The Current eCommerce Investment Strategies
We continue to be in somewhat of a golden age of ecommerce investment strategy. Right now, I see 3 types of roll-up strategies being pursued by investors. Which will win? That will ultimately depend on the type of people they have analyzing and running these businesses. I use "win" loosely. These ideas don't need to beat each other per se. The smart operators understand that this is a multi/omni-channel world, with digital as the beating heart of any brand. If the digital heart is sick, that is always the first priority to improve.
Back to the the roll-up strategies. Here are the types that I see:
The first group is buying and rebooting old brands, usually with some kind of digital edge to them. This group is usually an evolution of the types of roll-ups that have always been around, but now the focus truly is on digital. This strategy also tends to rely on the fact that international licensing is lucrative for a brand with a storied history.
This strategy also applies when buying brands in liquidation/bankruptcy (as Miles Thomas pointed out)
Bob Radcliffe noted that this “allows established ecomm[erce] players to elevate their consumer visibility (known brands) which in turn, hacks Amazon algo[rithm]s for increased reach”
The second group is buying up-and-coming DTC brands. They are looking to be the best digital operators in the business in customer acquisition, CLV, storytelling, etc. Improving targeting, personalization, and introducing premium products and services - often with subscriptions - for high-value customers are usually part of the plan. Consolidation of costs still applies here too, particularly supply chain and headcount.
The final group is buying up Amazon businesses. This is generally about supply chain (in particular sourcing, operations, fulfillment) and, increasingly, online advertising prowess.
The thesis is these brands have gotten several things right but they are constrained by a few factors. One of which, as Brian Eddy noted, is logistics. “One key to scaling each of these is having a distributed logistics network. The P/L with eCommerce-Centric model is heavy on the PARCEL spend. That said, getting great rates is tough for low volume operators, but there are strategic ways to address this one.”
Neil Verma added that many companies are doing some combination of numbers 2 and 3, “scaling what is working and injecting with capital infusion, management team, and a broader skill set.” These value creation plans (VCP) are often laser-focused on capital, manufacturing, and talent. Upgrade them all, and you deliver outsized results.
