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Day 1 of the ICR Conference 2023 in Orlando included holiday sales presentations and breakouts aplenty, but M&A chatter dominated, Richard writes.

Why it matters: With the IPO market effectively closed, retail M&A activity will be key to the deal-making universe in 2023, and four companies used their breakout sessions to share what's on their mind.

Details: Franchise Group, the parent of supplements retailer Vitamin Shoppe and tutoring services provider Sylvan Learning, is seeking acquisitions of brands it can franchise to add to its expanding portfolio, including distressed assets.

Party City, if restructured in bankruptcy, could be an attractive target, as it has engaged in franchising.

Franchise Group has also looked at candidates in fitness, health and wellness, citing Vitamin Shoppe as an example of a successful acquisition.

It is also drawn to high-growth, smaller format concepts such as Wag N’ Wash, a pet grooming brand it acquired for $700 million in 2021.

Last year, Franchise Group was in the running to absorb department store chain Kohl's, though talks fizzled.

Meanwhile, Retail apparel group Chico's FAS is focused on organic growth but is on the lookout for acquisitions opportunistically.

That includes businesses that add a capability in digital commerce or even a "fallen angel," a brand that is well-liked but has struggled operationally.

On the other hand, Chico's is not looking to prune its portfolio consisting of Chico's, White House Black Market or Soma, as they share operating synergies, though Soma has lagged in comparable sales.

Separately, footwear group Caleres is on the hunt for acquisitions, particularly of men's brands or brands that appeal to millennials.

The parent of Allen Edmonds has received calls from both private equity and strategics pitching brands in their portfolios to the company.

Caleres itself is happy with all 13 brands in its portfolio and isn't looking to divest any of them, however.

Of note: Natural and organic wholesale supplier United Natural Foods was not interested in acquiring SpartanNash's grocery distribution business last Spring, but United Natural Foods could eye buys if it would be accretive or add a new capability.  

1 big thing: M&A dominates ICR chatter

Animated gif of a briefcase-shaped text bubble

Cross-border trade financing startup 40seas has raised $11 million in seed funding and secured a $100 million credit facility to ease B2B trading transactions for small to midsized businesses, Kimberly reports.

Why it's the BFD: SMBs account for a large portion of cross-border trade volume, but they are about seven times more likely to be denied financing compared with their larger counterparts, according to the World Trade Organization.

What's happening: Israeli-based venture group Team8 led the seed round. ZIM Integrated Shipping Services participated, and also extended the senior secured revolving credit facility. The company will have the option to extend the facility to $200 million.

ZIM, an Israeli cargo shipping company, will also embed 40seas into its freight-forwarding services subsidiary Ship4wd. 

What’s next: Tel Aviv-based 40seas plans to use the funds to develop its product and augment its workflow management tools, APIs, and technology for suppliers and buyers.

Already with offices in Israel, New York, Toronto and Shenzhen, China, the company plans to expand its geographic footprint as well.

It plans to add more hubs of exports in Europe and Asia, such as India, Vietnam, Bangladesh and Pakistan, and tap into more buyers in EU countries, CEO Eyal Moldovan tells Axios.

“We want to be a reflection of the global economic trade,” Moldovan says, starting with the biggest corridors in China and North America and getting to a point where 40seas can add corridors based on market demand.

State of play: Tighter financing and the rising cost of capital have made it more difficult for businesses to access the money they need to operate.

Additionally, with cross-border transactions, businesses need to contend with siloed banking jurisdictions, old legacy processes, and other financial constraints.

Traditional banking institutions have difficulty facilitating cross-border transactions for SMBs because they don’t have the resources to analyze companies at that level, Rakefet Russak-Aminoach, a managing partner at Team8, tells Axios.

“With machine learning tools, you can be in a position where you can analyze a SME like a bank [would] analyze a large transaction,” she says.

How it works: 40seas provides flexible payment options and financing to small to midsized importers, exporters, freight forwarders and sourcing agencies.

Exporters are able to get paid immediately upon shipment so they can get a jump on their next production cycle while importers are able to free up working capital and grow their business unencumbered by the credit lines available to them.

Brick-and-mortar stores can pay for goods in 60 or 90 days after receiving their goods from China, for instance.

This helps them get “the extra days to help sell the goods, either to consumers or to businesses before they need to pay for the goods,” Moldovan says. “We call it an import now, pay later solution.”

2. The BFD: Fintech startup gets $111M on tap

Image of 100 dollar bill with briefcase handle

📈 Bed Bath & Beyond shares jumped about 20% this morning after the company didn’t mention the B word Wall Street was holding its breath for.

The company said it was on track to cut $500 million in costs and to close stores.

Third-quarter net sales declined 33% to $1.26 billion over the prior year on $393 million in losses.

⚠️ A warning from Lululemon that its profit margins would decline in the current quarter sent shares tumbling yesterday, Axios’ Hope King writes. (Its stock is up slightly today.)

While the athletic retailer was mum on the reason, analysts raised questions about brand saturation and continued inventory pileups as retailers overshot demand estimates.

💻 Global online sales reached $1.4 trillion during the holiday season, with U.S. consumers spending about $270 billion online, new data from Salesforce finds.

Retailers increasing discounts in the runup to Christmas may have had an effect, Salesforce says.

About one out of five orders globally were through the buy-online-pickup-in-store route.

3. Retail therapy

Illustration of a cell phone wearing a retail apron.

• Jetstream Africa, a Ghanaian e-logistics startup, raised $13m in equity and debt funding from Octerra, Wuri Ventures, Seed9, The MBA Fund, Proparco, ASCVC and lender Cauris. https://axios.link/3Xep2MI 

• Khosla Ventures is raising nearly $3b for a trio of new funds, per regulatory filings. https://axios.link/3k5Ff8H 

• Carlyle invested around $300m for a majority stake in VLCC, an Indian operator of beauty care and wellness centers, per Reuters. https://axios.link/3ZorRNi

• GPA Global, a product packaging provider owned by Ontario Teachers’ Pension Plan Investment Board, is acquiring French competitor Cosfibel Group, which is a supplier to L’Oreal and Chanel and generated €100 million in sales last year. https://axios.link/3imS8uR

• Mattress Firm, a Houston-based mattress retailer backed by Steinhoff International, withdrew registration for an IPO that had been expected to raise up to $500m. https://axios.link/3Gx0192

4. Retail transactions

• Rite Aid CEO Heyward Donigan has left the drugstore chain as per a separation agreement. Rite Aid has tapped board member Elizabeth Burr to serve as interim CEO. https://axios.link/3Cy7svd 

• Ideal Image, an aesthetics brand providing laser hair removal and Botox treatments, has named Sharon Leite as CEO, succeeding David Prokupek, who will continue to serve as an adviser. https://axios.link/3XC92oj 

5. It's Personnel

Happy Tuesday, Retail readers. It's the second day of ICR 2023, and we kick off with Richard's Day 1 highlights.

🖱Situational awareness: Amazon will widely roll out Buy with Prime to U.S. merchants outside its platform by Jan. 31 as it vies to undercut rivals like Shopify.

📺 What we're watching: Kim started the Israeli spy thriller "Tehran" on Apple TV+. Fun fact: Athens was transformed into the Iranian capital for the set. 

✏️ Many thanks to editor George Moriarty and copy editor Mickey Meece for today's edits.

Thank you for reading Retail Deals. See you again tomorrow!

January 10, 2023

1 big thing: M&A dominates ICR chatter