February 2020 Monthly News Roundup
By TRAUB On March 04, 2020
We are pleased to share with you our roundup for February 2020. This month we highlight high levels of activity in the M&A market, the effects of the Coronavirus on the global retail industry, the competition heating up for the online luxury shopper, heightened scrutiny across the DTC brand landscape and retailers experimenting with different store concepts.
This month, the on-demand food delivery wars continued to heat up with DoorDash’s announcement that it had filed confidentially to go public. This move comes at a key time for the industry, where competition is fierce and many are seeing consolidation globally. The filing is another test of whether investors have appetite for fast-growing but unprofitable consumer businesses after the struggles of some of last year’s IPOs: Uber, Peloton, Lyft, and SmileDirectClub. Overseas, Thailand’s largest retailer, Central Retail Corporation, launched the country’s biggest IPO which raised $2.7B, valuing the company at $8.06B. The listing is one of the major developments driving a blossoming retail scene in Thailand.
Perhaps most notably this month in M&A is L Brands’s sale of Victoria Secret to private equity firm, Sycamore Partners. The sale, which values Victoria Secret at $1.1B leaves Bath & Body works as the only brand under L Brands. As part of the transaction, Les Wexner, the longest-tenured CEO of an S&P 500 is stepping down from the position he has held for decades. The struggles of Victoria’s Secret have fragmented the lingerie market and opened up space for up-and-coming players to gain share with consumers. Other notable mergers and acquisitions this month include: Simon Property Group’s acquisition of its rival Taubman Centers inc. ($3.6B), Permira’s acquisition of Italian fashion brand Golden Goose ($1.28B), Authentic Brands Group, Brookfield Property Partners, and Simon Property Group’s joint acquisition of Forever 21 ($81M), and sportswear retailer Frasers’ 12.5% acquisition of Mulberry Group.
Notable raises this month included: Headspace, the online healthcare company specializing in meditation ($93M), Alpha Foods, the plant-based snack creator ($28M), Van Leeuwen ice cream’s Series B investment from NextWorld ($18.7M), Ellenos, a Seattle-based yogurt brand ($18M), Foxtrot, the brand putting a modern spin on the convenience store ($17M), Cuup, the DTC intimate apparel brand ($11M), Shogun, empowering e-commerce brands to build faster websites ($10M), ADAY, the sustainable slow fashion start up ($8.5M), Air, the Pinterest-like digital asset manager ($6M), Starface, the acne patch brand ($2M), and Naza Beauty, the haircare startup ($1M).
Effects of Coronavirus Ripple Throughout Retail Sector
As the Coronavirus spreads globally, its impact continues to be felt by retailers all over the world. While economists say it’s too soon to know how much the virus might affect consumer spending, it could upend supply chains and cause product shortages. The luxury market has been especially impacted by the crisis both due to the loss of valuable Chinese consumers and to the supply chain issues it has caused. As concerns mount, luxury retail braces for $43B in losses as the sector’s value drops to a five-year low. Several brands have been forced to take precautionary measures by restricting store hours, closing stores, and cancelling fashion shows. American fashion group, Michael Kors saw a $100M revenue hit from the virus and closed 150 stores in China. In Milan, Giorgio Armani held his fall 2020 show behind closed doors to avoid exposing guests to any dangers. A number of brands including Ralph Lauren have canceled their April shows due to the outbreak. Additionally, airport retail outlets, have been particularly impacted since the outbreak began as foot traffic drops at international airports.
Competition Heats Up for the Online Luxury Shopper
Non-luxury e-commerce players are ramping up their expansion into luxury in an attempt to reach new customers online. Zalando, Europe’s largest online fashion retailer, plans to double its luxury assortment by the end of 2023 to go toe-to-toe with Richemont’s Net-a-Porter. Amazon also continues to explore ways to win over luxury shoppers by pushing shopbop brands onto the platform to build its fashion credibility amongst big-name brands. In another move, Amazon is making luxury fashion more accessible by merging two of its most notable divisions – retail and entertainment - in Heidi Klum and Tim Gunn’s new reality show, “Making the Cut.” Not only will audiences be able to stream the show, but they will also be able to shop the winning designs featured in the show after it has aired. As competition heats up from non-luxury players, Farfetch is launching a new initiative called “Beat,” which will allow consumers to shop limited-edition items exclusive to Farfetch. The pieces will arrive weekly and will be developed by a group of recently acquired Farfetch brands including Stadium Goods, Opening Ceremony, New guards Group and Browns.
Heightened Scrutiny Across the DTC Brand Landscape
The DTC space continues to experience some disruption as investors and operators push for profitability. One casualty of the increased focus on profitability and viability was Brandless, the DTC start-up that hoped to replace established packaged goods giants was the latest casualty in the DTC category. After three years in business, it announced it was closing shop due to its inability to contend with the Walmarts and Amazons of the world. Walmart has experienced its own struggles as it attempts to use its M&A strategy to succeed in the DTC world. Walmart announced the closure of Jetblack, its high-end personal shopping service. Although Walmart sought outside investors for Jetblack, the service remained unprofitable and its closure points to Walmarts effort to rein in costs on unprofitable digital properties. These developments reinforce how DTC brands and the companies who own them are experiencing increased scrutiny on profitability and competition as the space reaches a new level of maturity.
Even popular and successful DTC brands have experienced some disappointments of late. Razor start-up Harry’s hit a roadblock when its plans to be acquired by Edgewell Personal Care for $1.37B were blocked by the FTC. The FTC announced that it would block the deal due to concerns that the deal would remove a critical competitive rival in the shaving industry. The FTC’s move has been questioned by many both because of the seeming randomness of the decision (is Big Razor really the most pressing issue at hand) and because of what it says about the future of the M&A market for other upstart consumer brands. Popular beauty brand, Glossier announced that it was rethinking its makeup strategy as it pressed pause on ‘Play’, its highly anticipated range of statement color make-up. Play was Glossier’s first new brand since its 2014 launch and was meant to show how the brand could expand into new product lines. When the new brand failed to connect with consumers and generate revenue, Glossier decided to shut it down and reevaluate its approach to color cosmetics and makeup in general. It was a rare admission of defeat from a brand and it has been refreshing to see a brand with Glossier’s stature take accountability from the mistake and use the lessons to move forward with a different strategy.
Retailers Experiment with Different Store Concepts
Traditional and new retailers alike continue to experiment with the best ways to deploy a retail strategy. While Sephora announced plans to end the strategy around its service oriented small format Sephora Studios concept the brand announced plans to instead open 100 of its traditional stores focusing on local neighborhoods and community centers across North America. Similarly, after announcing its store rationalization plan in January, Macy’s announced the launch of a new flexible retail store concept with ‘Market by Macy’s’ in Texas. The new concept will feature two new exclusive brands and will host community-driven activities, such as cooking tutorials, crafting, and fitness classes. On the DTC side, furniture disruptor, Burrow, announced a new “retail roommates” concept for its stores. Its NYC flagship will act as a showroom and be shared with other DTC brands, such as paint retailer Clare and online plant seller The Sill.
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