Olympia Sports Bankruptcy a Cautionary Tale Regarding Due Diligence and Sequencing

RetailDive recently reported that Olympia Sports just declared bankruptcy, but it's not Olympia I want to talk about. It's ShoeBuy, one of the companies that Olympia acquired via its private equity firm. The reason?

It's a cautionary tale for technology investments, solving the right problems, and choosing the right vendors.

ShoeBuy was never a fantastic business. It was a dropship marketplace of shoes. In a world in which Zappos had better selection and service, and going to DSW was going to be cheaper and more efficient, ShoeBuy was another less-trusted place on the Internet to buy shoes.

It was one of those disaster Walmart acquisitions Marc Lore had encouraged to greatly increase the number of supplier relationships. It didn't work. Acquired by Walmart for $9M in a fire sale.

What should have happened is the traffic been diverted to another brand and the suppliers reconnected slowly over time. What actually happened was trying to fix the front-end ("we have a gem!"), without fixing the P&L.

Starting point:

* 119M business. Losing $19M a year. Negative 15% operating margin. So that is what you walk in the door with. Every year is a burning platform. You can't grow a business like this, it only loses more money for you.

* Homegrown platform. Attempted to replatform to Salesforce Commerce Cloud + Salesforce OMS in 2021. CEO attributed the failure to the OMS. I'm going to go out on a limb in that they built custom dropship integrations to the Salesforce OMS which cost them a lot of money and time.

* Sales dropped $140k/day it said. Let's round that down to $40M in sales. And instead of being on a platform that was largely fixed cost, they are now on a platform that is based on a committed GMV level - and Salesforce is like the honey badger in this situation.

"Honey badger don't care."

When you analyze an acquisition, understanding what to fix first is a big deal.

How are the people and processes and the P&L? How is the brand's proposition in the market?

What is the core value of this asset? Is it the internet property, or is it something else?

Is the eCommerce platform itself about to fail? How do you know that?

What is the business' core value proposition? How do you scale that?

What will fail next if you do that?

I am going to go out on a limb here in that the company had a hard time onboarding SKUs and suppliers (it's a big deal in a dropship business), but the eCommerce site itself was fine. Meaning, it's possible to grow with that you have.

There are a lot of discussion about headless, should we go etc. I will say this, headless in a situation where you are in a custom platform makes a ton of sense. The reason is, you can upgrade at your own pace on your own timeline.

Problem is, any platform can't fix a broken business. I just wish the owners of Olympia Sports and ShoeBuy had taken the time to analyze this as well.