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Here’s Why Provenance Made a $40M Investment in MeUndies

Anthony Choe is a big believer in customer loyalty, and that’s a key reason why his firm Provenance has acquired a minority stake in the underwear brand MeUndies.

Provenance’s $40 million investment will help the men’s and women’s underwear, sleepwear and loungewear brand expand its design, production and distribution capabilities, as well as build its online customer community and expand omnichannel operations into international markets and physical locations. The brand is known for its ultra-soft basics and extended size range. Customers can purchase items individually or through the brand’s membership program. Members also receive discounted pricing on non-underwear categories, as well as early access to new product drops each week. MeUndies has one flagship in Los Angeles at the Westfield Century City mall, opened in 2018.

The investment by Provenance in the digitally native brand is also a statement of Choe’s belief that that MeUndies has a long runway for growth. Choe will only take ownership stakes in brands where he can map out future growth. That strategy bakes in investor interest down the road, a much needed requirement for the investment firm to exit its investment when its ready to do so. Choe’s firm has investments in handbag firm Dagne Dover, custom tailored men’s clothing brand Knot Standard and men’s and women’s California lifestyle apparel brand Marine Layer.

Choe uses specialized proprietary tools to track the next generation brands that play in the direct-to-consumer space. One is customer-unit economics, a metric using predictable data that Choe refers to as the law of consumer behavior. It’s about the 20 percent of customers that drive 60 percent of a company’s sales, more broadly referred to in retail as customer loyalty. And every company that Provenance invests in has it it spades.

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“The brand enjoys the highest customer loyalty of any company we’ve seen in any consumer category. MeUndies’ fun, creative print designs and affordable range of products resonate strongly with its core millennial and Gen Z audience and the company’s ability to drive growth organically through its brand community is powerful. We’re excited to be co-pilots on this next phase of the brand’s journey and to support its continuing growth,” Choe said.

Another key criteria is Choe’s belief that Jonathan Shokrian—he founded the brand in 2011—is the right person to lead the company through its next stage.

“He’s done a phenomenal job. More important than that, he’s built a phenomenal team. That’s not by accident. He’s a leader and has added a lot of incredible talent to the company. It’s not surprising that when you do that, the company starts to perform really well,” Choe said in a telephone interview on Monday. An added factor is that “he and I trust each other. We have an open dialogue on what he’s trying to accomplish, and where we are aligned to get there. It’s not a deal he needed to do. He didn’t need to raise primary capital,” Provenance’s CEO said.

Cho said MeUndies is a business that has continued to do well over the past few months and wasn’t impacted harshly by the coronavirus outbreak. He also sees growth potential across multiple channels and product categories, which includes possibly some wholesale partnerships and an expansion into more retail doors further down the road.

“The one thing behind the scenes [that we like] is that the company continues to broaden its product assortment. We like the direction where that is happening,” Cho said. The investor believes comfort will continue to be important driver of sales for the brand, and sees greater opportunities for growth in women’s because that component of the business inherently offers more product choices. Cho also hinted at an “exciting new product introduction that’s on the calendar for next year.”

“We are thrilled to join forces with Provenance, given the firm’s track record of success partnering with leading direct-to-consumer brands,” Shokrian said. “Over the past nine years, we have worked hard to establish our incredibly loyal community of customers, who love our focus on inclusivity, our high-quality products, our approachable price point, and our frequent and unique product drops. We have a well-established foundation and this investment and our relationship with Provenance will enable us to expand our MeUndies brand community into new markets and new channels.”

Both MeUndies and Provenance are based in Los Angeles.

There’s been much attention on how consumers have gravitated toward online shopping, much to the detriment of traditional brick-and-mortar stores who were late to the idea of what it means to be an “omnichannel” retailer.

“E-commerce companies are generating interest because right now they’re able to take advantage of the macro-trend in [online shopping during] the pandemic,” Andrew Dunst, head of e-commerce at the Sage Group LLC, said. Sage is the investment banking firm that advised MeUndies in the Provenance transaction.

Online shopping was already a steadily growing component of retail sales before the Covid-19 pandemic. Now, as the online share has grown and with the struggles brick-and-mortar strategic players are facing, “the time has become a very unique opportunity for e-commerce companies to step on the gas pedal to take more market share,” Dunst said.

In the case of MeUndies, the investment banker said the brand has evolved from a subscription base to a membership model. That change allows it to create both a steady stream of basic revenue and an ecosystem that gives its core customers a reason to stay on as community members.