Several retail conferences were recently held in Manhattan: The online platform Retail Brew organized its first annual summit SKU, which was attended by numerous industry leaders including Zappos, StockX, JCPenney, ThredUp, Athletic Greens, Sam’s Club, Baked by Melissa, Curb and Bolt. News website Axios hosted
Axios BFD, a dealmaker event featuring guests including CEO of Neimann Marcus Group, Co-Head of Mergers and Acquisitions at JP Morgan and Chairman of NYSE. Nikki Baird, strategy director at Aptos, a provider of enterprise solutions for retail, also attended these conferences. In an interview with FashionUnited, she explained what independent companies and start-ups should focus on when looking for investors.
Spoilsport inflation
“Investors aren’t as worried about inflation as retailers are,” says Baird. “They seem to think the impact of inflation will sort itself out by spring next year.” But from an investor’s perspective, the IPO market will be deadlocked by 2023 — and with current high interest rates, financing will become a whole lot harder.
Cost efficiency instead of top product
There was a striking contrast between the focus of investors and what start-ups see as their selling point. Young companies that are inherently digital, have established their top product and have all sorts of successful social media strategies at their disposal will still not attract any capital. Investors don’t want to buy companies that are a one-hit wonder. Labels used to be able to get funding if they seemed to dominate the market for a product, such as a pair of jeans being photographed on all influencers – but those days are gone. “Investors don’t just want to see revenue growth, they want to see cost-effective growth,” Baird said.
Wholesale instead of direct sales
“Direct selling startups are under more pressure to focus on acquiring a wholesale partner, opening stores, or ideally both. We work with many brands that have gone wholesale and then started a retail business, or vice versa. But the most valuable thing is to have both,” explains Baird. Of course, it’s risky for direct selling brands to find a wholesale partner if the company doesn’t already have the scale to support the venture.
“Brands that sell directly are running out of options,” says Baird. “When they have this one great product that’s selling like hot cakes online and then they end up in retail at Macy’s, they have to be in a lot of stores very quickly. Investors want brands to open multiple stores and build distribution so the jump to wholesale isn’t too big.”
umbrella companies
If you look at the investor landscape in a broader sense, you can see that companies are increasingly organized around parent companies that combine several brands under one roof. This has proven to be successful in many cases: the label has the customer knowledge and the parent company has the operational know-how to grow the business and can provide access to technology, logistics and financial support.
In the last five years, Michael Kors founded Capri, formerly Michael Kors Holdings, and acquired Versace. Go Global Retail acquired Janie and Jack in children’s clothing, followed by Brums Milano and in healthcare, Scrubs and Beyond acquired Life Uniform. American Eagle acquired its second supply chain company, Quiet Logistics, and Crocs acquired shoe brand Hey Dude. For global players, a growth strategy often consists of bringing the competition on board. In this way, the integrated brand can open locations all over the world from just a few stores in its own country.
reluctance on the part of China
“A key issue for investors is figuring out how much focus to put on China as a luxury retail market,” Baird said. “They are building on the political situation and relations between the US and China, after the experience they had with Russia.”
While Russia presented an opportunity for companies looking for luxury consumers, it was not overwhelming. A withdrawal from China, on the other hand, would hit companies and investors hard. Business will continue for companies already operating in China, but companies that have placed China at the heart of their future growth strategies are now reconsidering their plans.
“It’s possible that they continue to source materials from China but send them to Vietnam for further processing,” explains Baird. She also points out that many luxury retailers in Europe, and even in domestic malls like Las Vegas, are still waiting for Chinese tourists to return after the pandemic.