Dusseldorf The hottest bet in the start-up scene doesn’t seem to be paying off: just a year ago, so-called Amazon aggregators – investors who buy up dozens of Amazon brands with millions in order to form retail giants – were considered the big winners of the crisis.
In the meantime, the supposed success model is weakening: Growth in e-commerce has collapsed, the promised synergies are not coming, more and more Amazon aggregators are getting into problems. At the US company Thrasio, inventor of this business model, there have already been mass layoffs.
Now, for the first time, one of the brand hunters unpacks and gives specific information about the business. In an interview with the Handelsblatt, Peter Chaljawski, founder of the Berlin Brands Group (BBG), says: “We are experiencing a deep turning point in the market. The industry’s business model has often been geared exclusively towards ensuring that the acquired brands continue to grow,” he says.
In view of the sharp rise in costs and the gloomy business prospects, many aggregators can no longer keep their promises to investors. The business of BBG, which had a turnover of more than 400 million euros in 2021, has also slowed down. “We originally expected strong growth for this year and instead see sideways movement.”
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That’s why even BBG, the majority of whose brands have performed better than the market, has to pull the ripcord. The company is laying off almost 100 employees, about ten percent of the workforce. “This is the most difficult decision in my 17 years as an entrepreneur,” admits Chaljawski.
Euphoria gives way to great disillusionment
“Until now, our priority has clearly been aggressive growth, now the focus is on securing profitability,” explains the founder. “We turn every stone to reduce costs.”
The business idea behind the aggregation is impressive at first glance and had convinced many investors. During the pandemic, many start-ups had achieved double-digit growth rates on the Amazon marketplace with 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 founded in Europe under names such as Branded, SellerX and Razor Group and went on the hunt for the most promising Amazon brands. In addition, there were e-commerce companies such as BBG and KW Commerce, which bought additional brands in addition to the brands they had built up themselves. Large funds and private equity houses have invested around 15 billion euros in the protagonists in this business over the past two years.
The founder wants to focus his company more on profits.
But the gold rush mood is now over. “After the initial euphoria, a great sense of disillusionment can be felt,” observes Nils Seebach, e-commerce expert at the e-Tribes consultancy. Operationally, the synergies could not be leveraged as promised, he explains.
The unprecedented boom in online trading during the corona pandemic had raised huge expectations among investors. There are around two million active sellers on the Amazon marketplace, many of whom have had double-digit growth rates over the past two years – mostly with trendy products under their own brand.
Boom for e-commerce is over for the time being
BBG has also benefited enormously from this. According to Chaljawski, 33 of the 42 purchased brands grew at least as fast as the market last year. For example, the Bambuswald brand, which offers household products made from bamboo wood, increased sales by 66 percent in 2021. Schmatzfatz, a manufacturer of drinking bottles and plastic boxes, grew by 54 percent in the same period.
But the boom in e-commerce seems to be over for now. According to surveys by the German E-Commerce and Mail Order Association (BEVH), online sales fell by 6.7 percent between the beginning of April and mid-May compared to the previous year. The reason: price increases and delivery problems, exacerbated by the Ukraine war, and general uncertainty among consumers.
Similar effects can be seen in many countries around the world. Amazon itself even made a loss with its own trading business in the past quarter. It turns out: “The buyers have taken over many of the brand dealers at too high valuations,” says Seebach.
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Under these tightened conditions, it is now clear who controls the operative business, says the consultant. “Now it’s off to the engine room.” The fact that even pioneer Thrasio has cut several hundred jobs and changed the CEO shows experts how severely the market is reaching its limits.
According to Seebach, the potential is even more limited in Europe. “Thrasio’s model does not easily translate to Europe, there are major hurdles to scaling across national borders,” he notes. While there is a large single market in the USA, there are almost no synergies in Europe because the costs for a transfer to another country are so high. “This means that one of the core promises of the business model does not work,” he points out.
Razor Group gets $800 million for acquisitions
Tushar Ahluwalia, co-founder of the Berlin Razor Group, sees his company in a good position for this very reason. Because it mainly buys US dealers, Razor makes around 70 percent of its sales in the USA. “We see particularly high growth opportunities there,” he says.
So far, the Razor Group has acquired around 100 companies with more than 200 brands. In 2021 she made a turnover of 255 million euros. In the current year, sales are expected to increase to 577 million euros – also through further acquisitions.
Razor obviously has the capital for this. “For our acquisitions, we are closing a major acquisition financing of $800 million from Victory Park Capital and Blackrock in the coming days,” Ahluwalia said.
BBG, on the other hand, is currently rather reluctant to take over other brands. But Chaljawski also emphasizes: “Should a good opportunity arise, we will of course examine it. One thing is clear: it will be cheaper to take over brand dealers in the future.”
But consolidation is now also expected among aggregators. “There will definitely be consolidation in this market, but mergers will certainly not be easy,” says BBG founder Chaljawski. “I expect that some of the companies will consolidate or exit the market,” predicts Seebach. The driving force behind this is likely to be the large funds, some of which have invested in several of these companies.
The Razor Group has already shown it has ambitions to be on the active side. In April, it took over the Spanish competitor Factory 14 – and thus expanded its portfolio by 20 Amazon retailers in one fell swoop.
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