Investing for Growth in a Changing World

Here at True we're fortunate to witness the innovation activities of a wide range of players from early-stage brands through to emergent, scaling operators all the way to some of the largest global businesses. In addition to ongoing, organic innovation we are increasingly seeing a trend towards acquisition as a means for larger companies to expand their capabilities and reach. Here Matt investigates why more businesses are turning to investment to innovate.

Investing for Growth in a Changing World

Matt Truman / Insight / 14 Jul 2021

It has become a unanimously held truism that the pace of change in the retail world has never been greater, driven by the twin factors of rapidly evolving consumer behaviours and technological developments. Agility and adaptability have, accordingly, become increasingly valuable attributes for all participants in the sector 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 to some of the largest enterprises with global businesses.

In addition to ongoing, organic innovation which is of itself 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 and growth can be both 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 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 rancour and ill-feeling.

Some recent examples of this type of activity do, however, hint at more strategically enlightened deployment of capital. Most recently, 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 over 30m customers, distributed across 150 countries, 90% of whom 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 currently to account for only 2% of the total apparel market, the structural tailwinds in place seem certain to see this multiply dramatically in the years ahead.

At a much smaller scale, H&M has also taken a proactive approach to this growth segment, first investing just £30k for a small minority stake in Sellpy, the resale platform founded in 2014. H&M’s stake has since grown to over 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 emergent trends earlier need not be prohibitively expensive and has the scope to develop into an accelerant of a core strategic priority.

In the foodservice space Yum! Brands has made two recent acquisitions of technology startups (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”. 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 (ie property).

Retailers should also be highly aware that activity in this area is not restricted to incumbent operators. Social media platforms are no longer just a place to chat or upload photos as they now have highly developed, integrated commerce features built into their platforms. 55% of consumers have purchased items discovered on social media. Snap acquired Fit Analytics in March this year for $124m as part of a wider push into e-commerce services, specifically to gain technology to enhance the user experience and 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 here.

This article was first published in Retail Week.

relevant stories

No relevant stories available