Skoon Cat Litter stays profitable despite thin margins and costly freight

For cat owners, odorless cat litter that’s natural and non-toxic may sound too good to be true. But Skoon Cat Litter is different, and for their subscribed customers, smelly cat litter is a thing of the past. For years, Skoon’s low-maintenance cat litter that absorbs toxins, harmful bacteria, and bad odors has been widely sold wholesale to nearly two-thirds of the cat litter market in South America. In 2019, the maker of Skoon Cat Litter joined forces with Inova to create a direct-to-consumer brand that also sold to US consumers.

This shift required Skoon to invest heavily in customer acquisition and to optimize fulfillment and freight from Argentina. The team wasn’t able to obtain funding or corporate credit cards from traditional banks, which required personal guarantees from Skoon’s owners that they weren’t willing to risk.

To navigate the complexities of acquiring customers in a new market and shipping a premium product from another hemisphere, the team accessed funding through Shopify Capital and Shopify Credit. Since then, Skoon has:

• Acquired and retained 7,000 subscribers following funding through Shopify Capital
• Reduced capital expenditures by placing product orders during low traffic seasons
• Paid for marketing operations seamlessly with Shopify Credit, a pay-in-full charge card with cash back for eligible marketing spend

The Challenge: Delivering raw materials at tight margins

Every Skoon bag starts its journey in the prehistoric lake beds of Argentina, where they source the highly absorbent diatom pebbles. Skoon also offers the convenience of subscription delivery so customers can have each bag sent directly to their doorsteps. Fulfilling this promise to customers requires the company to take on steep shipping costs that lead to razor-thin profit margins. Landing costs accumulate along the 16-week journey as containers travel from Argentina to Brazil to a US warehouse.

“It’s not an expensive product compared to other brands in our portfolio , so we can build up inventory,” says Inova Chief Operating Officer (COO) and Chief Finance Officer (CFO) Bernardo Hasbach. “The really expensive part is shipping the product to the US customer. The fulfillment and freight is sometimes greater than the cost of goods. .”
Acquiring customers also requires significant investment that takes time to recuperate due to steep customer acquisition costs in the highly competitive pet vertical t. Skoon also has to make sure not to acquire customers too quickly at the risk of not being able to fulfill orders fast enough due to rising shipping costs or low inventory.

Bernardo says the team had used the same bank for 15 years but was never able to secure funding from them. The problem was their lack of owned physical assets such as warehouses, office buildings, or machines that they could list as collateral. Instead, their bank representative continually asked for personal guarantees from Skoon’s owners. Unwilling to take on that risk, the team tried working with other banking vendors but found that they couldn’t get large enough financing to meet their needs.

Skoon also couldn’t secure credit cards for the business because the banks behind these credit cards still wanted personal guarantees. They sought more favorable credit card terms where they could benefit from cashback and be protected against fraud and chargeback risk.

The Solution: Financing to fulfill customer needs

Skoon chose Shopify Capital and Credit to access the financing they needed to fulfill their promise of delivering a quality product without having to raise prices to account for fluctuating international fulfillment and freight costs. Through Shopify Capital, the team got funding—no personal guarantee required—that was substantial enough for them to control their inventory levels and focus on shipping to their warehouses primarily during times of the year when freight costs were lower. This helped them maintain their costs so they wouldn’t need to raise prices on their customers or slow down their marketing. In fact, Bernardo says that the funding through Shopify Capital led to Skoon seeing a profitable 2023.

With Shopify Credit—Shopify’s pay-in-full cashback Visa(R) card, which also didn’t require a personal guarantee—Skoon could seamlessly pay for marketing operations. These costs included designing and maintaining Skoon’s ecommerce website, compensating sales teams, and paying for travel. The team is rewarded for these ordinary business expenses through Shopify Credit’s cashback program.

The Results: Freedom to grow on their terms

Shopify Capital and Credit helped to give the Skoon team the freedom they needed to maintain profits and grow their brand in a new national market. With favorable financing that fit their business needs, Skoon was no longer beholden to market and supply chain forces. They now had the money on hand to place freight orders at the times and prices that worked for them. This empowered them to better predict the level of subscriber growth they could support so that acquisition and fulfillment efforts worked more efficiently together.

“The money through Shopify Capital helped us acquire about 7,000 new subscribers, which was crucial in helping us achieve profitability,” says Bernardo. “As we deepen our partnership with Shopify, our subscriber base continues to grow.”

Through Shopify Capital and Credit, Skoon saw results fast.

• Acquired and retained 7,000 subscribers following funding through Shopify Capital
• Reduced capital expenditures by placing product orders during low traffic seasons
• Paid for marketing operations seamlessly with Shopify Credit

Results may vary for every merchant. All loans through Shopify Capital in the United States are issued by WebBank.

Shopify partners with Stripe Payments Company and Celtic Bank for Shopify Credit. Card products are issued by Celtic Bank pursuant to a license from Visa U.S.A. Inc., and are subject to credit approval. See Issuing Bank Terms and Shopify Credit Program Terms

“Cashback” refers to rewards earned as a percentage discount on eligible purchases in the form of a statement credit. Restrictions apply. See Rewards Program Terms for details.