The digital natives might have found their consolidator — and its one of their own.
When Andy Dunn agreed in June to sell Bonobos to Wal-Mart Stores Inc. for $310 million, he inked himself a deal to oversee the retailer’s digitally native vertical brands, namely Bonobos and ModCloth.
That portfolio is expected to expand once the Bonobos deal closes in the third quarter and the list of potential candidates is long — 86 companies long, to be precise.
Last year, Dunn posted what he described as “The V-commerce Encyclopedia” to the blogging platform Medium. It listed 87 digitally focused companies (including Bonobos) that take goods from the factory directly to the consumer.
It’s an alphabetical rundown of the sector that starts with lingerie player AdoreMe and includes sweatshirt company American Giant, belt company Beltology, plus-size brand Eloquii, kids concept Rockets of Awesome, sector leader and eyeglass standout Warby Parker and ends with leather goods firm Whipping Post.
Now that Dunn is getting ready to step into his new role, he is said to have given that list to Wal-Mart’s in-house investment crowd as a starting point for exploration.
Wal-Mart, of course, is not going to buy or even seriously consider many of the companies on so long a list, but it, along with some of Dunn’s other blog posts, offer an unusually public view of where he will be looking as he sets off to build a collection of digitally native businesses. The postings also offer a glimpse into how he thinks founders should go about taking money when the time comes. (Neither Dunn nor Wal-Mart replied to WWD queries on the topic Friday).
In one of his posts, Dunn offers a metaphor about a woman who’s received two marriage proposals and goes to her father for advice. One suitor, Enrique, has “exceptional character and superb judgment,” but nonetheless offered a ring that was 18 percent smaller than that of his rival’s, Ajay.
Dunn’s advice, ultimately, is to “pick the best partner, not the prettiest ring.”
Translating this to the digital start-up world, where companies take money from venture capitalists, he said entrepreneurs should focus on finding the right partners and worry less about valuations.
“Your pre-money valuation doesn’t mean anything,” Dunn wrote in April as he was in talks with Wal-Mart. “It’s not the price at which your company is being sold for: it’s the price at which a percentage of your company is being sold for. It’s not really what your company’s worth; it’s a bet on what it might be worth.”
Dunn is going to be on the other side of the negotiating table, making the pitch that Wal-Mart, which is generally not known to overpay while acquiring, is the best partner.
The pitch comes at an interesting time in the development of the digital natives, which have proliferated and are increasingly finding they can benefit by partnering up. Before selling to Wal-Mart, Bonobos linked up with Nordstrom Inc. Elsewhere, buzzy mattress firm Casper tied up with Target Corp. this year and earlier, Glossier partnered with Net-a-porter and Warby Parker connected with Steven Alan.
True & Co. ran the buyout numbers and decided it liked the result in March, when PVH Corp. paid $28.5 million for the intimate apparel e-tailer, including $800,000 in assets and $27.7 million worth of goodwill.
True & Co. cofounder Michelle Lam created the company to change the fitting room experience and noted, “In PVH, we have a strategic partner who can help us bring this change to as many customers as possible. We look forward to joining PVH’s portfolio of brands and to help drive growth initiatives for PVH’s other brands.”
More connections between the digital natives and establishment seem to be in the offing.
Marissa Vosper, cofounder of Negative Underwear, which is self-funded, said: “Being digitally native gives you an advantage in terms of building the brand the way you want to build it first, but it does feel like there is a trend to being vertically integrated-plus. Being truly vertically integrated, it seems like there’s an evolution away from it being so pure.”
And the game is changing so quickly that even paths taken by the movers and shakers just a few years ago are closed.
“The way Warby Parker grew so quickly is probably irrelevant to a company started five years later,” Vosper said. “There’s no equation.”
One thing that is sure is that the number of digital brands has proliferated, just look at Dunn’s list; indicating there is something there for consumers.
“This generation is not only interested in products purely by themselves,” Vosper said of consumers. “They also want to support brands they believe in. That’s where large conglomerate companies don’t have as much ability to internally seed those brands from the bottom up. They’re better positioned to acquire.”
And the would-be acquirer with perhaps the longest list is Dunn.
One source familiar with Dunn’s thinking on the digital natives said: “Andy’s theory is that they should be put together. But what are you buying? Are you buying the brand? Are you buying the expertise?”
With the digital and retail landscape in so much flux right now and Amazon grabbing so much share, the specific answer to those questions might not matter as much as the added online momentum each deal brings.
The V-commerce Encyclopedia
Andy Dunn’s reckoning of the digitally native, vertically integrated branded universe, via Medium in May 2016.
Dollar Shave Club
Fame and Partners
Frank & Oak
Ministry of Supply
Mizzen & Main
Monica & Andy
Rockets of Awesome
Shoes of Prey
The Honest Co.
Tuft & Needle