You know what we love? Buying stuff. While we personally have not bought an entire company (albeit our clothing ‘stock’ in a few brands may justify a corporate takeover), we imagine it’s the same high. In the past, the playbook has been ‘buy it for parts,’ where you buy the whole business to tap into the resources you want; and, make your own business grow in the process.
Now, we are seeing a more a la carte approach with companies saying: ‘buy only the parts.’ With struggling (read: bankrupt) businesses looking to raise money (read: pay off debts), and eager forward-thinking buyers looking to take advantage of the momentum they’ve seen during the pandemic…is this the new trend in capital buying behavior?
Staying in your lane, I’ll take that IP tho
Boohoo, the digitally native online retailer, has completed acquisitions of several flailing brands this year, including Burton, Wallis, and Debenhams. With well over 400 stores across the brands they bought up, you may be asking: “what the…?!” There is no need to boohoo, my friend, because neither of the deals included any stores. Boohoo bought up just the online side of brands, along with the infrastructure and customer data. They are sticking true to their digitally native, online only fashion customer, all while nabbing up valuable brand IP, supply chains and market share.
Another internet fast fashion stalwart, Asos, acquired Topshop, Miss Selfridge and HIIT in a recent $403 million deal. Not only did they increase their market share, but they integrated a retailer that was already on their site. Much of Topshop and HIIT’s sales actually came from the Asos site. By acquiring the companies, they acquire the full IP and ultimate control over the success— not to mention the brand name recognition and a foot in the door with retailers like Nordstrom, who already carry Topshop’s products.
The IP gained through acquisitions will perfectly set these brands up for more private label sales. With a built in supply chain and a lot of customer data, Asos will be able to shift into additional customer segments it couldn’t achieve with their own lines. With about one-third of their total revenue already coming from private label, these acquisitions will surely push them into a more controlled portfolio with higher margins.
Scaling up your digital footprint
Boohoo’s acquisition of Debenhams helps them scale their online offerings into many different categories, including home, beauty and sporting goods. Debenham’s marketplace model will also help the 15-year-old e-comm biz enter into a new type of distribution model (essentially, the Amazon model)— one that is fast-paced and more lucrative than their current wholesale model.
Other businesses are parlaying their COVID-fueled digital success into a full-on fundraising effort. The Hudson’s Bay Co. announced that they are considering the IPO of Saks.com. Yes, only the website, even when their brick-and-mortar’s generated $150 million in sales in 2020, with months of closures and 1k less staff people.
So, what does this mean for the people being bought?
On the buyers side, it’s a win to only buy up the parts of a business that’ll make you scale. Whether that be intellectual property, digital assets or even a small brand that specializes in a product category— giving you the competitive advantage of customer data and supply chain, there are a lot of wins here.
But, what about the other side of this equation? The seller could be put at a disadvantage by offloading the attractive parts of their business. They will have to be smart about making a plan for what to do with the cash coming in from the sale (if they have a choice, as many of the sales in the past few months have been because the business or investment group fell into bankruptcy). Or, sell the part of their business that is attractive but not in their core competency.
Saks is a great example of this. At the end of the day, they know brick and mortar. While Saks.com is a great asset, being a 153-year-old company and jumping into e-commerce in the last 20 years presents a big challenge. You have to hire on the right people, keep up with the demanding trends of the consumer and all the digitally native competitors. For them, maybe it’s better to spin-off the attractive part of the business, still benefit from the name recognition and focus on what they know best: stores. Their choice of IPO-ing their .com is a nice in-between, if they hire the right people to run it.
Businesses large and small can take advantage of this trend in the coming years. If you are a small business, start looking at which parts of your business can be scaled somewhat independently of your business. In other words: what can I sell for parts? Your brand is an ever-evolving puzzle. Over time, the shapes of each piece will change. So remember, there are always pieces you can spin off at an advantage to your business in the long run, and still be left with a beautiful picture.
A look at the data
Although the data of people searching for these specific retailers may not be on the rise, the traffic to their websites are still consistent— Debenham’s having over 300 million and Asos topping nearly 800 million visitors to their sites in the last year alone; and, the brands they have on their site are still searched for, and thus, ads are displayed.
For Boohoo, the Debenhams name should really help them out. As you can see in the graph below, Debenhams is often searched for more than Boohoo. For Asos, while their namesake is more searched for than any of the brands they bought, the Topshop name has significant search volume that’ll help the retailer grab valuable search market share.