Matt’s Top 3 SPAC Targets – Future of Retail
SPACInsider contributor Matt Cianci this week compiled his three favorite potential SPAC targets that will be playing a part in the post-pandemic future of retail. We look at why they are compelling and why each could be a fit for a blank-check merger.
Retail was among the sectors hardest hit by the COVID-19 outbreak. But, unlike other industries such as travel or dining, it was facing tough times going into the crisis as well, with continually dipping fortunes for brick-and-mortar stores and profit-scorching competition in ecommerce.
Private funding in retail and adjacent industries has been similarly shallow since early 2019, and with the pandemic’s disruptions yet to peter out, SPACs could take a major role in shaping what retail will look like when the doors are metaphorically re-opened.
Rebag
Despite spiking demand for ecommerce through the pandemic, the private funding slump extended to it as well. CB Insights recorded just $2.9 billion in equity investment in ecommerce in Q1-2020 and $3.1 billion in Q2, after the sector finished 2019 strong with about $5.5 billion and $5.1 billion in investment in Q3-2019 and Q4-2019, respectively.
With lower access to private capital, there are a number of ecommerce platforms poised to take advantage of the continued consumer behavior realignments that could see SPACs as their best option to keep their pedal to the metal.
Rebag not only fits this bill, but also matches the trend of consumers looking to shop on a tighter budget due to the pandemic. It offers second-hand luxury handbags, watches and other high brand accessories via its native ecommerce platform and six branded stores .
The company raised $15 million in a May Series D, but this was smaller than its $25 million Series C a year earlier and it could be looking for a bigger bag going into 2020. It has raised $68.3 million since its 2014 founding and has recently attracted higher profile investors such as its Series D leader Novator Partners, a private equity firm that counts investments in Stripe and Deliveroo among its portfolio.
The consumer re-sale market was valued at $28 billion in 2019 and is expected to grow at a CAGR of 39% to $64 billion in 2024. The luxury segment will likely continue to provide the highest margins in this area, and Rebag is also offering rent-and-return options similar to Rent the Runway.
Rent the Runway could prove an instructive case in this area as it appeared poised for an IPO in 2019, but was reportedly working to pull together an incremental capital raise in May, at a valuation sharply below the $1 billion it received previously.
Rebag was able to get its capital raise closed that month, and could prove a more durable service in the pandemic as it focuses on selling goods that customers are going to want for a longer haul rather than renting a gown for that cousin’s wedding that may have already been moved to Zoom.
The company could also count as an ESG investment as its service is technically recycling. According to EPA estimates, more than 9% of municipal solid waste was made up of rubber, leather and textiles, meaning the average American is throwing away nearly half their weight in clothes every year.
KKW Beauty
While the fortunes of apparel sellers have been up-and-down over the past year, the beauty segment continues to rise.
Beauty companies tend to be able to ride brand power to higher markups and receive far fewer returns than with clothing. They also have been propelled by social media influencers that have kept consumers buying new products even while shut-in due to the pandemic.
Perhaps the best exemplar of all these tailwinds is KKW Beauty, the personal beauty brand of Kim Kardashian West. It launched in 2017 and achieved unicorn status in June with a $200 million investment in exchange for a 20% stake by personal care company Coty. This deal also included a licensing agreement putting Coty in charge of expanding the brand into new segments.
But this isn’t just uniquely Kardashian fever. Other beauty brands have followed an analogous path – Pat McGrath Labs also received a $1 billion valuation three years after its founding while Huda Beauty rode to a $1.2 billion valuation in short order powered by founder Huda Kattan’s 47 million Instagram followers.
It has been an open question how well these skyrocketing beauty unicorns would transition to the public markets once they are forced to explain converting hashtags to sales in an IPO roadshow. But they would unquestionably draw retail interest and SPACs have taken up the mantle as the champion of companies Wall Street doesn’t “get.”
Many SPACs could potentially seek to combine into the Kardashian family, but Aspirational Consumer Lifestyle Corp. (NYSE:ASPL) makes for an eye-catching fit.
Its team leader, Chairman and CEO Ravi Thakran, also serves as the group chairman for LVMH South and South East Asia, Australia/New Zealand. As the name suggests the SPAC is seeking to combine with an aspirational lifestyle brand that consumers connect to through “digital content, online communities and influencer-driven recommendations” with a particular focus on properties popular among millennials and generation Z.
Radar.io
Funding for in-store technology faced among the sharpest declines in the sector in 2020. Such companies raised just over $1 billion in the first half of 2020, while the sector brought in $3.9 billion in investment in 2019, according to CB Insights.
But, while there will almost certainly be fewer brick-and-mortar storefronts once the dust settles from the pandemic, those that remain will need new tools to keep customers coming in.
Radar.io provides location-based technology designed to drive consumers into retail locations by offering unique content or tailored discounts that unlocks via their mobile phones when they enter the store. Its technology also analyzes area foot traffic, offers customers directions and automates pickup and delivery tracking.
The latter piece is an increasingly essential part of how all retailers move their wares. Many businesses have been forced to offer curbside pickup options due to pandemic restrictions, but the winds were already blowing in that direction. In 2019, Cowen predicted 25% of consumers would opt for curbside pickup instead of in-store shopping, raising this market to $35 billion.
On the location side, many of Radar.io’s offerings have many startup competitors that have failed to scale the necessary geo-fencing infrastructure necessary for these features to work seamlessly. It has approached the scale problem by opening its platform for free to developers to run simple geo-fencing work, with team-level projects priced at $500 per month and variable pricing for enterprise clients.
The company has more than 5,000 developers currently on the platform across these levels. Its platform is fed data from over 100 million devices and processes more than 100 billion location pings per year.
The Brooklyn-based company had raised $20 million in February just before the lockdowns brought down the shutters and retail may already be using its tools to determine which shutters to pull back up.