E-Commerce M&A: All Eyes Shift To Ross Stores After DSW’s Acquisition of Ebuy, Inc.
Ross Stores, called ‘Rocket Stock’ To Buy for 2016 Gains by TheStreet.com, and New Off-Price Star by BloombergGadfly, is a 71,400 employee Fortune 500 retailer, WITHOUT an e-commerce website. Why no online store? In the old days, selling items online wasn’t easy for off-price apparel companies like Ross Stores that have a revolving door of merchandise. However times have changed and DSW’s February 17, 2016 acquisition of Ebuy, Inc. to “strategically scale its off-price sourcing capabilities, expand its presence into digital marketplaces, and create opportunities to serve international customers online” suggests the time may be ripe for Ross Stores to act too.
Which ‘off-price’ e-commerce target would fit best with Ross Stores?
To find out I asked the man who should know, Scot Wingo, Executive Chairman and co-founder, ChannelAdvisor Corporation, whose company’s SaaS solutions enables approximately 2,800 core customers (retailer and branded manufacturer) to integrate, manage and optimize their merchandise sales across hundreds of online channels including e-commerce marketplaces like Amazon, search engine and comparison shopping websites such as Google, and emerging channels such as Facebook. Scot’s picks (which are profiled later in the story) are:
* ChannelAdvisor client
For a 2nd perspective I asked Bernardine Wu, Founder & CEO of FitForCommerce.com (an e-commerce consultancy) which e-commerce business she would marry with Ross Stores. Bernardine said, “They’d (Ross Stores) be better off spinning up their own ecommerce business, rather than buying one. In fact, we just helped a discount retailer with their 5-year omni-channel plan.”
Scot Wingo thinks the jury is still out however. “If you spin up your own, you end up front-ending all the costs, a good 12-18 months to revenue and it’s a long slog that has a deep up-front commitment. When you acquire, you are aligning revenue with expenses and if you do it right, you end up adding some talent to your company that would take years to develop.”
BHFO.com background and CEO perspective
Scot Wingo’s top pick for Ross Stores is BHFO.com. BHFO’s e-commerce niche is “Offering brand-new designer goods from major manufacturers and upscale department stores at a fraction of retail.” The company was founded by Jon and Stacie Sefton, has grown to 160 employees, and today ships 150,000 packages-a-month from a 250,000 square foot facility based in Cedar Rapids, Iowa. According to the Sefton’s, B and H (in our company name) are our daughters’ initials, and F and O stand for Factory Outlet.
When I shared that Scot Wingo had placed BHFO.com on a short list of e-commerce Strategics that would be a great fit for Ross Stores, Stacie (CEO) didn’t seem surprised. “An established online off-price retailer like BHFO would add a turn-key experience and eliminate initial roadblocks for Ross Stores (e.g. operating systems, recruiting an experienced e-commerce management team, designing a robotic fulfillment operation, etc.). Our team has 15 years of experience building a catalog for the non-traditional off-price model, has mastered the complexities of efficiently processing low SKU depth coupled with a large percentage of unique items, and has experience and relationships with all major global marketplaces and logistics partners.” For additional color on the business Stacie suggests watching their ‘About us’ video.
BeyondTheRack background and CEO perspective
BeyondTheRack is a private online shopping club for women and men who want designer brand fashions and accessories at below retail prices. The company works with major brands to hold limited-time sales that are open exclusively to its members. According to the company each sale starts at a specific time and typically lasts only 48 hours. On February 19, 2017 Gucci filed a counterfeit lawsuit against the company. According to CrunchBase the company has raised a total of $78.6 million in funding in five (5) rounds from 12 investors.
When I mention to Yona Shtern (CEO) that Scot Wingo had included BTR on a list of e-commerce Strategics that may be a fit for Ross Stores he said, “We have always felt that there existed big synergies between online and offline players in off-price retail – especially when both parties served a similar customer demographic. This is evidenced by the acquisition of Haute Look by Nordstrom and its integration into their Nordstrom Rack brand and the recent acquisition of Gilt by Hudson’s Bay for integration into their Sakes Off Fifth brand. Similar assortments, similar demographics, complementary distribution channels. In the mid-market both Ross Stores and TJX would match up nicely with Beyond the Rack.”
Choxi background and CEO perspective
Choxi tag line is ‘everything you love, for less.’ The company started out as nomorerack.com in November of 2010, and changed its name to Choxi in April of 2015. On June 18, 2014 Forbes staff writer Abram Brown published a story about the company titled, Mr. Dirt Cheap: Deepak Agarwal Started In Erotica. Today He’s An E-commerce King. According to Crunchbase Choxi has raised $52 million in 2 rounds from 3 investors. I contacted Deepak to hear his thoughts in regard to the possibility of a combination with Ross Stores but as of the time of publishing had not heard back.
The bottom line
Traditionally selling items online wasn’t easy for off-price apparel companies like Ross Stores due to their revolving door of merchandise. Times have changed however and M&A has been used to scale off-price sourcing capabilities, expand into digital marketplaces, and create opportunities to serve international customers (e.g. DSW’s Acquisition of Ebuy, Inc., Nordstrom’s acquisition of Haute Look, and Hudson’s Bay acquisition of Gilt Group).
Wall Street analysts and many investors are counting on Ross Stores to be a Rocket Stock in 2016. And whether or not the company opens its pocketbook and acquires a target like BHFO.com OR kicks the (e-commerce) can down the road again this year will be fascinating to see!
Disclosure: The views contained in this article are my own and not those of my employer, BG Strategic Advisors. To avoid a conflict of interest, I don’t trade stocks.