Rothy’s, an American direct-to-consumer “D2C” shoe manufacturer that’s made a name for itself selling machine-washable shoes made out of recycled plastic, has gotten a big investment from Alpargatas, a publicly-traded Brazilian shoe maker best known for its Havaianas brand of flip-flops. Alpargatas will invest $475mn in exchange for a 49.9% stake in Rothy’s, plus the option to acquire the remaining 51.1% stake at will for a specific period. 

The investment is divided into two tranches; $200mn that’ll go to Rothy’s as working capital and $275mn to buy shares from existing shareholders including Rothy’s founders. The investment values Rothy’s at $1bn, marking a solid exit for a shoe brand founded barely a decade ago.

• Rothy’s is among the crop of direct-to-consumer retailers making waves in the US. It has captured a niche of the footwear market with a focus on sustainability, in contrast to the massive environmental pollution the fashion industry is notorious for. 

• Rothy’s makes footwear from recycled plastic material that’s melted into pellets and stretched into fibers, in combination with recycled foam and recycled rubber soles. The company initially focused on women shoes, but has branched out into men’s and children’s. It also began selling handbags last year.

• Rothy’s is similar to Allbirds (NASDAQ: BIRD), another sustainable footwear maker which debuted on the public markets this year. Both companies run low-cost factories in China, from which they ship their shoes to western markets at a healthy markup. They also spend big on marketing and branding, which is the primary success ingredient in a sea of many D2C startups. 

• Rothy’s is a digital-first business, with 98% of its sales online and just 2% from physical stores (according to its statement). The company claims to have over 2 million customers. 

Alpargatas S.A (BVMF: ALPA4) is a Brazilian conglomerate of global footwear brands, including the Havaianas and Dupe brands of flip-flops and sandals, and Osklen sneakers. Rothy’s will be the company’s fourth brand in which it’ll hold just shy of a majority stake. Furthermore, Alpargatas has the option to acquire the remaining Rothy’s shares up to four years after completing its first investment. 

The shareholders benefitting from the investment includes Rothy’s co-founders (Roth Martin and Stephen Hawthornthwaite) and VCs such as Lightspeed Ventures and M13, who’ll split the $275mn money pot. The founders will retain some equity stake thereafter, as is usual with deals of this sort. Rothy’s has raised around $40mn from VCs to date. 

• Rothy’s success symbolizes the increasing attraction towards brands with a social appeal, particularly sustainability in the wake of major climate change awareness. Consumers, especially millennials, are gearing towards eco-friendliness when making everyday purchases, and brands like Rothy’s are well-positioned to ride this wave in the coming years. 

• Brazil’s Alpargatas is spending the equivalent of 13x its annual profit (in 2020) to buy a half stake in Rothy’s, not to talk of what it may spend if it decides to exercise the option of buying the remaining half.  Such a high price shows urgency on the side of the Brazilian footwear conglomerate, and that it really wants Rothy’s on its side. 

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