The hunters are in trouble

Düsseldorf The hottest bet in the startup scene doesn’t seem to pay off: so-called Amazon aggregators – investors who buy dozens of Amazon brands for millions to create retail giants – have just been hailed as the big winners of the crisis. a year ago.

In the meantime, the alleged success model is weakening: e-commerce growth has collapsed, the promised synergies are not coming, and more and more Amazon aggregators run into problems. The American company Thrasio, the inventor of this business model, has already experienced massive layoffs.

Now, for the first time, one of the brand hunters unpacks and provides specific information about the business. In an interview with Handelsblatt, Peter Chaljawski, founder of Berlin Brands Group (BBG), says: “We are experiencing a profound breakthrough in the market. The industry’s business model has often been geared solely to ensuring the continued growth of the acquired brands, ”he says.

Due to soaring costs and grim business prospects, many aggregators are no longer able to keep their promises to investors. The BBG business also slowed down, with sales exceeding EUR 400 million in 2021 according to market estimates. “We initially expected strong growth this year and are seeing lateral movements instead.”

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Therefore, even BBG, which most brands do better than the market, has to pull the line. The company is laying off nearly 100 employees, around ten percent of its workforce. “This is the most difficult decision in my 17 years as an entrepreneur,” admits Chaljawski.

Euphoria gives way to great disappointment

“So far our priority has been clearly aggressive growth, now our focus is on ensuring profitability,” explains the founder. “We turn every stone to cut costs.”

The business idea of ​​aggregation is impressive at first glance and has convinced many investors. During the pandemic, many start-ups achieved double-digit growth in the Amazon market thanks to their young brands. Thrasio bought them in bulk and promised to increase sales growth through synergies.

Following the example of Thrasio, dozens of such aggregators were also created in Europe under the names Branded, SellerX and Razor Group and set out to hunt for Amazon’s most promising brands. In addition, there were e-commerce companies like BBG and KW Commerce that bought additional brands in addition to the brands they built themselves. Over the past two years, large funds and private equity houses have invested around EUR 15 billion in the heroes of this business.

Founder of BBG Piotr Chaljawski

The founder wants to focus his company more on profits.

But the gold rush mood is over. “After the initial euphoria, you can feel a great deal of disappointment,” notes Nils Seebach, e-commerce expert at consulting firm Etribes. It explains that operational synergies could not be used as promised.

The unprecedented boom in online trading during the koruna pandemic has generated enormous expectations among investors. There are around two million active sellers in the Amazon marketplace, many of whom have seen double-digit growth rates in the past two years – mostly with their own brand of trendy products.

The e-commerce boom is over for now

BBG also benefited greatly from this. According to Chaljawski, 33 out of 42 brands purchased grew at least as fast as the market last year. For example, the Bambuswald brand, which offers household items made of bamboo wood, increased sales by 66% in 2021. Schmatzfatz, a manufacturer of beverage bottles and plastic boxes, grew 54 percent over the same period.

But the e-commerce boom is over for now. According to a study by the German Association for E-Commerce and Postal Sales (BEVH), online sales fell 6.7 percent from early April to mid-May compared to the previous year. The reason: rising prices and supply problems, exacerbated by the Ukrainian war, and general uncertainty among consumers.

Similar effects can be observed in many countries around the world. Amazon itself even suffered a loss on its own trading activity in the past quarter. It turns out: “Buyers have acquired many of the brand’s dealers with overpriced,” says Seebach.

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In these tightened conditions, it is now clear who controls operations, says the consultant. “Now we’re going to the engine room.” The fact that even the pioneer Thrasio has cut several hundred jobs and changed CEO shows experts how the market is reaching its limits.

According to Seebach, the potential in Europe is even more limited. “The Thrasio model is not easily translated into Europe, there are serious obstacles to crossing national borders,” he notes. While there is a large single market in the US, there is hardly any synergy in Europe because the costs of relocating to another country are so high. “This means that one of the core promises of the business model is not working,” he points out.

Razor Group receives $ 800 million in acquisitions

It is for this reason that Tushar Ahluwalia, co-founder of the Berlin Razor Group, sees his company in a good position. Because it mainly buys from US dealerships, Razor makes about 70 percent of its sales in the US. “We see a particularly great potential for growth there,” he says.

To date, the Razor Group has acquired approximately 100 companies with over 200 brands. In 2021, it achieved a turnover of EUR 255 million. This year, sales are expected to increase to EUR 577 million – also thanks to further acquisitions.

Razor, of course, has the capital for it. “For our acquisitions, we are closing significant $ 800 million acquisition financing from Victory Park Capital and Blackrock in the coming days,” Ahluwalia said.

On the other hand, BBG is currently rather reluctant to take over other brands. But Chaljawski also emphasizes: “If a good opportunity presents itself, we will of course investigate it. One thing is certain: it will be cheaper to take over brand dealers in the future. ”

However, consolidation is now also expected among aggregators. – There will be consolidation in this market, but mergers will not be easy – says the founder of BBG Chaljawski. “I expect some companies to consolidate or exit,” Seebach predicts. The driving force behind this is likely to be large funds, some of which have invested in several of these companies.

The Razor Group has already shown its ambition to be on the active side. In April, it took over the Spanish competitor Factory 14 – and thus expanded its portfolio with 20 Amazon retailers in one fell swoop.

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