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BFD Expert Voices - Retail Deals

BFD Expert Voices

Consumers will reward retailers that invested in digitalization, according to a Tata Consultancy Services survey, but they have to invest across the spectrum, Kimberly writes.

Why it matters: After heavy investment to serve customer needs during the pandemic, retailers need to address supply chain technology.

What they’re saying: “There is going to be a digital equilibrium that retailers have to strike,” says Ashish Khurana, the head of retail business, Americas, at Tata.

Consumers are more willing to spend on high-tech shopping experiences, according to the survey, indicating that digital investments made during the pandemic may pay off.

They will have to invest in the digital journey and also “bridge the gap between what was earlier their heritage environment [the store] and now their newly formed digital environment.” 

By the numbers: About 60% of consumers of all age groups say they’re interested in using contactless checkout while 54% say they’ll use QR codes to find more information.

Around 70% of millennials were more willing to trade their personal data in exchange for discounts and perks; around 65% of Gen Z say they’d do the same.

“Technology plays one of the inputs into their buying decision,” Khurana says.

Of note: Many of the tech investments in the past few years were in service of the customer, Khurana says. 

For example, PitchBook data show that $1.59 billion has been invested in 30 cashier-less checkout companies since 2014, with more than $600 million of that in 2021. 

Yes, but: The flow of dollars has changed because the supply chain has become just as important.

In a 2023 outlook, PitchBook senior analyst Jonathan Geurkink wrote that remote operations will scale up as investors and entrepreneurs pull back from efforts in autonomous vehicles and delivery.

Retailers want the supply chain streamlined, Tata's Khurana says, and they will invest in supply chain technology solutions that can “make the right product available, at the right point of time, at the right price.”

The bottom line: “Tech investments are here to stay, both on the customer side and on the supply chain, in the next couple of years,” Khurana says.

1 big thing: Digital bets pay off

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Strategic buyers dominated conversations as ICR's annual gathering in Orlando wound down last week, Richard writes.

Why it matters: After having several months to adjust to the reality of lower multiples and a challenging fundraising environment, market observers' overriding sentiment is that valuations and sellers' expectations will both come down.

What's happening: Rocky Brands, the Nelsonville, Ohio-based footwear maker that owns brands such as Durango and Lehigh, is looking to acquire businesses complementary to its portfolio.

One of the company's areas of specialization is work-related products, particularly protective gear.

With that in mind, a business such as West Palm Beach, Fla.-based Shoes for Crews, which makes footwear using a unique rubber to produce slip-resistant footwear could be an attractive target, Rocky Brands said.

Shoes for Crews is owned by PE firm CCMP Capital Advisors, which bought it in 2015.

Meanwhile, Solo Brands, in fact, thinks that in 2023 and 2024 there will be some "amazing acquisition opportunities," said its CEO John Merris.

The Grapevine, Texas-based DTC platform that owns brands such as Chubbies and Isle will be opportunistically looking for buys, as it continues to focus on the outdoors enthusiast.

By this summer, "seller expectations will come down drastically," Merris says, as founders seek to join platforms to insulate them from economic challenges.

Separately, The Vita Coco Company, the New York-based beverage maker that specializes in coconut water, also sees the climate ripening for M&A.

In particular, the company is looking to invest in brands with between $40 million and $200 million in sales, said co-founder Mike Kirban.

He went on to note that there are a couple of protein water businesses that could be interesting as Vita Coco looks to take coconut water into new categories.

State of play: As we noted last week, a number of consumer-facing groups such as footwear maker Caleres, apparel maker Chico's FAS, and retailer Franchise Group all said they would be on the lookout for buys this year.

2. The BFD: Strategic buyers' market

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🛍️ Zellers, the defunct Canadian discount department store chain, will be revived this spring.

Hudson’s Bay says more than two dozen of its locations across Canada will house Zellers pop-up shops, and an e-commerce site to boot.

Note that most of Zellers' leases were sold by real estate tycoon Richard Baker, who controlled parent Hudson’s Bay, to Target in 2011 for C$1.825 billion.

But the expansion failed, leading the U.S. retailer to shutter its Canadian operations in 2015. The remaining Zellers stores had already been closed by 2013.

💎 Quality Gold, which is going public via a $1 billion merger with SPAC Tastemaker Acquisition Corp., is acquiring jewelry wholesaler Herco Jewelry Company.

Though terms were not disclosed, Herco had $25 million in revenue in fiscal 2022, according to the announcement.

Fairfield, Ohio-based Quality Gold noted that it continues to play an active role in consolidating the fragmented jewelry space.

3. Retail therapy

Illustration of a paper shopping bag wearing a clay mask and cucumber slices with a jar of mask clay next to it

A short workweek means a short recap of this week's newsletters. In case you missed anything: 

Jan. 17 — Technology investing dominates NRF and what Trian's change of plans could mean for Wendy's. Read the newsletter

Jan. 18 — Exclusive: Kevin's plots exit strategy; December retail sales; and a big maternity deal spawns Hatch Collective. Read the newsletter 

Jan. 19 — ABG spotlights media with its new CFO and what sector was quiet at NRF Retail's Big Show. Read the newsletter

👀 And if you missed any day's Pro Rata, we've got them right here: Tuesday, Wednesday and Thursday. 

4. 🗞️ Catch up fast

• Presso, an Atlanta-based dry cleaning robotics startup, raised $8m in seed funding from Uncork Capital, 1517 Fund, AME Cloud Ventures, HAX, SOSV, Pathbreaker Ventures, VSC Ventures and YETI Capital. https://axios.link/3kuBUjH 

• Thirteen Lune, an e-commerce portal for inclusive beauty brands, raised $8m in seed funding led by The BrainTrust Fund. https://axios.link/3iQlZff 

• Sun Capital Partners acquired Fresh Origins, a San Marcos, Calif.-based grower of microgreens and edible flowers for food service and retail customers. https://www.freshorigins.com/

• Cérélia, the French pastry mix maker, was ordered by a U.K. regulator to sell its Jus-Rol business, Reuters reports. https://axios.link/3HfHgIF

• Americanas, the Brazilian department store chain, has been granted bankruptcy protection as it attempts to reorganize its $8.2b in debt. The process was triggered after the company disclosed $4b in accounting inconsistencies. https://axios.link/3WrsKli

5. Retail transactions

• Farfetch, the London-based online luxury retailer, has named Elizabeth von der Goltz as chief fashion and merchandising officer and as CEO of Browns and appointed Sindhura Sarikonda as president of the Americas. https://axios.link/3iQfQ2N

6. It's Personnel

⚠️ Situational awareness: Bed Bath & Beyond said it received a delisting warning from Nasdaq.

📚 What we're reading: George is on the last pages of "Five-Carat Soul," a novel that won a couple of awards, and brought me the sheer joy of reading an author with the gift of unique storytelling. 

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

January 20, 2023

1 big thing: Digital bets pay off