Glynn Davis is one of the UK’s most knowledgeable and experienced retail journalists, founder of Retail Insider, and Ecommerce Age’s monthly columnist.
Marketplaces are a pretty hot area of ecommerce right now and the white-hot epicentre of this environment involves the aggregators who are buying up the owners of the best-selling brands on the mammoth Amazon marketplace.
This area is so hot that over 70 of these roll-up specialists have raised nearly $9 billion since April 2020, which has helped fuel the acquisitions strategies of the players including Berlin Brands Group (BBG), Perch and US-based Thrasio.
The latter is one of the pioneers in this space and its growth highlights the frenzied atmosphere in which it operates. Consider that in 2019 Thrasio undertook its first funding round for a grand total of a mere $6.5 million. Eight months later it raised another $20 million. Then in April 2020 a further $35 million, followed by $110 million at a $780 million valuation. In July 2021 it really accelerated things with a funding of $250 million and a valuation of $1 billion. And its most recent raise added a further $750 million into its coffers valuing the business at an impressive $6 billion.
This has helped Thrasio buy 150 brands and accumulate a portfolio of 22,000 products while BBG has 3,700 products in its portfolio from acquired brand owners. Amid this whirlwind of fundraising and acquisitions the environment has become increasingly competitive for companies looking to get their hands on the very best selling brands.
The likes of Thrasio have employed playbooks of buying brands and then boosting their revenues through search optimisation, improving the supply chains and boosting marketing capabilities. Such has been its success that it would expect to increase sales by 15% within the first 90 days of a purchase. And then push on from there.
In the earlier days of Thrasio it would have expected to pay a 2.5-3x multiple of EBITDA for these top brands but this has been driven up to a heady 4-6x in the current market. This has raised question marks from the likes of Jim Mann, head of acquisitions at Thrasio, who says his company is treading particularly carefully with its acquisitions at these frothy prices. He indicates there are others who are far less disciplined because they are both inexperienced and have piles of private equity capital that they need to spend.
The aggregator market has also been made increasingly complicated and tough to navigate for the less experienced because of the actions employed by some sellers on Amazon, especially out of China. Mann calls them ‘dark arts’ and that they can be incredibly damaging for players less versed in dealing with hardball activities. Fake reviews, fiddling with rankings and other nefarious behaviour takes place. On top of this there is the black box of Amazon algorithms and its increasing demands on sellers’ supply chains.
This combined with the influx of richly-funded competition has led Mann to effectively call time on the halcyon days of the roll-up strategy. As others have dived in to ape the likes of Thrasio he has acknowledged that the game has moved on and the company has begun to deploy a new strategy that moves its reliance away from one focusing purely on the Amazon marketplace. This involves building branded websites and adopting more of a direct-to-consumer (DTC) as well as wholesale and regular retail approach for its brands.
Mann reveals Thrasio is investing heavily in their DTC teams and technology with a view to seeing DTC delivering 20% of revenue in the near future”.
BBG has also highlighted its strategy is beyond Amazon, with it operating across some 100 channels in almost 30 countries. Such activities take the likes of BBG and Thrasio more into the realm of traditional branded goods owners.
This all points to the fact the aggregator market is maturing – very quickly. As more money continues to pour into the category it is clear that the window of easy pickings is probably over and that the successful players in the future will certainly need to be armed with more than just a large bag of cash and a propensity to over-pay.