‘Acquisitive brands are betting big and betting early on emerging trends’

Agility and adaptability have become increasingly valuable attributes for all in the industry, whether they be large or small, incumbents or disruptors.

At True we are fortunate to witness – and, in many cases, positively influence – the innovation activities of a wide range of players, from early-stage brands just starting on their journey through emergent, scaling operators all the way up to some of the largest enterprises with global businesses. 

In addition to ongoing, organic innovation – which is a difficult skillset to build into the DNA of a company – we are increasingly seeing a trend towards acquisition as a means for (typically) larger companies to expand their capabilities and reach.

This may, in part, reflect a stage in the economic cycle; capital – for now – is cheap and plentiful. Growth can be hard to achieve organically and, simultaneously, is highly valued by investors in both the public and private markets. 

The cynical view of this activity holds that it is doomed to failure, with slow-moving and slow-thinking behemoths overpaying for concepts and people they neither understand nor can accommodate within their cultural frameworks. The ultimate outcome is value destruction, typically with a dose of animosity and ill-feeling.

Some recent examples of this type of activity, however, hint at more strategically enlightened deployment of capital. 

“While the second-hand market accounts for only 2% of total apparel now, the structural tailwinds in place seem certain to mean that multiplies dramatically in the future”

Etsy’s acquisition of Depop, the second-hand fashion resale app, for $1.6bn offers access to a large and rapidly growing community of Gen-Z consumers for whom second-hand purchase and resale is a core component of their fashion-buying approach. 

Depop has more than 30 million customers across 150 countries; 90% are under the age of 26 and therefore likely to see their share of apparel spend expand rapidly over the coming decade. 

So, while the second-hand market is estimated to account for only 2% of the total apparel market now, the structural tailwinds in place seem certain to mean that multiplies dramatically in the future.

H&M has also taken a proactive approach to this growth area, first investing just £30,000 for a minority stake in Sellpy, the resale platform founded in 2014. H&M’s stake has since grown to more than 70% and Sellpy represents an important component of H&M’s broader sustainability strategy, now rolled out across 20 European countries. 

The lesson here? Investing in emerging trends earlier need not be prohibitively expensive and has the scope to develop into an accelerant of a core strategic priority.

In foodservice, Yum! Brands has made two recent acquisitions of technology start-ups – Kvantum and Tictuk – aligned to a strategy to make investments in “digital and technologies to enhance the customer experience, strengthen restaurant unit economics… enable our brands and franchisees to compete and win”. 

“The lesson here? Investing in emerging trends earlier need not be prohibitively expensive and has the scope to develop into an accelerant of a core strategic priority”

Here Yum! Brands’ capital is being used to bring people and technological capability in-house to drive differentiation and competitive advantage – a far cry from ‘legacy M&A’ focused on physical infrastructure.

Retailers should also be highly aware that activity is not restricted to incumbent operators. 

Social media platforms have evolved and now include highly developed, integrated commerce features as part of their platforms, with 55% of consumers having purchased items discovered on social media. 

Snap acquired Fit Analytics in March this year for $124m as part of a wider push into ecommerce services, specifically to gain technology to enhance the user experience. 

It has also acquired ScreenShop App to allow shopping recommendation features to be launched in the coming weeks. Brands are using the enhanced capabilities offered by social commerce, recognising that this is where consumers are increasingly focusing their attention – a potentially seismic change in the traditional discovery-to-purchase shopping journey.

The success or otherwise of these acquisitive strategies will be determined by a range of factors – and the valuation multiples being paid will always be a critical element of the final analysis – with particular deftness of touch required around key personnel and the avoidance of ‘cultural steamrolling’. 

The trend, though, is clear. Equipping retailers and brands to maintain future-fit capability requires clarity of vision, an element of courage and speed. Expect the pattern of retail acquisitions to strengthen from today.

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