Sophie Rogers, Analyst, comments on the drivers of increased M&A activity in the rapidly changing world of e-commerce
Covid-19 and lockdown has had a considerable impact on the way we shop. Whilst online shopping is nothing new to the younger generation, shoppers who didn’t previously buy online are now much more likely to continue shopping online long after the pandemic has subsided. Whether it is buying groceries, clothes, electrical goods, or cars, we have all become more comfortable buying online.
In addition, the shift to online has been compounded by the massive reduction in the number of retail stores. More bricks-and-mortar retailers have gone into administration this year (by June 2020), putting more stores at risk and more employees under threat of losing their jobs, than in the whole of 2019. The landscape is changing rapidly. The result has been a number of accelerated M&A transactions, buying the brands out of administration, but in many cases, the stores will not be re-opening.
TM Lewin has closed all 66 shops and its new owners are shifting to on-line only. Monsoon Accessorize has been bought out of administration by Adena Brands, headed by entrepreneur Peter Simon, which will allow Monsoon Accessorize to continue trading online.
Online fashion retailer Boohoo has agreed to buy the online businesses of Oasis and Warehouse. Boohoo made the announcement as it said online sales rose by 45% in the three months to May. Earlier this year, it bought struggling brands MissPap, Karen Millen and Coast. The brands were forced to shut their 90 UK stores in March because of the lockdown.
Businesses are having to rapidly change existing business models to establish an online presence. There will also be a number of new entrants, with new brands and new, efficient online offerings. This is driving an increase in M&A activity.
Whilst many e-commerce businesses have experienced a rise in order volumes and website traffic in recent months, some have experienced a strain on existing IT systems and infrastructure and distribution. Businesses will need to invest in the infrastructure to ensure they have a robust online platform and order fulfilment capabilities.
Amazon sales soared 40% in the three months ending June, but the flood of online shopping has strained the firm’s capacity. Amazon hired about 175,000 people in the quarter and is working to expand its warehouse space in anticipation of continued growth.
Today, consumers want the convenience of ordering on a mobile device as and when they want whilst having access to a wide range of products with next day delivery. Because of these factors many e-commerce businesses have had great successes.
Gymshark has grown to become a £176m turnover online business and one of the fastest growing and most recognisable brands in fitness with customers in 170 countries. US private equity firm General Atlantic has just announced it is taking a 21% share in the clothing business, which is based in Solihull. It values Gymshark at £1 bn and will allow the company to expand internationally, especially in the US.
In summary, e-commerce is evolving rapidly and this is expected to drive more M&A activity, with consolidators acquiring more brands to gain a greater share of the online market, combined with new entrants in specialist retail. There will also be more activity involving the providers of the software and the infrastructure to support e-commerce businesses.