As discussed throughout this and our previous reports, innovation in the ‘luxuryverse’ (pardon the pun) is at an all time high across digital and physical goods and experiences. Existing players are searching out new ways of engaging with their customers and reaching new markets. New players are raising funds at an unprecedented rate (check out Pauline Li’s article for an update on this). New apps, tech solutions, sustainable hotel and workspaces, and digital and physical stores and publications are launching around the world every day. It’s an exciting time to be working in the luxury sector, with consumer’s’ views on what ‘luxury’ entails constantly expanding.
So which businesses are on a growth trajectory?
The hot tickets in town are sustainability and/or tech driven.
Circular economy and smart fabrics
If the zoom boom was the story of 2020, the dawn of rental and resale platforms might just be the headline story of 2021. In 2021, resold clothing fetched around $15bn globally, up from less than $1bn in 2013. According to the research firm GlobalData, the value of resale revenues is likely to triple to $47bn annually by 2025. Increased demand for sustainable and smart fabrics is also set to continue. Mary Fellowes, Sheep Inc. and Biophilica have all offered us detailed insights on a more sustainable future.
Digital first
Roblox (which listed on the NYSE last year at one of the highest valuations per share) teamed up with the British Fashion Council to launch a new category as part of The Fashion Awards 2021 – an award for Metaverse Design. Alessandro Michele, Creative Director of Gucci, even made an appearance as an avatar to present the award in The Fashion Awards experience on Roblox. For more on the intersection of fashion and gaming, do read this article when you have a moment. We can expect much more from the metaverse and digital first fashion in 2022.
Healthier living
Non-alcoholic drinks have also contributed to the focus on sustainability (think smaller-scale, local production) and healthier living. US e-commerce platform Drizly recently confirmed that the non-alcoholic ‘spirits’ sector is one of its fastest-growing subcategories, with sales up by 290% in 2021.
Does this mean more M&A across the sector?
In short, yes. But the longer answer is, as ever, more nuanced.
Startup culture, driven by silicon valley ‘techtrepreneurs’, has encouraged many founders to scale their businesses as quickly as possible with an “exit” in mind. Angel investors and venture capitalists will always be looking to exit at the right time, seeking a return on their investment (ROI). Given the capital currently available to scaling businesses in the luxury sector, the number of small-scale competitors eating into each other’s margins, and the incentives for existing players to protect and enhance their market share, acquisitions are inevitable.
Plenty of recent deals have been driven by the need for consolidation or to access new technologies or markets. In 2021, headline grabbing deals included:
- Etsy’s acquisition of Depop
- The merger of Accor and Ennismore
- Kering’s investment in Vestiaire Collective
- Getir’s acquisition of Weezy (you can read more on last-mile delivery here).
Not all exits will be straightforward. Many ‘exits’ are in fact partial sales, mergers or public listings. Often, early stage investors will sell on to larger investors (there is plenty of private equity capital out there at the moment, and PE tend to invest at a later stage in the business life cycle than angels or VCs). It’s rare for a founder, or all investors, to fully exit as part of a transaction.
The number of global public listings in 2021 was more than double that in 2020 and the rush to market looks set to continue in 2022. We can expect further investment deals and M&A to consolidate the market ahead of public listings. With the ascendence of stock exchanges such as Acquis, where the market cap for a listed business can be much lower, we can also expect more early stage listings.
Early stage investors are also taking a longer-term approach in many cases, focusing on nurturing a diverse leadership team or building sustainability credentials. We hope to see more of this approach through the 20s.
Any tips for exit strategy?
Valuation, valuation, valuation
In recent years, tech and digital businesses have attracted higher multiples (commonly, valuations are based on a multiple of revenue using metrics such as EBITDA). A higher multiple suggests a stronger business case for future growth. Most businesses are now tech or digital savvy and so determining where a business sits in the market is key. The IPO of WeWork was pulled when the market caught on that it is largely a traditional bricks and mortar business, and not a tech platform, and so its valuation was unsustainable. Buyers and investors will need to be wary of similar marketing strategies.
Get the house in order
From a practical perspective, the same advice applies to an exit as any other investment (but you can expect it to be an even more involved process). Check out our four top tips for getting ready to hit the fundraising trail here.
Avoid the brain drain
In the luxury industry, it’s important to be clear from the outset on whether the key aim of a transaction is access to specific assets (e.g. brand, technology, real estate, design, content) or a functioning business. Increasingly, the people behind the business (whether it’s app developers, content creators, writers, designers or the business leads) are just as important as the assets themselves. When approaching any deal, it’s fundamental to ensure the right people will be part of the business going forward. Don’t be fooled by the term ‘exit’ – it’s likely that any founders will be expected to stick around post-transaction.
By Francesca Ainsworth, Strategy Lead – The Collective by Lewis Silkin
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