Com cap v-tex slides rise of dnvb
- 1. CONFIDENTIAL COMCAP PERSPECTIVES ON THE RETAIL INDUSTRY AND THE RISE OF VERTICAL BRANDS May 2017 ONLY FOR VTEX ATTENDEES Please do not distribute
- 2. CONFIDENTIAL
- 3. CONFIDENTIAL $672.0 $340.6 $99.4 $89.6 $61.8 $42.6 $38.9 $26.8 $19.5 $19.0 $18.9 $15.9 $14.0 $13.4 $9.6 $9.4 $9.4 $8.5 $6.9 $5.7 $5.0 $3.2 Retail Ecommerce Sales Worldwide – 2015 (In $bn) 2 ▪ Global investment banker, former CEO of European comparison shopping and affiliate network company, extensive experience in the US, Asia, Western and Eastern Europe and Australia (Brazil is next!) ▪ ComCap works with retailers, retail software providers, professional services companies that focus on retail and payments companies ▪ Much of the focus of this presentation is on trends in the United States but the themes are relevant for all major markets ▪ DISCLAIMER: ComCap works with many of the companies shown in the presentation and may have a financial relationship with them ▪ Presentation available with bonus extra content on ComCapllc.com (sign up with your email) with other research at http://www.comcapllc.com/research/ Aron Bohlig, CEO of ComCap – The only ecommerce-focused investment bank M&A and capital formation in 13 countries over last five years
- 5. CONFIDENTIAL Retail environment unusually disruptive this year Border tax and protectionist moves? Management changes Store closings Bankruptcies Walmart vertical offensive 5
- 6. CONFIDENTIAL 6 US retail landscape seeing consolidation / closures among undifferentiated retail growth in specialty retailers… ~47k shopping centers / malls, top tier sites survive, lower tier shuttering -728 -377 -270 -241 -220 -554 17 0 0 0 43 545 709 3,707 -4,500 -3,500 -2,500 -1,500 -500 500 1,500 2,500 3,500 4,500 Department store Consumer Electronics Pharmacy Office supplies Other Grocery Specialty Specialty - off price US retailer announced store closures/ openings since Jan 2016 Closures Openings -2.942 Undifferentiated formats lose ground in US - 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 Luxury/ Accessible Luxury Teen Fast Fashion Off Price Athleitc Women's Apparel Specialty retail stores expanded 2.5x since 2000, 2000 2017E Source: Fung Global Retail, company press releases Potential for further upside in off price specialty • 2017: net 786 announced store closures (total of 3,658 closures) • 2016: net 475 store openings (total of 1,674 store closures)
- 7. CONFIDENTIAL 0 2,000 4,000 6,000 2012 2013 2014 2015 2016 Total selling space ('000 sqm) 5% CAGR $0.0 $1.0 $2.0 Store / mall remodel and expansion IT, logistics (omnichannel) and other New stores (114) & malls (9) 7 Latin America should see continued growth in high value retail Only 2,000 malls and growing demand as middle class expands Cencosud has steadily grown it’s retail sqm Source: Fung Global Retail, company press releases Falabella announces expansion across region • Falabella announces $4bn four year expansion plan • 31% allocated to logistics and omni-channel plans • Touts 6.2m sqm in “land bank” that can be tapped for expansion
- 8. CONFIDENTIAL 8 Ecommerce share of retail doubling from ’15-’19 Mobile, Vertical models accelerating penetration ▪ The Leading Sports and Lifestyle online retailer in LatAm ▪ 13m customers across BR, AR, MX ▪ First in Latam to offer free access navigation to customers ▪ 46% of visits via mobile in ‘15 (up 4.6x y/y) ▪ 32% of orders via mobile Netshoes benefiting from digital commerce trends and rewarding investors Ecommerce penetration growing with further upside 10% 8% 5% 3% 2% 2% 7% 20% 10% 10% 5% 4% 2% 13% 0% 5% 10% 15% 20% 25% Asia-Pacific Western Europe North America Central & Eastern Europe Latin America Middle East & Africa Worldwide Ecommerce as % of total retail sales 2015 2019 Source: emarketer (ecommerce penetration excludes travel), KPCB. CapIQ. 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Mobile as % of total ecommerce sales (2014) 49% 25% 15% 14% 9% 2% -2% -11% -12% -21% -40% -20% 0% 20% 40% 60% 80% Stock price as % IPO closing price Selected 2017 tech and retail IPOs Productivity Software Retail ecommerce Social media
- 9. CONFIDENTIAL 9 Globally marketplaces are taking significant share of “commodity” products Product Marketplaces Service Platforms Other Platforms Multiple Platforms Source: Publicly available data
- 10. CONFIDENTIAL 10 While Alibaba and Mercado Libre are dominant in their core markets, globally Amazon remains the marketplace to watch Product Marketplaces No. of Users Alibaba 407 million Amazon 304 million eBay 162 million B2W 21 million Zalando 18 million Etsy 25 million Groupon 50 million OLX 260 million MercadoLibre 150 million Avenida 1 million MakeMyTrip 3 million Expedia 50 million One Kings Lane (acq. By BB&B) 10 million Gilt Group (acq. by Hudson’s Bay) 9 million ClearTrip 2 million Product Marketplaces No. of Users Priceline 13 million Flipkart 26 million Snapdeal 40 million FarFetch 1 million Jet.com 1 million Jiuxian 0.5 million BeiBei 10 million Souq.com 6.2 million Mia.com 5 million XiaoHongShu 17 million JD.com 100 million Yoox 2.5 million Vente Privee 15 million Craigslist 60 million Tarad.com 3 million Service Platforms No. of Users Task Rabbit 1.25 million Fiverr 2 million Care.com 19.5 million Trulia 54 million Pinterest 100 million Facebook 1.65 billion Twitter 310 million Houzz 35 million Source: Publicly available data
- 11. CONFIDENTIAL 11 Fierce competition drives apparel price DEFLATION making growth harder Durable Discounts Source: U.S. Bureau of Labor Statistics U.S. Inflation gets little boost from apparel pricing • The 2017 Total Retail report from PricewaterhouseCoopers LLP found that 47 percent of the 24,471 respondents surveyed across the globe use amazon.com as a research site for prices • Japan, Germany, Brazil and the U.S. were found to be the top four countries where consumers shop less often at brick-and-mortar stores due to the “Amazon effect”
- 12. CONFIDENTIAL 12 Amazon is inventing at an unprecedented pace New in-home products New supply chain innovations New physical store concepts Amazon bookstores open in 3 locations (5 coming soon) Amazon Go convenience stores Amazon Drive Thru convenience stores Next: Larger grocery store format in 2017/2018 Question: What is Amazon up to next? | Answer: EVERYTHING To compete with the major marketplaces and to avoid the fate of many retailers requires a different approach
- 13. CONFIDENTIAL Amazon is taking one third of total commerce growth, share gains accelerating through innovation Estimated Amazon North America GMV Growth vs US Retail GMV Growth1 $8 $19 $14 $17 $19 $39 $41 $79 $131 $108 $91 $127 $120 $128 2010 2011 2012 2013 2014 2015 2016 ($billion) Y/Y change in Amazon GMV Y/Y change in US Retail GMV excluding non-Amazon categories Source: Channel Advisor, Census.gov, ComCap LLC estimates2 Note: (1) US Retail GMW Growth = US Retail (ex-Autos & Food Services) + Automotive Parts / Tires – Fuel Dealers – Gasoline (2) ComCap estimates Amazon North America GMV, which includes a small number for Canada. Walmart only reports GMW, not net dollar amount 13 10% 33%15% 32%15%13% 19% AMZN % of US Retail Sales Growth
- 15. CONFIDENTIAL Our 2017 retail playbook for an Amazon world Scale Up Content Loyalty Services Differentiate Consolidate to grow product selection, leverage infrastructure and create data assets Prime is Amazon’s most important engine. Go beyond shipping with a loyalty program that highlights your unique attributes Offline services that can’t be replicated online are key to driving traffic to the physical store Real content is key to getting attention in a world of bland email campaigns all focused on the word SALE 18 DNVBs offer a unique opportunity to add unique product and generate “built-in” returns in an investment
- 16. CONFIDENTIAL 19 Scale Up in an Amazon World ▪ Scale brings big data opportunities, lower pricing, higher consumer brand awareness and traffic so we recommend that retailers look to add scale or consolidate their retail categories, both offline and online ▪ Capital is still readily available, and investors are comfortable betting on proven models in “new” geographies ▪ The market is rewarding consolidation, as investors have cheered recent deals for dollar stores, jewelry, and sporting goods companies ▪ Recent retail consolidation: Target Acquirer Date Consideration (US$M) 04/10/2017 105 02/23/2017 140 02/15/2017 51 01/05/2017 70 11/22/2016 190 10/17/2016 75 10/03/2016 9,386 08/08/2016 3,000 02/17/2016 118 01/07/2016 250
- 17. CONFIDENTIAL Scale up: Major retailers pursuing the marketplace model in imitation of Amazon / B2W / Mercado Libre 0 5 10 15 20 25 30 35 40 45 50 Asia Pacific Australasia Eastern Europe LatinAmerica MiddleEast andAfrica NorthAmerica Western Europe % 2007 2016 Source: Marketplace Sales as % of Digital Commerce (30% of Global $1.2tn in ecommerce) Jeff Bezos’ Growth Through Marketplace Explanation SELLERS SELECTION CUSTOMER EXPERIENCE TRAFFIC LOWER COST STRUCTURE LOWER PRICES GROWTH Source: Amazon.com
- 18. CONFIDENTIAL 250million Customer Visits ↑200% Increased Assortment within 12 months #1 Baby Category in Canada (New Category) 2X Increase in Product Assortment ↑10% Of Incremental Sales within 12 Months +15 New Subcategories Serviced Marketplaces driving material scale European Department Store Electronics Source: http://info.mirakl.com/forrester-retailers-must-seize.
- 19. CONFIDENTIAL Benefits of scale: Big Data and Artificial Intelligence 45% of retailers plan to utilize AI through chatbots or digital assistants Source: 2017 Customer Experience / Unified Commerce Survey ▪ AI offers the ability to exploit the vast amounts of data gathered on customers and their preferences to personalize the customer experience ─ Amazon and other multi-channel retailers are currently experimenting with AI to offer purchasing suggestions based on answers to a series of questions and past purchase history ▪ Consumers are becoming more comfortable with chatbots ▪ Artificial intelligence increasingly supporting / replacing human merchandising decision making 23 3.0% 3.0% 11.0% 11.0% 8.0% 32.0% 19.0% 26.0% 0% 10% 20% 30% 40% 50% A.I. (i.e. Digital Assistants, chatbots, etc.) Augmented reality Virtual reality Implemented and working well Implemented but needs improvement Plan to implement within 3 years Disruptive technologies such as artificial intelligence, augmented reality, and virtual reality are changing the shopping experience and the customer journey Planned adoption of customer service technology
- 20. CONFIDENTIAL 24 Benefits of scale: Big Data and Artificial Intelligence Using Artificial Intelligence for offline merchandising to maximize yield in store Moving from planograms to AI-driven in store merchandising ACCURATE DIGITAL MODEL OF ALL STORE LOCATIONS AND FIXTURES BUILD LOCALIZED VISUAL MERCHANDISING FOR EACH STORE SEE HOW MERCHANDISING INITIATIVES ARE PERFORMING Provides for the capture of the physical and logical attributes of stores, and everything in them Localized merchandise drives higher sales create planograms and additional instructions specific for each store Digital merchandising enables visibility into all merchandising execution data in real-time Source: OneDoor.com
- 21. CONFIDENTIAL 25 Benefits of scale: Big Data and Artificial Intelligence Analyzing the course of every consumer interaction to drive profit at Victoria’s Secret Source: DynamicAction.com
- 22. CONFIDENTIAL Source: CB Insights 28 Differentiate your product assortment ▪ DNVB brands are taking share but have limited physical distribution capabilities ▪ Retailers are partnering with / acquire DNVBs to increase product differentiation, and increased distribution will provide additional ROI ▪ Sizing and customization are additional key opportunities to differentiate Brands you don’t have access to…but should
- 23. CONFIDENTIAL 29 “Fitment” – behind the scenes battleground between Amazon and… everyone ▪ Huge participating consortium of 10k+ brands and 100+ retailers ▪ $80bn sales & return data ▪ 180m fit profiles / 40m users ▪ Millions of garment specifications ▪ Driving discovery, repeat purchase rate, significant financial benefits Source: ComCap research and interpretation of Amazon’s strategy. Truefit information & retailer benefits: truefit.com. Amazon qz.com link shortened here http://bit.ly/2rVxlzw. Retailer benefits ▪ +4-7% lift to net revenue ▪ +5-10% increase in new category sales ▪ Reduce current 40% return rate Consumer expectation ▪ Product search by fit, online and instore clienteling apps ▪ Purchased shoeftr shoe algorithm company ▪ Filed patents to take 3D models of clothes ▪ Scanning 500k garments/yr in UK ▪ Launch of Echo Look set to massively increase images ▪ Potential to cross-market huge private label lines to undercut brands
- 24. CONFIDENTIAL 30 Mass customization: the shift in consumer demands ▪ 23% of the consumers said they have a relationship with a brand ▪ 36% of consumers are interested in personalized products or services ▪ 40% of respondents between the ages of 16 and 30 are attracted to personalized goods and services − 71% of these stated they would be prepared to pay a premium price Mass customization in select verticals Custom Apparel Custom Footwear Custom Bags Other Notes: 3 myths about what customers want - Harvard Business Review It's time to rethink your supply chain - Fluid
- 25. CONFIDENTIAL The Rise of Digital Native Vertical Brands
- 26. CONFIDENTIAL 35 What is a digitally native vertical brand (DNVB)? as defined by Andy Dunn, CEO of Bonobos A digitally-native vertical brand meets four criteria: 1. It’s primary means of interacting, transacting, and story-telling to consumers is via the web. In almost all cases the brand is born digitally. 2. It’s a brand, and that brand is vertical. The name of the brand is on both the physical product and on the website. It requires the commercialization of an e-commerce channel, but that channel is an enablement layer, ecommerce is not the core asset – the brand is 3. The DNVB is usually maniacally focused on customer experience and on customer intimacy. The experience tends to be three-part bundle of physical product, web / mobile experience, and customer service that collectively become the brand in the consumer’s imagination 4. The brand rarely ends up digital only and moves offline through selective wholesale arrangements and experiential physical retail. In nearly all cases of partnerships, the brand controls its external distribution versus being controlled by it Source: Andy Dunn, CEO of Bonobos; www.bonobos.com CONFIDENTIAL
- 27. CONFIDENTIAL 36 Digital natives make up 13.1% of the population in the US, 10.8% of Brazil Digital Natives as a percentage of total population ▪ Overall, there are approximately 363 million digital natives out of a world population of nearly 7 billion (5.2%) ▪ Internet usage has increased significantly in the developing world during the past five years ▪ The ITU believes the digital native population in these regions will more than double by 2017 Note: Digital native defined as someone who is 15-24 years old and has been using the internet for at least five years Source: International Telecommunication Union
- 28. CONFIDENTIAL 40 The Closet is Being Taken Over by DNVBs >100 Venture-backed fashion brands raised nearly $2bn Source: CB Insights and ComCap
- 29. CONFIDENTIAL 41 Selected Largest DNVBs Vertical Clothing Baby Products Clothing Eyewear Milestones ▪ Funds raised: $335m ▪ Funds raised: $222m ▪ Funds raised: $128m ▪ Funds raised: $196m Strategy ▪ Reaches over 35m members worldwide through its portfolio of lifestyle fashion brands ▪ Business strategy of creating good products that won’t hurt the baby ▪ Now have significant offline distribution ▪ Established 20 ecommerce stores known as Guide- shops – plans to open more in 2016 ▪ Moderate price point ▪ Home try-on ▪ Prescription app ▪ Expanding brick-and- mortar stores
- 30. CONFIDENTIAL 42 Aron’s Wardrobe Provided By… Vertical Northern California Clothing Marketplace & Clothing Watches and Sunglasses Socks & Underwear Strategy ▪ Monthly emails to “pre-sell” products reduces inventory and enables rapid innovation ▪ Collaborates with larger brands to test new concepts and designs ▪ Weekly emails sending a “catalog” of up and coming products across 100+ brands in a “marketplace” model ▪ Private label clothing ▪ Mid-range price point ($100-$150) watches designed to be seasonal, but lasting, to encourage repeat purchases for different uses – sport, work, nightlife ▪ Raised $115m to innovate in “weaving technology” to make better socks and underwear
- 31. CONFIDENTIAL 43 Case Study: Mon Purse Premium Customizable Women’s Accessories at an Affordable Price ▪ Consumers seeking brands and customizable products to better let them express their individuality ▪ This is a very complex supply chain problem and existing brands will have a very difficult time responding to this trend
- 32. CONFIDENTIAL 44 Case study: Paul Evan’s shoes: the Paul Evan’s Story Source: Paul Evans Source: Paul Evans
- 33. CONFIDENTIAL 45 Case study: Paul Evan’s shoes 1 Source: Paul Evans
- 34. CONFIDENTIAL 46 Case study: Paul Evan’s shoes 2 Comparison with luxury brands ▪ Like other DNVBs, Paul Evans has a differentiated product quality and a lower price ▪ They achieve this by contracting with similar suppliers but eliminating the wholesale and retail markup and selling direct to consumer ▪ DNVB’s have different approaches to marketing spending, which can impact profitability Source: Paul Evans
- 35. CONFIDENTIAL 47 DNVBs are disrupting the apparel product price to value equation Note: (1) Includes: Fashion & Accessories, Sport & Leisure, Wellness & Beauty, Home & Travel Goods, Global Market 2015 Source: Statista/Euromonitor Because retailers require a 2-3x mark-up, traditional brands cannot compete with v-commerce only brands, who can sell the same quality product at a half to a third of the price $2.1T <30% <30% 70%+ 70%+ 2-3 x Consumer savings + additional brand margin Traditional Brands Direct to Consumer e-commerce Brands Global “lifestyle” market1 Lifestyle products are marked up 8-10x from manufacturer to customer COGS Brand margin COGS Product margin Distributor/ retailer mark-up
- 36. CONFIDENTIAL 48 Selling on Amazon eats considerably into unit contribution Source: CPC Strategy. Referral Fee on Amazon is 15% of Unit Price. Fulfillment / FBA fee of 8-15% of Unit Price. Marketing costs for DNVBs can vary dramatically. Source: Criteo State of Mobile Commerce, Q4 2015. Global Retail Average Order Value is $100. UnderArmour sold via Amazon and direct excludes advertising expenses. Under Armour Shirt sold through Amazon Under Armour Shirt sold through Own Website Shirt sold through DNVB Avg. items purchased per year per consumer 3 3 4 Price / Item $50.00 $ 50.00 $50.00 Basket Size $150.00 $150.00 $200.00 Referral Fee -22.50 Marketing Cost* 10.00 Cost of Shirts -60.00 -60.00 -60.00 Gross Margin $67.50 $90.00 $130.00 Fulfillment Cost -17.25 -17.25 -23.00 Contribution Margin $50.25 $72.75 $107.00 Unit Contribution % 34% 49% 54% DNVB are aggressive about email marketing and are out- performing traditional retailers for items sold
- 37. CONFIDENTIAL 49 Case Study: Taylor Stitch
- 38. CONFIDENTIAL 50 Case Study: Taylor Stitch “Pre-Sale” Model ▪ The pre-sale model requires strong marketing and analytics and a very well integrated design to manufacturing process, but results in lower inventory requirements and very limited discounting of excess merchandise
- 39. CONFIDENTIAL 51 Case Study: Huckberry – DNVB Marketplace ▪ Partners with over 100 DNVB and performance brands ▪ Curated content and “story telling” drive sales ▪ Email marketing leads to word of mouth consumer acquisition at very low cost ▪ Marketplace model enables introduction of private label brands
- 40. CONFIDENTIAL 52 Amazon benefits from growing web fashion sales, but suffers from cannibalizing sales in its marketplace Amazon benefits from growing web fashion sales ▪ Amazon’s move into apparel and accessories sales is being fueled by the increasing willingness on the part of consumers to buy fashion online − Web fashion sales rose 48% from January to April 2015 compared to the same period in 2014 ▪ Analysts expect Amazon to surpass Macy’s as the number one US apparel retailer by 2017 ▪ Amazon’s move into web fashion sales also appears to be cannibalizing its marketplace, which is believed to be more profitable: − While Amazon’s direct fashion sales rose to to 13.5% of dollar share in 2016 from 10.3% in 2014, its marketplace’s dollar share decreased to 21.5% from 26.3% ▪ As Amazon’s own fashion sales rise, its marketplace sellers may continue to fare less well with the increased competition found on the same site − This could be a problem for Amazon, considering that some 40% of its sales come from its marketplace Increasing web fashion sales appear to be cannibalizing its more profitable marketplace Source: 1010data, Cowen&Co
- 41. CONFIDENTIAL Nordstrom’s Investment in Bonobos 53 Traditional Brands and Retailers Committing Capital to DNVB’s and Digital Retail ▪ April 2012: Announced that Nordstrom will sell Bonobos clothing at select Nordstrom full-line stores and on Nordstrom.com and led a $16.4 million investment ▪ July 2014: Raised $55 million in fresh capital – including money from Coppel Capital, Mousse Partners and Nordstrom – to expand the brand in the physical retail world ▪ “Bonobos’ wholesale channel through Nordstrom is profitable, the catalog business is profitable and the guide shops are profitable.” – Pando, July 6, 2014 Target’s $75m investment in mattress company Casper ▪ September 2014: Acquired on-line luxury shopping business Mytheresa. The company is headquartered in Munich, Germany where the flagship store is also located. The fashion site is quite successful in Germany, has good acceptance in the rest of Europe, and is gaining traction in Asia. ▪ Mytheresa.com generates estimated net sales of 100 Million Euro (about $130 Million). The company delivers exclusively designed fashion merchandise to 120 countries worldwide. ▪ “Neiman Marcus Group Ltd. swung to a profit in the January quarter, as the retailer reported revenue growth boosted by its acquisition of a German luxury retailer.” – Wall Street Journal, March 10, 2015 ▪ May 2017: Target, a major North American retailer, invested $75m in direct to consumer mattress company Casper, reportedly after considering acquiring Casper for $1bn. ▪ “Target invested in Casper because we believe in their team, their ideas and their vision for reimagining sleep,” a Target spokesman said in a statement, but declined to confirm the amount invested. ▪ Target is launching more than a dozen of its own brands over the next two years in categories like Home and Kids to appeal to young families. Neiman’s Acquisition of Mytheresa
- 42. CONFIDENTIAL 54 Case study: Nordstrom’s early investments / partnerships with DNVBs sets it apart from struggling competitors Nordstrom is a leading pioneer in partnering with DNVBs in the US, which has given it a significant advantage over its competitors
- 43. CONFIDENTIAL 56 Thank you! ▪ ComCap works with retailers, brands, software companies, professional services companies and fintech for M&A and financing ▪ We are holding invite-only DNVB events with 30-50 DNVB CEOs in Los Angeles in June, New York in September and at Shoptalk Europe and Shoptalk Las Vegas ▪ We’d be very interested in collaborating to hold one in Sao Paolo!
- 45. CONFIDENTIAL 58 44 venture-backed fashion startups have raised over $1.5bn across more than 130 deals AmountRaised Seed $400m $100m $50m $10m $200m Children's Clothing Clothing Eyewear Luggage Outdoor Gear Shoes Funding Information N/A
- 46. CONFIDENTIAL 59 DNVB Landscape (Cont’d)AmountRaised Seed $400m $100m $50m $10m $200m Bags Beauty Products Beds Beer Bicycles Coffee Food Furniture House wares Mobile Phones Perfumes Platform Shaving Various Shopping Watches Funding Information N/A
- 47. CONFIDENTIAL 60 Subscription eCommerce LandscapeAmountRaised Seed $400m $100m $50m $10m $200m Men's Apparel Women's Apparel Children Hobbies Beauty & Personal Care Feminine Care Pet Items Outdoor Activities Dating Funding Information N/A