In the second instalment of this multi-part miniseries, Goldman Sachs’ head of retail investment banking, Jen Davis explains the value of disruptor ‘digital-native’ brands to established retailers and what strategic upside the start-ups receive in return. Davis says there are four areas that these retailers have been focused on in terms of partnering or acquiring with disruptive start-up brands:
“1. The first is acquiring capabilities. A good example of that is Ulta, the beauty retailer, who’s invested or acquired in two AR/VR technology companies last fall to offer a better experience for their consumers in the store. A second example is Lowe’s, which recently acquired a retail analytics platform owned by Boomerang, which basically offers improved pricing, and has a more dynamic pricing model in their stores.
“2. The second area – where these retailers are acquiring or partnering with brands – is in investing in distribution, to leapfrog their own in-house technologies. So examples of that are Walmart buying Jet.com a couple of years ago; Target buying Shipt in terms of delivering last-mile delivery. Yum, the fast food retailer, investing GrubHub in terms of delivery. So that’s another area in terms of where the retailers are investing today.
“3. The third is accessing a new customer demographic that they don’t typically serve. And so, another example in the Walmart arena is Walmart buying Bonobos, or Eloquii, the online retailer. Another example is Nordstrom partnering with Everlane, Allbirds and Reformation. And so, this is attracting a new millennial customer who maybe isn’t a typical department store customer today.
“4. The fourth area is a portfolio strategy of investing in all of the above. And I think a great example of that is Foot Locker. Foot Locker has really built up a whole presence in terms of investing in start-ups. They started last year in making a minority investment in a women’s athletic apparel retailer called Carbon38. They followed that up with four other investments, including their most recent one in Goat, a digitally-native sneaker marketplace, and Rockets of Awesome.”
Davis says these four strategies explain retailers’ rational for partnering or acquiring with digital start-ups. Davis adds:
“What these brands get, what the start-ups get is kind of immediate access to scale, expertise, prowess, real estate sourcing, marketing, supply chain; a lot of bandwidth and heft that they don’t necessarily have as a start-up experience all on their own.”
Davis was speaking Goldman’s Jake Siewert, in the firm’s latest Exchanges at Goldman Sachs podcast.