, starting with its 489 corporate-owned stores across the globe. The retailer will continue creating content for the platform, where Mirror instructors will be clad in lululemon gear. More than simply selling more apparel, Mirror’s ability to generate recurring revenue and strengthen lulu’s relationship with consumers is the chief aim of this acquisition.

While the hard work of transforming an athleisure retailer into a tech company is just beginning, it will be difficult to criticize lululemon for shooting this shot. Whether or not they can keep growing will be the question on everyone’s mind:

“Lulu is showing no signs of slowing down, but acquisitions made outside a retailer’s core skill set have rarely been seamless. There is nothing bad about the story right now. The scariest thing [for investors] about Lulu is, is this as good as it gets?” – Simeon Siegel, managing director & senior retail analyst at BMO Capital Markets.


💻 Closing the Gap

Teletherapy is gaining traction during the pandemic. It just might be the key to unlocking access for millions of individuals battling mental illness.

There’s a shocking gap between demand (those in need of care) and supply (access to affordable care).

  • 46M Americans report experiencing mental illness each year, while only 42.6% received treatment.
  • Individuals who are able to access care will wait an average of 25 days for an appointment.
  • With in-room therapy costing $150–$400 per session, plus the added cost of medication, 45% of untreated individuals cite cost as a barrier.

Pros: During COVID, the majority of therapists switched from in-person to remote therapy. A recent survey found that three quarters of clinicians are exclusively using teletherapy. The fact that teletherapy has been shown to be just as effective as in-person therapy for treating PTSD, depression, and anxiety helped solidify the switch.

Cons: The convenience and flexibility of remote care have proven beneficial, but concerns related to privacy regulations, insurance coverage, Zoom fatigue, and missing non-verbal cues leave a lot of room for improving the experience.

As consumer demand for digital behavioral health grows, investors are seizing the moment.

  • According to Rock Health, in the first half of 2020, digital behavioral health companies received $588M in funding — a number equal to the annual funding for this category in any previous year.

Looking ahead: With anxiety and isolation at an all-time high, the need to confront the mental health crisis has never been greater. A bright spot amid the pandemic, digital behavioral health is destigmatizing and expanding access to care.

Related: Two Chairs CEO Alex Katz on the Fitt Insider podcast

🥊 Put ’em Up

Liteboxer, the latest Peloton of ‘X’ upstart, is taking aim at boxing within the booming connected fitness category.

What it is: A competitor to FightCamp, an interactive at-home boxing experience, Liteboxer offers a free-standing, light-up punching bag for $1,495 and a $29/month content subscription.

How it works: While FightCamp offers punch tracking technology and a variety of workouts from “real fighters”, Liteboxer looks a lot like Dance Dance Revolution for boxing. Flashing lights synced to music tell users where to hit and a force-tracking bag measures performance.

Looking ahead: Following in Peloton’s footsteps is tempting, but surely at-home fitness has a ceiling — especially when every piece of equipment costs $1,500 or more.

For their part, Peloton appears to be rethinking the category a bit. The company was rumored to be working on a connected rower à la Hydrow. But recently, CFO Jill Woodworth said the company will forgo the rower, for now, in favor of a cheaper treadmill. Woodworth also said developing a product for the “boot camp category” is a priority. Is Peloton’s Mirror competitor in the works?

Related: FightCamp CEO Khalil Zahar on the Fitt Insider podcast

📰 News & Notes

💰 Money Moves

  • Synthesis, a psychedelic wellness, research, and education platform, closed $2.75M in seed funding led by Novamind Ventures. More from Fitt Insider: The Transformative Potential of Psychedelic Wellness
  • FitXR, the developer of VR exercise app BoxVR, closed $7.5M in Series A funding led by Hiro Capital.
  • Ahead, a platform that connects psychiatrists with patients, raised $9M. More from Fitt Insider: Startups Take Aim at Mental Health
  • Oatly, a Swedish oat milk company, raised $200M in funding led by The Blackstone Group at a $2B valuation.
  • K4Connect, a startup bringing new tech to senior living centers, closed its $21M Series B. More from Fitt Insider: The Senior Care Crisis
  • Mighty Health, a fitness and nutrition app targeting adults age 50+, raised $2.8M in funding.
  • Perfect Day, makers of animal-free dairy proteins, expanded its Series C round from a previously announced $140M up to $300M. More from Fitt Insider: The Quest for Cow-Free Milk
  • Truepill, the API-connected healthcare infrastructure behind companies like hims & hers and GoodRx, closed a $25M Series B funding round. Related: hims & hers CEO Andrew Dudum on the Fitt Insider podcast.
  • yamo, makers of healthier food for babies and young children, raised €10.1M in Series A funding. More from Fitt Insider: Confronting Childhood Obesity
  • Turkish startup Meditopia secured a $15M Series A to expand culture-specific mental health services.
  • Plant-based bacon maker Hooray Foods raised new funding from Stray Dog Capital.
  • Nuggs, an alternative-meat company, raised $4.1M.
  • Mosa Meats, makers of cultured meat alternatives, secured €5M in funding from Bell Food Group.
  • Plant-based cheese maker Grounded Foods raised a $1.74M seed round led by Stray Dog Capital.
  • NoBrakes Athletics, an athletic apparel startup, closed a funding round of undisclosed amount. More from Fitt Insider: The New Athleisure Playbook
  • Vital Farms, a producer of pasture-raised eggs and butter, filed for a $100M IPO.
  • Grief wellness startup Eterneva added $3M to its seed round.
  • Digital mental health platform Manatee raised $1.5M in seed funding.
  • Kernel, a brain tech company, raised $53M in new funding.
  • Sonoma Brands, creator of KRAVE Jerkyacquired Chef’s Cut Real Jerky Co. as part of a roll-up strategy.

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