Can Pangaia be more than just a loungewear brand?

When Pangaia launched in 2019, it aimed to be more than just another direct-to-consumer brand selling brightly colored tracksuits.

The company introduced itself as a materials science business focused on the impact of fashion on the environment through next-generation textiles and technologies. Its direct-to-consumer label was designed to showcase a more disruptive and profitable business that sold material innovations to the rest of the industry.

The company made a lot of noise early on for two reasons. first, its leisurewear line was a huge success, generating $76 million in sales and profitability in its first year of operation. Second, in a market full of flashy eco-marketing, Pangaia seemed to offer a template for a more transformative model that focused on science-based solutions to the fashion industry’s environmental impact, and made money along the way.

But Pangaia’s trajectory has hit turbulence over the past two years, and the company’s ambitions to establish itself as a materials innovation powerhouse remain nascent.

Growth trajectory hits turbulence

The company swung from an operating profit of $16.6 million in 2020 to a loss of $41.5 million in 2021 amid slowing sales and rising investment, according to accounts filed with UK business registry Companies House in February.

Sales in 2021 fell nearly 16 percent to $64.1 million as growth in the company’s wholesale business failed to fully offset a decline in online spending, and the brand refocused on its core markets of the U.S., U.K. and Europe. Business in the rest of the world fell by 45 percent, accounting records showed.

At the same time, major investments that supported the company’s growth took a toll on profits. During 2021, Pangaia grew from 43 employees to 151. It has increased investment in research and development, expanded into new categories and products, and increased spending on infrastructure and marketing.

The company’s adjusted EBITDA, a measure of profitability, fell from $20.8 million in 2020 to a loss of $26.2 million in 2021. (Pangaia said the inventory provision was based on a conservative accounting estimate and did not reflect its actual position.)

The company described the year as “a period of transition as well as heavy investment” in its filing.

Former McKinsey partner and Ssense CMO Krishna Nikhil joined Pangaia as the group’s first CEO in April 2022, with the goal of realizing the company’s expansion plans and ambitions to discover, develop and commercialize next-generation materials. In October, Pangaia raised $50 million in financing through a convertible credit note, bolstering its ability to cover operating losses and operate amid growing uncertainty.

Efforts to optimize its digital platform and expand its physical footprint with concessions at Selfridges, Galeries Lafayette and La Rinascente helped return its direct-to-consumer business to profitability in December, the company said. It expects that part of the business to be profitable this year.

But some of its expansion efforts have stalled (the superfood bars are on hold, and the next offering in space is expected to launch later this year or early next year, the company said). Meanwhile, for other companies, ambitions to open up new revenue streams through marketing material innovations have yet to generate significant returns.

A disruptive model that has yet to be proven

The company was founded in 2019 by a group of influential industry insiders, including influential venture capitalist Miroslava Duma and alumni of her sustainable materials incubator Future Tech Lab. While epidemic sweat is what fueled Pangaia’s early growth, the ambition was to establish the company as an eco-innovation hub, selling patented and branded textiles and technology to other fashion companies.

But in 2021, the company appears to still be laying the groundwork to support this mission.

Business-to-business sales were only $670,000, a significant increase from last year, but still part of the overall revenue mix.

The company admitted that its B2B offering lags behind its ambitions. But the division is said to have continued to grow in 2022 in line with expectations, pointing to the progress it has made in three years to build a suite of road test services and support other brands in adopting new material innovations.

Although the company’s patented materials are limited to an alternative known as Flwrdwn, it has trademarked several material blends and treatments. And while the bulk of its products are made from organic or recycled cotton (with ambitions to switch to renewable by 2026), it has worked with and invested in other materials science startups to build a portfolio of more than 200 innovations, the foundation. a concierge offering designed to help other brands choose and access lower impact textiles, dyeing and finishing processes. It has also launched an innovation atelier for brands looking to test or prototype new materials or techniques, as well as a final product development and production service.

The company said it is actively engaged with more than 200 brands to provide B2B services, with clients including high-end luxury houses. It is also looking to invest in and empower emerging labels through its business-to-business platform, with the first of these partnerships launching this fall, he said.

But as Pangaia aims to realize its growth ambitions, the company faces an increasingly challenging environment. A gloomier economic outlook has made investors much more wary of the prospects for fast-growing but unprofitable businesses. Meanwhile, Pangaia’s fashion brands are hoping to emerge as customers tighten their belts.

Pangaia, however, remains bullish on its prospects.

“We understand that the level of industry transformation required means that while progress will be slow in the initial stages, it will soon accelerate,” the company said in an emailed statement. “Our overall goal is to grow B2B to be much bigger than our DTC business.”

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