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Why Target is going big on this small water-bottle startup

Daniel Roberts
Senior Writer

You may never have heard of S'well, but you have almost certainly seen the company's product. Its sleek, colorful water bottles have been sold in Nordstrom, Neiman Marcus, Bloomingdale's, J. Crew, Williams Sonoma and Saks Fifth Avenue. The bottles have proliferated quickly—but in upscale stores.

Now S'well is targeting the other end of the market: a lower-cost line called S'ip that rolls out Tuesday exclusively at Target stores, Yahoo Finance has learned.

The Target (TGT) deal is a major coup for the small retail startup, which former Ernst & Young consultant and Harvard Business School grad Sarah Kauss founded in 2010. "I think S'ip has the ability to be bigger than S'well, because of the accessibility," she says.

S'well has long marketed its bottle as something that marries style (the bottles resemble old-fashioned milk bottles) and function (it guarantees liquids stay hot for 12 hours or cold for 24). With those selling points, the bottle is far from cheap: $35 for the 17-ounce size.

S'ip is a more affordable $25 for nearly the same size (15 ounces). It's likely cheaper to make, too. The company doesn't use the 24-hour and 12-hour guarantee with S'ip, but says the bottle "keeps drinks cold and hot for a very long time."

At the more accessible cost, Target sees potential. The chain gets six months of exclusivity as the only retailer of S'ip, before it can head to other stores in September. S'ip will show up in all U.S. Target stores (there are more than 1,800) by April 1.

With so many other water bottles out there, why is Target going big on S'ip? For starters, S'well has already managed to make its bottle into a collectible. At its price, height and heft, a stainless steel water bottle may seem a strange thing to collect. But S'well has marketed it as a fashion item—the company even rolls out "seasonal" designs, as though the bottles are clothing. For example, S'well offers darker colors in fall and winter, and lighter shades in spring and summer. And it releases new collections each season-- the latest is called Galaxy and changes color under bright light. Target is banking on S'ip becoming a style statement as well, even though S'ip won't get seasonal colors like S'well does.

"A water bottle has become more than just a bottle, it's an accessory," says Joshua Thomas, a Target spokesperson. "And we're always looking for opportunities to provide customers with something they can find only at Target. That's the thinking around S'ip. Of course we carry a variety of bottles, but this is an opportunity to offer something that really hits on style and differentiation."

For S'well, rolling out its first line extension in Target provides a virtual guarantee that the bottles will get some immediate notice. And after the first six months, it's easy to imagine the other chains where you might see S'ip: think Walmart, Kohl's, or J.C. Penney.

S'well won't provide revenues, but says it is profitable. The business has been entirely self-funded by Kauss and taken no venture capital money. It sold 4 million bottles in 2015 and says it grew its sales by 400% last year.

As S'well continues to expand its reach to more big chains (the bottles are now sold in 10,000 Starbucks locations), its biggest challenge moving forward is simply to avoid the fate of other hot-trend bottle brands, and there have been quite a few of them: becoming a fad. On college campuses, the Nalgene reigned for years; among outdoor types, Sigg bottles had their moment until, in 2009, a scandal over the bottles leaching chemicals. What if S'well is simply a fad? Target will use its six months to answer that question and decide whether to keep selling S'ip after exclusivity ends.

And make no mistake: Even the lower-priced S'ip bottles are "still more expensive than our customer is used to spending for a bottle," says Thomas of Target. "But when we provide our guests with reasons to spend more on a product, they are willing to do so."

--

Daniel Roberts is a writer at Yahoo Finance, covering sports business and technology. 


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