Aggregator Shakeups and Shifts in Strategy
Online sales growth is slowing after a huge spike during the pandemic, driving Amazon aggregators, or aggs, to implement various strategies to combat funding slowdown and declining revenue.
In 2021, investors injected more than $12 billion into a new generation of startups that set their sights on acquiring Amazon marketplace sellers. However, beginning the first half of 2022, the flow of funding has considerably diminished, and the once-vibrant landscape of dealmaking has come to a near standstill.
“The private market almost shut down,” said Riccardo Bruni, Co-Founder of UK-based aggregator Heroes, in a statement to the Financial Times.
“For a certain period of time access to capital became impossible.”
The slowdown can be attributed to cooling demand amid inflationary pressures and recession fears – a confluence of events that has overall sparked caution among investors, leading to a more reserved approach.
As a result, several aggregators find themselves compelled to make the following measures to foster margin improvements.
Boosted Commerce, a California-based company, made the decision to downsize its workforce by 20% earlier this year. Similarly, Thrasio, a leading aggregator, had to lay off an undisclosed number of employees in 2022.
Thrasio’s new CEO, Greg Greeley, revealed in an interview with Forbes magazine that the company had mistakenly assumed that the demand for eCommerce would remain at pandemic-era levels. As a result, Greeley emphasized the need for Thrasio to readjust its expectations, ensuring that excessive inventory is not held and that acquisition prices are not set too high.
Putting Acquisitions on Pause
As brick-and-mortar stores reopened, eCommerce demand slowed, making small sellers less appealing to potential buyers. Consequently, the estimated valuations of these smaller sellers plummeted, leading some aggregators to halt their acquisition efforts.
According to industry insiders who spoke to the Financial Times, the number of major aggregators actively pursuing new sellers has dwindled to less than ten. In the past, these aggregators were even willing to incur significant debts, often accompanied by steep interest rates of around 18%, all for the sake of finalizing acquisitions.
These acquisitions, in some cases, were completed at multiples as high as 7x the sellers’ adjusted valuation or earnings before interest, taxation, depreciation, and amortization (EBITDA). However, by Q1 of 2022, these brands were not performing as well as aggs had expected, primarily because for the first time in history, in-store shopping grew faster than eCommerce. That means aggregators have paid inflated prices for a large portion of those brands.
With sales and funding shrinking dramatically in 2022, aggs have come to realize that relying solely on acquisitions for growth is not always a sustainable approach. As a result, some companies are opting to launch their own brands instead of acquiring existing ones.
For instance, Amazon aggregator Upexi is cautious on acquisitions spending 90% of its time building the business organically and 10% of its time on Mergers & Acquisitions (M&A).
Strategically Buy Up Quality Brands at Lower Prices
The long-term value of established aggregators may decline if the products they offer are considered common commodities. In a highly competitive market, only those who offer unique products are likely to survive.
So, while some aggs had to stop dealmaking completely, others have shifted their focus from doing rapid acquisitions to selectively “buying great assets at 20%-30% lower prices.”
Thrasio, for example, has expressed its growing involvement in emerging sectors that pose greater challenges for market entry.
In an interview with Modern Retail, Thrasio President Danny Boockvar said that the company is actively expanding its portfolio by acquiring brands that they identify as a growth category, such as cleaning. These particular categories present higher barriers to entry (gated or regulated) due to the complexities associated with manufacturing products involving various chemical components.
Olsam, a European aggregator, disclosed to Modern Retail its strategic expansion into uncharted territories of patents and intellectual property, moving beyond conventional performance indicators such as seller ratings and product reviews.
Smaller aggs such as Heroes, Cap Hill Brands, and Gravitiq have also taken steps to streamline their operations and concentrate on a narrower range of categories.
Foundry Brands, in particular, exemplifies this trend by prioritizing quality over quantity as part of its aggregation strategy. Since its establishment in 2021, the company has strategically acquired fewer than 10 brands in total, emphasizing a selective approach.
Simultaneously, the prevailing economic conditions have presented an opportunity for aggregators to acquire high-quality brands at more affordable prices compared to the previous years.
Consolidate through M&A with other Aggregators
Facilitating strategic alliances and synergies is one way to create growth in times of austerity. From buying up online sellers, aggregators pivot to purchasing each other.
- Acquisitions. To navigate the challenges, aggs have started acquiring one another, often expanding their reach globally. In a recent acquisition, Berlin-based SellerX purchased Elevate Brands, headquartered in Austin. By taking over Elevate Brands, SellerX will now oversee 80 Amazon marketplace brands, generating an impressive annual sales figure of $426 million. This also gives the heavily Euro-focused agg a better foothold into the US Amazon marketplace.
Other noteworthy acquisitions took place in 2022 when Olsam acquired Flywheel Commerce and Marketfleet, and in April 2023 when Razor Group snapped up Stryze.
- Mergers. Two smaller US aggregators, Suma and D1 Brands, recently merged to form a consolidated entity known as The Ambr Group. This unified business now manages a portfolio of over 30 enterprises, amassing a substantial annual revenue exceeding $100 million.
Less accomplished aggregators looking for cash in these tough economic times, however, could face the pressure of liquidation.
What’s Next for Amazon Aggregators?
Aggregators interviewed by Modern Retail believe that it’s not all bad news. There’s still a lot of growth opportunities in 2023, whether that means finding growth through M&A with other aggs, exploring beyond Amazon, or applying a more selective aggregation approach.
As Forum Brands CEO Brenton Howland puts it, “For sellers who are out there and want to know what the future state of the Amazon ecosystem is, as it relates to acquisitions, its continued health and activity. It may not be quite at the rate at the level that we saw in 2021. In 2023, we’ll see a healthy return to normalcy for business models that from a fundamentals perspective are outstanding and will continue to be that way.”