We are pleased to share with you our news roundup from August 2019. There was high investment activity from strategic players, lots of activity in the recommerce space, Barneys and Forever 21 declared bankruptcy, Farfetch acquired New Guards Group and more!
In August we continued to see high activity in the private markets, particularly through strategic acquisitions and new funding rounds. On the strategic front, Alibaba acquired NetEase’s Kaola for $2bn to bolster its efforts to cater to local demand for quality products from abroad. The Simply Good Food Co., known for its Atkins-branded low-carb foods, purchased protein bar and snack maker Quest Nutrition for $1bn while Hershey acquired protein bar maker, One Brands for $397mm. In what has proved to be an unpopular transaction (at least among investors), Farfetch acquired New Guards Group for $675mm to add a “brand platform” layer to Farfetch’s existing platforms. In what may have struck many as somewhat random, clothing subscription business Le Tote acquired Lord & Taylor for $75mm. Nike acquired AI platform Celect to better predict shopping behavior while Steve Madden bought sneaker startup Greats and women’s apparel brand BB Dakota in a two-day shopping spree.
Big-alcohol brands continued acquiring their way to diversification with Diageo, Pernod Ricard and AB InBev each making acquisitions in August. Diageo acquired non-alcoholic spirit brand Seedlip signaling that the trend towards premium nonalcoholic drinks looks to remain strong. Pernod Ricard acquired Castle Brands for $223mm to beef up its portfolio and expand its dominance in the whiskey category as demand lags for vodka, beer and traditional spirits. Finally, AB InBev bought craft brewer Platform Beer to further diversify its beer portfolio.
Notable raises this month included Blackrock’s $875mm stake in Authentic Brands Group which owns brands including Sports Illustrated, Nine West and Aeropostale. Workspace provider Knotel raised $400mm which will allow it to compete more directly with WeWork. As resale continues to heat up, ThredUp, the fashion retail marketplace, closed on $100mm in fresh funding to keep up with demand for growth. Sustainably sourced bedding start-up Boll & Branch raised $100mm in new funding as the company looks to expand internationally and diversify its product lineup. Other raises included: coworking firm Industrious ($80mm), Museum of Ice Cream ($40mm), skincare brand Herbivore ($15mm), flower delivery startup Urban Stems ($12mm), Arielle Charnas’s Something Navy ($10mm) and chickpea snack maker Biena ($8mm).
Recommerce, Recommerce, Recommerce: Rental and Resale Remain Hot
It’s starting to feel like every month we are writing about the latest brands to get in on one of the hottest trends of the year: recommerce (rental and resale). On the rental side of the equation, Banana Republic and Bloomgdale’s were the latest brands to sign on with rental platform, CaaStle to launch their own rental services. The Bloomingdale’s launch is particularly notable as it will make it the only department store with a full-fledged subscription rental service and will compete head on with rental giant, Rent the Runway. Nike formally launched a subscription plan for kids sneakers called Nike Adventure Club. The program is designed to help Nike start building loyal customers at a young age and grow its direct-to-consumer business.
In one of the more surprising and interesting moves thus far in rental, Le Tote, a San Francisco based online rental start-up acquired the nearly 200 year old retailer Lord & Taylor for $75mm. The deal is structured so that Hudson’s Bay, Lord & Taylor’s parent company, will continue to own Lord & Taylor’s real estate and cover Le Totes rent at those properties for three years. Le Tote will acquire the brand and inventory and take control of 38 stores and the chain’s digital presence. This acquisition is one of the first big examples of new retail buying old retail and it will be fascinating to watch the new company navigate those two forces. The merger will allow Le Tote to offer substantial offerings for consumers to either rent or buy clothes as they see fit. Perhaps this will foreshadow the way most companies will come to view rental: as an additional channel to give customers what they want that lives alongside traditional “buy” channels.
While the rental trend shows no sign of slowing, some have started to question how much whitespace there is in the rental market as the consumer offerings continue to expand. Rental is an attractive channel for brands looking to deploy inventory in a productive way and boost the bottom line through an additional revenue stream while raising their sustainability profile. It remains to be seen how loyal consumers will be to individual brand platforms such as those offered by CaaStle powered mono-brands versus multi-brand platforms such as Rent The Runway and Urban Outfitters’ Nuuly.
Rental’s fraternal re-commerce twin, resale, had a big month as well. ThredUp announced that it had raised $100mm to further its expansion plans and then promptly announced that it had inked partnerships with both Macy’s and J.C. Penny. Macy’s will open ThredUp boutiques at 40 Macy’s stores across the country while J.C. Penny will be offering a similar program at 30 of its locations. The push into resale from traditional department stores is part of a continued effort to connect with and bring in younger shoppers to the stores.
The Bankruptcy Chronicles: Barneys and Forever21 are the Latest to File
Two big bankruptcy announcements this month remind us that the troubles facing traditional retailers do not discriminate between mass market mall retailers and elite, luxury department stores. After much speculation, Barneys finally announced that it had filed for Chapter 11. The retailer won final approval for its DIP financing package that will allow the retailer to go after its goal of securing a buyer by late October. In conjunction with the bankruptcy filing, Barneys closed 15 of its 22 locations but will keep its flagship Madison Avenue store open. While Barneys has a storied history of being a more avant-garde and creative department store than some of its Madison Avenue neighbors, in more recent years the store has trended more accessible and less unique. Barneys was never really able to find its footing in the current retail landscape and it’s “my way or the highway” reputation has resonated less with customers who are used to telling brands what they want, where they want to acquire it and how they want to do so.
On the other end of the spectrum, fast fashion retailer Forever 21 is preparing to file for bankruptcy. A bankruptcy filing would help the company close unprofitable stores and recapitalize the business. If the chain is forced to close a significant number of stores as part of the restructuring, it could have reverberations across the industry as the company is one of the biggest mall tenants and landlords may struggle to fill the vacancies. Forever 21 joins a long list of mall brands that have declared bankruptcy in recent years including Claire’s, Charlotte Russe and PacSun. Forever 21 may be able to use the bankruptcy to its advantage buy shuttering unprofitable stores and rebranding new stores to appeal to its core constituency of younger customers. In order to become successful again, the chain will need to use bankruptcy as an opportunity to find a way to remain relevant in the face of increased competition from e-commerce platforms such as ASOS, Fashion Nova and Missguided.
What is Going on with Farfetch?
Earlier this month, Farfetch acquired brand platform New Guards Group for $675mm, bringing in-house the ability to co-create and scale brands and products. Shares of the company plunged 40% on the announcement of the acquisition in conjunction with worse than expected second quarter earnings. Investors have expressed concerns about the company’s widening losses and lack of clarity about how the acquisition fits into the broader Farfetch story.
In a very smart piece for GQ, Cam Wolf compares what Farfetch has been doing to the Netflix model: “the platform started by selling the content of other creators, before making original programming a key focus. Fashion’s equivalent is retailer owned and operated private-label brands, which are a major piece of retail's future. When a handful of retailers all have access to the same hot names, exclusive access to brands and products are compelling arguments a retailer can make for a customer to shop at one store over another. Stranger Things is to Netflix what whatever the next Off-White is to Farfetch.” Investors have continued to punish Farfetch in the public markets, but if Farfetch is able to use the New Guards acquisition to create its own successful brands it can then distribute those brands through its own marketplace online and its network of more than 650 boutiques to capture more of the profits from those transactions. Is Farfetch creating a “winner takes all platform”? And will that platform create a new status quo in retail? We will have to wait to see whether Farfetch can capitalize on this acquisition and whether it will be able to translate its technology prowess into creating actual content.
Collaboration is Key
Retailers continue to lean on collaboration as a way of providing creative solutions to lure customers in an ever increasing world of choice and distraction. The Toys R Us liquidation continues to make waves across the industry as retailers vye for the market share it left up for grabs. For its part, Target is making a move into the toy space by teaming up with Disney to open dozens of permanent Disney stores within Target locations over the next year. Target will also be opening a small-format store right near Disney World in Orlando. Target hopes the partnership will serve as an additional way to lure customers into the store while Disney will get additional retail distribution for its products out of the deal.
In an interesting example of a retailer and a wholesaler linking up to achieve common goals, Foot Locker is teaming up with Nike to open Power stores across the US. The stores are four times as big as a typical Foot Locker and will contain some of Nike’s proprietary technology. This is the first time Nike has put its own technology into another retailer’s brick and mortar shop. The partnership is mutual beneficial for the brands as Nike is Foot Locker’s biggest brand partner while Foot Locker is also one of Nike’s biggest wholesalers. The collaboration shows that while much of the buzz is in the direct-to-consumer world, third-party retailers such as Foot Locker remain essential to Nike’s ability to reach customers at scale.
On a smaller scale, Nike NYC and The Infatuation, a restaurant reviewing site are partnering on the launch of the new Nike Joyride sneaker. This is one of the more fun and innovative collaborations we’ve seen this year. The two companies will bring customers special offers & experience - including custom running routes, guides to great post-run restaurants, treats from The Infatuations favorite spots that will be available at Nike Soho and The Nike Joyride Cafe - a pop-up retail and dining space in Williamsburg. This collaboration is a great example of two brands in entirely different sectors teaming up to reach a common customer in a way that doesn’t feel forced or unnatural.
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