Blackstone's Blueprint for Success in Consumer Retail

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:
Brand durability, creating long-term value, premier investors, we're excited to be here on this podcast. We're going to be hosting Katie Storer from Blackstone Growth, Blackstone's dedicated growth equity investing platform. Welcome to the Retail Visionary Podcast Series, a podcast about visionary ideas and people. We're recording this live at One Vanderbilt in New York City ahead of TD Cowen's Glowing Ahead beauty industry cocktail event. In this episode, we'll explore key growth and investing strategies in the consumer sector, the leading brands of tomorrow, as well as disruptive themes in beauty and wellness. Katie Storer is from Blackstone Growth, Blackstone's dedicated growth equity investing platform. She focuses on investments in the consumer sector and was a leader of the all-female investment team for Spanx, the revolutionary women's wear brand founded by Sara Blakely. Before Blackstone, Katie worked at Carlyle, focused on consumer, retail, and held roles at Wellspring Capital Management and Deutsche Bank. Katie, it's great to have you here.
Katie Storer:
Thanks for having me here, Oliver.
Oliver Chen:
Can you tell us about Blackstone Growth's investment style and process? Which areas and themes are you the most excited about?
Katie Storer:
Yes, absolutely. I think it's a great question, a great place to start. And I would say, first and foremost, we're very focused on investing behind what we consider to be the best companies and the best teams. I think that sounds obvious and everyone can say that they try to do that. So let me go a little deeper. I think when we set out to build a growth equity strategy four or five years ago within Blackstone, the intent was always to have a concentrated portfolio across four to five sector verticals, and then to hire teams behind each of those verticals that have dedicated their career to those individual sectors, whether that be healthcare, fintech, enterprise technology, or in my case, consumer.
I think that the concentrated portfolio piece of that is very important. We set out very intentionally to make fewer investments, so our average check size thus far is about 250 million, and do that behind businesses that are number one or number two in their space. Again, the intent was very, very much focused on not investing in hundreds of companies that would dilute the impact of our individual investors on the team, but also diluting the impact of Blackstone and the scale and the resources that we bring to any of our individual investments, which is pretty significant.
And then I'll pivot to your question on consumer, where I would say we're very focused on what we think about as that next generation of household brands and those brands that we feel like are category leaders, or in many cases, category creators. So I think about Spanx and Supergoop! where I spend so much of my time. Both of those businesses I would call real category creators. They have created or defined the categories in which they play, whether that be functional apparel or sun care. They also have elements and attributes of what we look for in consumer brands across three critical pillars that we're always thinking about, that are always top of mind. And that's product. I think product first is so important for that to be our North Star, but brand and mission or purpose follow very quickly behind that as well.
Oliver Chen:
Katie, you and I were talking earlier about brand durability being a key aspect. What does brand durability mean? And how do you think about what next generation means as well?
Katie Storer:
Yeah, it's a great question. We spend a lot of time talking about this too. I think taking those backwards. In next generation, we think about what creates successful brands today and what defines successful brands today, and how you build those brands is very different than building a successful brand 10, 15, 20, 30 years ago. And I think that's almost across every function, whether you think about marketing, go-to-market strategy, how you build your product and your brand overall. So thinking about how that matches with what consumers are looking for, which is also very different today, and we'll probably go into that as well.
On the sustainability piece, and I mean that as kind of brand sustainability and brand durability and being able to identify businesses that we think are here to stay for the long term versus fads. I know that's an important question that you have and it's one that we spend a lot of time thinking about. We do our consumer survey work, we're doing commercial diligence, we're always thinking about what the consumer is looking for and what are those attributes of the brand that make it more of a long-term player. One of the key things I look for, and we may talk a little bit about younger consumers, I imagine, because that is always topic du jour, but we think a lot about what brands are multi-generational. So what products and businesses really stand out to a mom, a daughter, maybe a grandmother that are shopping the same brands? Because I think those are always signals of brand durability.
Oliver Chen:
This leads into another question. What secular trends and themes do you expect to stay in the consumer sector? How do they interrelate with what you just spoke about?
Katie Storer:
Yeah. I think one of the secular trends we spend so much time thinking about, and I don't want it to sound like stating the obvious, but I think naturally, secular trends are the more obvious ones by nature. But we, with our team, spend a lot of time thinking about the expansive nature of beauty, and broadening the definition of beauty, and the intersection between wellness and self-care in particular.
I think more and more, of course the product efficacy and the product itself is really important to consumers, and that will always be the case, whether it's a product that is filling a need state, acne, rosacea, dry skin, et cetera, but I think more and more, there's a secular trend towards self-care and what does that mean. To me, for many products, that means what is this sensorial element that consumers are looking for? So I think you've seen the success of a lot of brands recently that really spike on scent or texture or the experience of opening the product at home. And I think all of those things lead to not just trial and customer acquisition, but more importantly, repeat purchase and the loyalty across the consumer base.
Oliver Chen:
Sensorial is really interesting. Can you elaborate on what you mean by sensorial elements? How do you see self-care evolving? What's most exciting to you in that field?
Katie Storer:
Yeah. I think about self-care as it ties to wellness more broadly. So it's not just products fitting this individual need state, but that sensorial element to me is what else about the product is really standing out to consumers. So we think about functional and emotional attributes, and how do you separate those? And the functional will always be critical. I think that's what oftentimes drives repeat. If a product doesn't work, a consumer's not going to buy it again. But those emotional attributes are becoming so much more important in driving brand loyalty. I think that's, how does a brand make me feel? How does a product make me feel? What does the scent that I experience when I open it from my cabinet every morning? Is it something that I want to use in the shower because the texture makes my hair feel better? You can go on and on and on about what those kind of more emotional or sensorial elements are, but I think you see those spiking in a lot of brands that are doing really well today.
Oliver Chen:
Yeah, we can dive into some of your key holdings, Spanx and Supergoop!. How would you apply some of your comments to functional apparel and sun care?
Katie Storer:
Yeah, it's a great question. I think these two businesses fit a lot of what we look for in terms of winning consumer brands. They're both category winners, they have proven growth, but they have such clear white space ahead of them, both in terms of brand and distribution and product, et cetera. And we're really excited about the growth runway for both. As we think about both of those brands, I think they both start with product. So in Spanx' example, Sara Blakely very clearly created a category when she developed Spanx in the shapewear category. From there, the business has really blossomed into something that is now largely apparel and activewear. With shapewear still being something that defines the brand and what the brand is known for, yet they've grown into so much more in terms of product offering, still leveraging and holding that core base of functional apparel and thinking about how a woman feels when she's wearing that product versus the way it looks necessarily.
Oliver Chen:
What about sensorial and emotional at Spanx?
Katie Storer:
We talk a lot about the products and how they make you feel, not just how they necessarily look, but we want to develop the product that is the most functional, that is if a woman has 10 pairs of black pants in her closet, this is the one that you go to every day because you feel better, you know you look better. And there's an emotional element of that, of the confidence that it breeds and not thinking about what you're wearing every day.
Oliver Chen:
Supergroup was a category creator. What do you think about emotional experiences with that brand?
Katie Storer:
Mm-hmm. Supergroup is so fascinating and it's such an amazing brand because I think the sensorial and emotional elements there are so interesting in the sun care category. So for years and years and years, before Holly developed Supergoop! and before the brand really became what it is today, sun care was a category that was more, I would say, fear-mongering and about staying out of the sun and about the impact that the sun can have to your skin in a very negative way. And Supergoop! came along and created a playful brand, and not just a playful brand, but a product that people actually wanted to wear. So the innovation and the form factor innovation that that brand created, as you think about unseen sunscreen and mousse and oil and some of these other products that are actually really enjoyable to wear and something that you want to wear every day, is the sensorial emotional element that leads to what is so special about that brand in thinking about SPF every single day and not just sun environment.
Oliver Chen:
Yeah. Amanda and I started the retail club at Wharton, and that we were breaking barriers then too. But the category, they've done a really interesting job of breaking and transforming barriers in beauty. What do you see happening in the beauty space at large? What are you focused on?
Katie Storer:
In the space at large, I would say we're focused on a lot of those secular trends. We're focused on what consumers are looking for, but I think there's certain categories that we're particularly focused on. I think where you see the health of the consumer really pop is something that we're thinking about from a macro standpoint. So we see this across categories, but in beauty in particular, we're thinking about where consumers are spending and where they might be trading up and trading down. Because first and foremost, we want to be investing in brands that are developing a loyal customer following and oftentimes a cult-like following that can transcend economic environments and are the products that people ultimately want to be trading up for over time.
I think there are pockets of that that we have to be mindful of within beauty. So I think as we're seeing a clear trade down in certain other sectors, maybe you'll see apparel where TJ Maxx, for example, has had a great quarter because you see shoppers looking for that discount. And beauty, it's interesting because you've seen in the first half of the year premium continue to outpace mass. So we're keeping an eye on a lot of those trends and understanding where consumers are shopping and where they're being choiceful in those purchase decisions.
Oliver Chen:
They're being choiceful everywhere in our opinion, and also this do-it-yourself consumer as well as value hacking, and they're splurging and scrimping. So are you on the splurge team or the scrimp team?
Katie Storer:
I'm somewhere in the middle depending on who the customer base is. I really do think it's a tale of two consumers right now. I still think you see, on the premium end, people continuing to spend and maybe be more choiceful, but I think you're seeing on the other end where purse strings are a little bit tighter and you're starting to really see the impact of the trade down. So I think it is, it's about picking spots. If I had to say kind of where I fall, it's on both. I think the premium side is continuing to show growth, as I mentioned. The premium is continuing to show bright spots, and I think that will continue to be the case, but I think we're also continuing to see a higher promotional environment than we did, the promos.
Oliver Chen:
Yeah. We're seeing intensity with really people looking for the best deals. Also, there's so much transparency, especially digitally, but people love efficacy. Also, beauty can be a little luxury at certain price points, even if it's quite expensive.
Katie Storer:
Always.
Oliver Chen:
Another hot topic, Amazon, of course, Ulta, Sephora, luxury. Is Amazon a brand builder? Does it focus on algorithms to change prices every second? That violates a lot of principles of luxury. So what do you think will happen with distribution? It's a broad question.
Katie Storer:
I think it has been fascinating to see the evolution of Amazon. You see it as a channel that premium and luxury brands have historically always avoided significantly, to now understanding that there probably is a role for Amazon to play. And I think that there is a role, but I do think it's very important for brands to be very clear-sighted on what that role is and have a defined perspective on Amazon and on the benefits and the trade-offs of being on Amazon. I think for many brands, not surprisingly, Amazon is one of those fastest growing channels, and oftentimes it's very profitable as well. So you can see how it becomes really tempting to lean into that as a growth driver, and it certainly can be, but I think the question is also at what cost to your other channels.
Where I would say Amazon spikes, and then I'll say maybe where you need to continue to focus on the other channels, is that Amazon is of course very strong in convenience and also in the areas of having embedded traffic also on their site, already searching for brand terms or capturing conversion in certain instances where consumers might see a video on TikTok flip quickly to Amazon to actually convert into a purchase. Where I think it is less of an opportunity or where I think other channels are continuing to be really important is in brand building, in consumer education, in being able to display the full product portfolio of a brand versus Amazon I think is more product picking.
Oliver Chen:
Yeah, that convenience vertical relative to discovery, it's still TBD in terms of that emotional innovation. Blackstone is quite a special firm. What sets Blackstone apart in terms of a brand wanting to partner with Blackstone versus other competitors?
Katie Storer:
So when I joined Blackstone four years ago, we were really setting out on this growth equity strategy and the journey of growth equity. And I think we had a number of goals, and that is to leverage the scale and resources and network that comes with a firm that has a trillion of assets under management, which is a really large and hard number to contextualize, but to take that and bring that to bear with companies that are earlier in their life cycle and find ways to accelerate growth. So I think there is natural differentiation that cannot be replicated just due to the size and scale and resources of the firm.
Now, my job is to help translate that size and scale and resources to businesses that we invest in into the portfolio. So that means a lot of different things. That means we have a portfolio operations team where we have functional experts across pricing and procurement and talent, and presenting this to the companies that we are looking to invest in and have invested in as not a playbook, but really a menu of options of here's how we can help, where do you want to be in the next five or six years, and how can Blackstone help? Because if we're not one degree connected to an introduction, we're probably two degrees away and can help you find any of those introductions in addition to the resources that we already have in house. And I think that's something that's pretty unique.
Oliver Chen:
What's been most fun for you in this role?
Katie Storer:
So I wouldn't be in this role if I didn't like making new investments and always meeting new founders and finding the next great brand. But the most rewarding part is working with our portfolio companies and being part of the boards and getting to know the management teams really closely of Spanx and Supergoop! in particular, and seeing how those brands have grown. Because we sat down three years ago with each of these brands where we underwrote our investment case and we sat down and said, "Here's our value creation plan. Let's create this together. Where do you want to be in the next five or six years?" And to really be part of that journey and see that plan come to life and to be really invested in those teams is really rewarding.
Oliver Chen:
Katie, what about the bigger challenges more broadly that you're seeing, more specifically to your investments? What's on your mind?
Katie Storer:
Yeah, I think the M&A environment right now is certainly not easy. I think we're seeing a lot of activity in the M&A space, but that activity isn't always leading to actual deals getting done. We're seeing some deals get done, but I also think we're seeing a number of businesses that may be softly testing the markets before they dive into a fundraise. Or fundraisers that aren't getting done entirely, oftentimes because of valuation disconnects which we've been talking about for the last three years, and those seem to still persist. I think there will continue to be that upper echelon of businesses that can fight through this deal environment and continue to really command high valuations. But I also would say that we take a pretty patient and prudent approach to investing at Blackstone. So we have our eyes on a few high-quality businesses that we're excited about the opportunity and finding alignment on value at those founders.
Oliver Chen:
One thing you spoke about earlier was a business that appeals to older and younger. Are there some principles in terms of achieving that? Some phenomenal luxury brands do this well.
Katie Storer:
They do. Principles to achieving that is a great question, because I think oftentimes about what consistencies do these brands have across the board that have been able to achieve the kind of multi-generational consumer base. Every time we think and talk about this, I think it comes back to the three pillars that we've kind of outlined in terms of the main attributes that we look for, in terms of new consumer investments. And that starts with product, first and foremost, so a great product. And that is both the emotional and the functional elements we talked about. And then a brand that really resonates with consumers, whether that's because the founder story resonates or the influencer and marketing strategy resonates or their storytelling behind why the brand exists. And then the mission and purpose, I think really to span that multi-generational consumer base, having the purpose be very clear in why a brand exists, not just or beyond the product itself is really important.
Oliver Chen:
Katie, when you think about your own leadership and personal development, how have you become a better investor or operator over time?
Katie Storer:
Ooh, that's another great question. I think exposure and pattern recognition and continuing to meet new founders and meet entrepreneurs and hear their story and know that every single one is different and finding ways to relate to that. There have been so many people that I have learned from across the course of my career because it's said a lot. So it sounds a bit trite, but I do very much think that this is an apprenticeship business. So I've been lucky to learn from a number of great consumer investors. But I do think because of that apprenticeship model, there's a lot that is learned from pattern recognition and just meeting more companies and understanding why business models work and why they don't. And that's probably what's helped me the most.
Oliver Chen:
Which patterns are most exciting to you? Or which ones do you think about more often than less?
Katie Storer:
In terms of pattern recognition, I equate it more to different business models. Right now, I think you see a big bifurcation and profitability. You see a lot of businesses that have grown really quickly and some have done it more profitably than others. So within pattern recognition, we spend a lot of time thinking about channel mix and profitability at the individual channel level. And then also thinking about marketing strategy because that is oftentimes the biggest lever both of growth, but also profitability is, how efficiently are you acquiring and retaining those consumers? So understanding how different businesses are doing it well or not as well, because it is a really big driver in the P&L.
Oliver Chen:
Last question, Katie, any advice for entrepreneurs or founders you see so many and any closing remarks you may have?
Katie Storer:
I think in terms of advice, continuing to have your North star and focus on that. I think fundraising can be a slog, and that's not why founders are out here creating businesses. So finding great people around you who can help to take the load on the things that you don't do as well. So I think it's so important for anyone and any career, but founders especially to know what you do well and what you don't do as well and what are the things you want to focus on. And one of the things, you want to hire great people around you to do. And I think that we see that a lot in terms of great teams because we're investing in companies, but we're investing behind teams to actually execute and set strategy. So that would probably be my biggest piece of advice.
Oliver Chen:
Yeah, you have to know what you're good at and some of the aspects to help drive scale. The other part of the class I teach at Columbia is called Magic and Logic, and I think we covered a lot of these topics, the logic and the efficacy as well, as the magic of wellness and feeling and sensorial innovation, and this whole revolution happening with self-care and wellness. Lastly, customer lifetime value is really a key framework to keep it really simple. You need to retain customers and keep them happy. So Katie, it was really fun to be with you. Thanks and keep up the amazing work.
Katie Storer:
Thanks, Oliver. Great to be here.
Speaker 1:
Thanks for joining us. Stay tuned for the next episode of TD Cowen Insights.

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