25 April 2022
Dealboard: Amazon and Shopify make startup investments
Here's a look at this week's M&A and VC activity across ecommerce and consumer goods.
Here's a look at this week's M&A and VC activity across ecommerce and consumer goods.
Welcome to Dealboard. In this weekly feature, The Current is providing a look at the mergers, acquisitions and venture capital deals making waves in the ecommerce and consumer goods landscape.
This week, a millennial DTC brand makes a GenZ-focused acquisition, startups are receiving investment for personalization and Amazon is funding the development of new warehouse robots.
Here’s the full rundown:
ThirdLove is making its first acquisition.
The DTC brand said Monday it will acquire Kit Undergarments, the New York-based intimates brand founded in 2019 by celebrity stylists Jamie Mizrahi and Simone Harouche.
Bringing together a pair of women-founded brands, ThirdLove called the deal a ”major tentpole moment” as it brings on a second brand for future growth.
San Francisco-based ThirdLove grew as a favorite of millennials. By adding another brand, it is seeking to make inroads with GenZ.
"We wanted to create a sub-brand that targets a younger demographic,” said Heidi Zak, cofounder and CEO of ThirdLove, in a statement. “Rather than leveraging our team’s time and effort on creating a new brand from scratch, our solution was to find an incredible existing brand we could scale through the backing of ThirdLove.”
Following the deal, Kit Undergarments will relaunch Tuesday, April 26, as Kit Undergarments for ThirdLove.
Consumer products company Helen of Troy announced the acquisition Monday of Curlsmith, a brand that makes products for curly and wavy hair.
Valued at $150 million, the deal was formally executed by El Paso, Texas-based Helen of Troy subsidiary Recipe Products Ltd. A news release called the deal a “tuck-in acquisition” that will strengthen Helen of Troy’s beauty category, which also includes brands such as Drybar, Revlon and HOT Tools.
“In Beauty, we will be immediately adding capability through a much larger salesforce in brick and mortar and online, additional DTC capability, marketing, category development, appliance know how, and an international go-to-market footprint,” Helen of Troy CEO Julien R. Mininberg said in a statement. “Once we complete the necessary integration activities, we expect to add further value to the business and achieve meaningful synergies by leveraging Helen of Troy’s highly capable global sourcing, distribution, and back-office shared service capabilities.”
New York-based Curlsmith was launched in 2018, and completed a Series A funding round led by BFG Partners in January 2021. At the time, the company said its products were available in 1,200 Ulta Beauty stores, as well as on its website.
“Helen of Troy has a talent for spotting exceptional indie brands that do things differently, and turbo charging them,” said Michal Berski, Curlsmith Founder and CEO, in a statement. “So, from the get-go we knew that Curlsmith would be a compelling strategic fit. As a market-leading textured haircare brand, Curlsmith both complements and brings a new dimension to their already enviable prestige haircare portfolio.”
In the ecommerce software space, platform provider Assembly announced that it will acquire market intelligence platform PipeCandy.
San Francisco-based PipeCandy said it tracks more than 5.4 million ecommerce companies across North America, Latin America, Western Europe, Middle East, India and Australia. That includes 250,000 DTC brands.
"External data provides perspective that companies simply don't have access to internally. Assembly already has the deepest and widest dataset — spanning marketplace, social and affiliate ecommerce performance of merchants," said Ben Collier, Head of Product at Los Angeles-based Assembly, in a statement. "With PipeCandy, we now unlock a 360-degree view of ecommerce performance of brands. PipeCandy has the best data set on DTC ecommerce in the industry and Assembly is now poised to be the authority of omni-channel ecommerce market intelligence."
In recent years, Assembly has also acquired ecommerce platforms Helium 10, Pacvue and Refersion.
Terms were not disclosed.
In a deal between two towering CPG brands in the food space, Mondelēz International is set to acquire the confectionary business Ricolino from Grupo Bimbo for $1.3 billion.
With about $500 million in annual revenue and 6,000 employees, 50-year-old Ricolino is a leading snack brand in Mexico.
By bringing Ricolino’s lollipops, marshmallows, chocolates and gummies into its portfolio, Mondelēz said the deal will double the size of its business in Mexico.
“This acquisition will provide a step change for our business in Mexico, an important growth market for us, more than tripling our routes to market and growing our position in core snacking categories,” said Dirk Van de Put, Chairman and CEO of Mondelēz International, in a statement. “We are thrilled to welcome Ricolino’s talented people and amazing brands into the Mondelēz International family.”
The acquisition is expected to close in late Q3 or early Q4 of 2022.
Simply Better Brands, an omnichannel consumer goods platform, plans to merge with craft beverage company Jones Soda, the companies announced on April 21.
With Simply Better Brands acquiring shares of Jones, the deal is expected to be valued at $98.9 million. On completion of the merger, Simply Better Brands expects to change its name to Jones Soda, according to a news release.
Seattle-based Jones Soda was a turnaround story in recent years, as CPG veteran Mark Murray took the helm as CEO and implemented a strategy centered on ecommerce and tech-forward marketing initiatives such as the introduction of augmented reality labels, Business Insider reported.
By combining Jones with Simply Better Brands’ portfolio, the companies expect growth in three categories: food and beverage, plant-based wellness and CBD/THC products as well as health and beauty.
It’s one of a series of moves in recent years by Vancouver, Canada-based Simply Better Brands to bring on additional brands.
“Our growth model remains consistent: acquire and build emerging Gen Z and Millennial brands in the wellness space through category, channel and geographic expansion,” Kathy Casey, CEO of SBBC, said in a statement. “We see joining forces with Jones as an incredible fit due to a common wellness mission, consumer cohort, and leadership approach. Our previous acquisitions of PureKana, TRUBAR and No BS brands have yielded tremendous opportunities to fuel our growth and we are thrilled to have the opportunity for the iconic Jones brand to join our expanding portfolio.”
Here are a couple more M&A developments we're watching that will be of interest to brands and retailers:
Shopify made a strategic investment in Crossing Minds, an AI-powered recommendation platform.
With the deal, Crossing Minds is available on the Shopify platform.
“We built the Crossing Minds recommendation platform to help merchants understand their customers better without sacrificing their customers’ privacy,” said Alexandre Robicquet, Crossing Minds cofounder and CEO, in a statement. “We're thrilled to be a part of the Shopify ecosystem of commerce tools that are trusted by millions of businesses worldwide. Our platform integrates seamlessly with Shopify's merchant tools, providing great shopping experiences and precise recommendations.”
The deal comes amid an increasing focus on personalization in ecommerce, especially as privacy rules enacted as part of Apple’s iOS 14 rollout and rising consumer acquisition costs make performance marketing a more challenging growth avenue for the DTC brands that grew with infrastructure provided by Shopify.
“As we aim to make commerce better for everyone, our strategic investment in Crossing Minds will further provide merchants with a unique solution to provide relevant product recommendations and personalized experiences to meet customer's evolving needs," said Fjolla Bakalli, Shopify’s Manager of Corporate Development and Strategic Initiatives, in a statement. "Crossing Minds is leading the future of recommendation and personalization through best-in-class AI that will ultimately enable Shopify merchants to build stronger relationships with their customers."
It comes during a busy time for deals at Shopify. The Ottawa-based company acquired Dovetale to add creator-focused tools that help brands manage influencer marketing campaigns earlier this month. It is also said to be in talks to acquire fulfillment platform Deliverr, according to reporting from Bloomberg last week.
Elsewhere in the AI-powered personalization space, Jarvis ML raised $16 million, according to Techcrunch.
Founded by former Google engineer Rakesh Yadav to bring machine learning capabilities to businesses regardless of their tech capabilities, the Cupertino, California-based company has focused initially in ecommerce, in particular zeroing in on personalizing customer experiences.
The company said the funding was led by Dell Technologies Capital, with additional participation by SHAKTI and more than a dozen veteran Silicon Valley technologists and business leaders.
In a separate deal that brings a specific focus on skincare, Revea raised $6 million in seed II funding led by Alpha Edison and supported by Ulta Beauty. According to Morning Brew, the San Francisco-based company combines imaging, AI and consultations to develop personalized skincare regimens for individuals. With the new funding, it is looking to develop a mobile app.
Mens apparel brand johnnie-O said Monday it closed on a new investment of $108 million from Wasatch Global Investors (“Wasatch”) and Ares Management Corporation (“Ares”) funds.
The Santa Monica, California-based brand makes apparel, footwear and accessories for men and boys that includes polos, button-downs, swimwear and activewear. It is looking to keep expanding after sales and EBITDA grew more than 80% in 2021. This was fueled by an ecommerce channel that "contributed significantly," the company said in a news release, alongside wholesale and retail stores.
With the investment, Wasatch and Ares will together hold a minority stake in the brand.
“We are excited to provide flexible capital in support of johnnie-O’s strong growth plans," Brian Goldman, Partner at Ares, said in a statement. "This investment dovetails with Ares’ strategy of investing alongside companies with strong brands, compelling track records and best in class management teams.”
There was no shortage of Amazon news for ecommerce merchants last week, as the company announced its new Buy With Prime program and inventory-related changes in the Fulfillment by Amazon program.
In a move that looked toward the future, the company also announced a new investment fund to support startups developing technology in the area of fulfillment, supply chain and logistics innovation. The Amazon Industrial Innovation Fund is focused on backing technologies that increase delivery speed and improve worker experience.
“We know there are companies out there that share our curiosity and excitement to invent. Whether our investment helps them grow or leads them to work with Amazon, or both, we’re excited to help advance these technologies as online shopping becomes even more important to people who are looking for more convenience and time savings," said Alex Ceballos Encarnacion, Amazon’s VP of worldwide corporate development, in a statement.
With the first round of investments, it is backing wearable technology. Here’s a look at the companies that received backing:
The retailer's marketplace is expanding quickly.
When it comes to ecommerce growth, was the pandemic a blip or a new trendsetter?
As we move further from the height of COVID-related closures, it’s a question that will start to be answered through the lens of history.
So far, the narrative of ecommerce growth in the U.S. from 2019-2022 has gone like this: Ecommerce’s share of overall retail saw a huge spike at the height of the pandemic in 2020-21, when goods in general were in demand and online shopping was necessary to preserve health and safety. Experts looked out and saw a permanent exponential change in the penetration of ecommerce as a share of retail that would last beyond the pandemic. Then, in 2022, everyone went back to stores and the trendline came back to 2019 levels. Growth was no longer exponential. There was still growth, but it was not happening as fast as during the pandemic period.
With this in mind, it’s worth pointing out that 2023 is the first year that there likely won’t be a pandemic-influenced swing to influence ecommerce growth. It is also a year where demand has suffered challenges amid inflation and interest rate hikes.
So as we seek to determine the importance of ecommerce to overall retail, it’s worth it to continue taking a close look at what growth trends retailers are seeing now, whether ecommerce is remaining resilient amid consumer pullback and how retailers are preparing for the future.
The latest example arrived this week from Macy’s. It’s a fitting one for the times. Overall, Macy’s is seeing a slowdown as consumers pull back on discretionary purchases, with sales declining 7% in the first quarter versus the same quarter of 2022. Digital sales were down 8%.
Macy’s is particularly susceptible to the macroeconomic headwinds that many brands and retailers are facing, as spending among the middle-income consumers it counts as a primary customer base is particularly softening, said GlobalData Managing Director Neil Saunders.
But while ecommerce is slowing overall, the importance it gained to Macy’s business during the pandemic is remaining in place.
In 2019, ecommerce made up 25% of Macy’s revenue, CEO Jeff Gennette told analysts on the company’s earnings call. That jumped to a high of 44% in 2020. By 2022, digital reached 33% of sales after the pandemic boom. In the first quarter of 2023, it remained at 33%. So, while the trend line dipped after shoppers returned to stores, ecommerce share still settled in at a higher post-lockdown point than it was before the pandemic.
This came in a quarter in which traffic was “relatively good” across both online and in-store, Macy’s CEO Jeff Gennette said. It was “flattish” online, and slightly up in stores.
“We do expect that this is the reset year with the penetration between them,” Gennette said. “But we do expect more aggressive growth in digital in the future versus stores as we think about '24 and beyond. And that's going to be foisted by a lot of ideas and strategies.
Over the last year, the retailer has made investments in boosting ecommerce, even as shoppers returned to stores. In a bid to boost the assortment of goods available online, Macy’s launched a marketplace in September 2022 that welcomes goods from third-party sellers.
The marketplace had an “outstanding” first quarter, said Macy’s President Tony Spring, who is poised to succeed Gennette as CEO next year. Gross merchandise value increased over 50% when compared to the fourth quarter of 2022, while the average order value and units per order for marketplace customers was 50% above those not shopping at the marketplace.
Macy’s is continuing to build the marketplace even as it racks up sales. The retailer added 450 brands, ending the quarter with 950 brands.
This is helping to draw in new customers, as well as younger existing customers who are buying more items, resulting in increased basket size.
“We're very excited as to how marketplace is really attracting the Gen Z customer, particularly in categories where it was not economically feasible for us to carry in the past,” Gennette said.
In the end, Gennette said a strong digital and social presence is key to attracting younger consumers. That's a different type of shopper than other age groups.
“We know the younger customer starts first online,” Gennette said. That behavior will still be in place as the generation gets older, and gains more buying power in the process.
Going forward, Macy’s is seeking to expand the model to other retail banners in its portfolio. Bloomingdale’s will open a marketplace in the early fall.
The Macy’s ecommerce trajectory isn’t that different from the wider U.S. ecommerce narrative detailed above. With one quarter of 2023 data, there is evidence that ecommerce share settled out at a higher point after the pandemic than where it started before COVID arrived. There is flattening now, but the retailer is taking it not as a sign of a slowdown, or a signal to change course. Rather, it sees changing consumer behavior as a reason to build for the future.