INDEPENDENT TECHNOLOGY RESEARCH ONLINE FASHION Online fashion: where is the smart money going?

INDEPENDENT TECHNOLOGY RESEARCH ONLINE FASHION 2015 Online fashion: where is the smart money going? Introduction and methodology » In May 2013 we ...
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INDEPENDENT TECHNOLOGY RESEARCH ONLINE FASHION 2015

Online fashion: where is the smart money going?

Introduction and methodology » In May 2013 we released our research report “Online Fashion – Which businesses will make the cut?” where we discussed the growth and prospects of the industry » The online fashion industry has matured considerably, driven by consumer adoption and more importantly by established retailers and wholesalers embracing technology for a number of innovative purposes, for example the partnership between Burberry and Snapchat to preview couture collections in F/W 2015 » These factors have driven strong growth for online fashion players, with a number of billion-dollar companies emerging in the sector and several high profile exits in both established and disruptive business models

» In this sector update, we examine the investment and exit activity in the sector over the last five years and we highlight a number of trends and companies which are best placed to take advantage of future opportunities

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Opportunity to create huge value in online fashion Company valuation for the European Unicorns ($bn) »

The fashion industry is huge (€400bn+ in Europe(1)) and disrupting it can create huge value

$9.0bn

E-commerce Online fashion

$8.0bn

$7.0bn

»

»

Of 12 European e-commerce $bn+ startups, 6 are in online fashion(2) Further potential to create huge success stories in the industry

$6.0bn

$5.0bn

$4.0bn

$3.0bn

$2.0bn

We believe there will be at least another 10 more billion dollar online fashion startups in the next 3-5 years

$1.0bn

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Skype Spotify Rocket Internet Zalando Ulmart Yandex King Digital ASOS PokerStars Markit Group Rightmove Rovio Entertainment* JustEat Supercell Global Fashion Group Vkontakte Vente Privee Ve Interactive* Powa Criteo Delivery Hero YOOX Avito Avito.ru Adyen Skrill Fleetmatics Group Qiwi Fanduel Klarna Conduit* Wonga* Zoopla AO World Mojang* Skyscanner Farfetch BlaBlaCar Home24 Transferwise Shazam Funding Circle

»

Source: Company data, Capital IQ, Mergermarket, press articles, GP Bullhound analysis. *: Indicates valuation estimate based on press and rumours. 1) European apparel retail industry size 2) Includes Global Fashion Group within Rocket Internet

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Public markets main path for large exits While M&A increased 2x in volume and 4x in value to $3.5bn vs. 2012, large exits are still mainly through IPOs

Qatar Holdings Dec-13 N.a

IPO Feb-12 $71m

2012

PPR Dec-12 $13m

IPO Mar-14 $502m

CDON Group Jul-13 n.a.

Naspers May-14 N.a

2013

IPO Aug-14 $319m

IPO May-14 $195m

PCH International Mar-15 $15m

IPO Apr-13 $79m

2014

IPO Oct-13 $253m

Rakuten Feb-14 $21m

IPO Feb-14 IPO $37m

IPO Nov-15 $280m

IPO Nov-14 $69m

2015

KKR Jul-14 $171m

Ozon Feb-12 $13m

Yoox Mar-15 N.a

IPO Sep-14 $664m

IPO Apr-15 $205m

Neiman Marcus Sep-14 N.a

QVC Aug-15 $2,476m

Naspers Aug-15 $75m

Source: Capital IQ, GP Bullhound research as at November 2015 4

What drives a premium valuation? »

Most transactions between 0.5x 1.5x LTM revenue multiple ›

To break out of the valuation ranges businesses need to have attributes pointing to high return on equity

EV / LTM Revenues* 6.0x PriceMinister / Rakuten 5.0x RueLala / GSI Commerce 4.0x

»

Marketplaces tend to generate highest valuations: 3.0x



»

PriceMinister / Rakuten: category leader in France, inventory light, fast growth

Flash / private sales have been valued at up to 4x revenues ›

Markafoni / Naspers: category leader in emerging markets, viral growth, inventory light

Net-A-Porter / Richemont

HauteLook / Nordstrom

Dealmates / Ensogo

MUSE & Co. / Mixi Inc.

Markafoni / Naspers 2.0x

zulily / QVC OZSALE / Sheldon Capital

1.0x

0.0x Feb-09

Jul-10

Source: CapitalIQ, GP Bullhound estimates, Crunchbase, Company websites, press *) Selected M&A transactions

Nov-11

Apr-13

Aug-14

Dec-15

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Investors are doubling up their bets $bn

Private placements in online fashion companies are growing rapidly in value.. (1) 3.0

2.9

2.5 2.2 2.0

1.9 1.6

1.5

1.0 2012

2013

2014

2015YTD

..driven by increase in number and size of transactions across most business models (2) CAGR of Private Placement number between the first three quarters 2010 and 2015*

8% 23%

10%

Marketplaces

Online label / tailored

8% Private / flash sales

24% 22%

Social discovery

Online label / tailored

Unique curated discovery

Source: CapitalIQ, Crunchbase, Press, GP Bullhound 1) Excluding undisclosed transactions 2) Including undisclosed transactions

+56% +51%

Marketplaces

Personalised discovery

Social discovery

+61%*

Multi-brand e-commerce

Unique curated discovery

3%

+63%

Marketplaces

Multi-brand e-commerce

3%

+64%

Personalised discovery Vertical specialists

-8%

+44%* +18%

Private / flash sales

*) CAGR 2012-2015

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KEY TRENDS

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Marketplaces are the new standard 39 companies funded in 2015YTD with c.$1.7bn (vs. 35 / $280m in 2013) »

Marketplaces remove pain points for customers and vendors through complex technology

»

Some focus on aggregating a large number of brands (Lyst), others on a smaller selection of items from exclusive boutiques (Farfetch), others on lower value items through mobile app (Wish)

»

Emphasis on discovery, consumer choice and transparency, improving customer experience

»

They have grown faster and raised more capital than traditional e-commerce startups

»

Spring raised $25m in 2015

Farfetch raised $86m in 2015 at $1bn+

Wish raised $500m in 2015

Incumbents are building and investing in marketplaces – validation of business model in the sector

Lyst raised $40m in 2015 from VCs and Groupe Arnault

Amazon launched the Handmade service in Oct-15

ASOS launched its marketplace in 2010

Source: CapitalIQ, GP Bullhound, Crunchbase, Company websites, press 8

Second hand marketplaces are maturing fast 16 companies funded in 2015YTD with c.$210m (vs. 9 / $34m in 2013) »

Sizeable niche businesses can be built selling “pre-loved” fashion

»

Game of scale: most players address the mass segment of the market, fewer luxury players

»

User experience / curation / social element are key to build audience and increase scale while keeping customer acquisition costs in check

»

Drivers for consumer include keeping up to date with fast fashion trends at lower price, accessibility from mobile and low friction in the apps

»

Strong increase in investments in the space in 2014-15: Vestiaire collective raised $40m, thredUP raised $81m, the RealReal raised $40m in recent months

Item Value

Scale

Source: CapitalIQ, GP Bullhound estimates, Crunchbase, Company websites, press 9

A personal stylist just for you 23 companies funded in 2015YTD with c.$290m (vs. 23 / $24m in 2013)(1) »

Discovery is key for fashion, and new businesses are taking curation and personalisation to the next level

»

Main proposition is to give customers a personalized style recommendation which can then be bought on the site

»

Market in flux – various approaches including stylist, algorithms and lists

»

Over 30 companies funded in the space in 2015

»

Some consolidation and exits e.g. Trunk Club / Nordstrom in 2014, Shoedazzle / JustFab merger in 2013, as well as Polyvore / Yahoo in Jul-15

Source: CapitalIQ, GP Bullhound estimates, Crunchbase, Company websites, press 1) Includes unique curated discovery, personalized discovery, social discovery

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The dream closet is here: renting the runway 3 companies funded in 2015YTD with c.$32.6m (vs. 3 / $3.8m in 2013) »

“Fashion for hire” businesses are opening up a new market for renting designer wear

»

The resale value in women’s closets globally is estimated at $165bn(1)

»

Consumers have embraced the online collaborative consumption model

»

High complexity: deep technology and sector knowhow needed to provide quick turn around and high level of service for a demanding clientele

»

Key players are Rent the Runway and Le Tote in US, which have raised over $75m combined, and Girl Meets Dress in Europe Source: CapitalIQ, GP Bullhound estimates, Crunchbase, Company websites, press (1) Source: Tradesy

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Other disruptive technologies and recent trends Emerging trends and key players give insight on future areas for disruption Trend Selected players

Virtual fitting rooms

DIY Plafforms

Vertical Labels

»

Help finding the perfect fit by creating 3D models of customers and showing how styles look without trying

»

Initial traction is positive: remove pain points for consumers and retailers and increase conversion to purchase

»

Initial traction from large brands in the industry

»

Allow independent designers to create, manufacture, market and sell fashion items online

»

Offer full array of services and capabilities to indies from design tools to online marketing and logistics

»

Marketplace dynamics generate compelling economics

»

New breed of online-first companies rebuilding the techenabled fashion business of the future from the ground up

»

Analytics and data driven commerce, 3D printing, digital marketing are key technologies enabling the shift

Acquired by Rakuten

Source: CapitalIQ, GP Bullhound estimates, Crunchbase, Company websites, press 12

Authors and disclaimer Manish Madhvani Managing Partner

Alessandro Casartelli Vice President [email protected] London: +44 207 101 7594 Twitter: @Acasa_GPB

[email protected] London: +44 207 101 7567 Twitter: @manishmadhvani • • • •

Co-founder and Managing Partner of GP Bullhound Private Equity experience at Barclays Capital LLB in Law and MA in Marketing at Southampton University 2013 dealmaker of the year, 40 under 40 award

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