Bowery Capital is an investment management firm focused on B2B marketplaces and similar categories.

Three key takeaways

1. Why is there a pullback in B2B marketplace investing?

• “The multiple compression in the public B2B marketplace players is causing the risk/reward to be very challenging downstream relative to other venture style business models.”
• “We are entering digital maturity in a lot of industries and there are a fair number of sizable, venture-backed companies.”
• “Competition and not wanting to back a fourth or fifth company in a well-funded space has caused a lot of the slowdown.”

2. Where are investors putting their skin in the game?

• “We still see a lot of activity in the markets that generally have the largest spend and are shifting the fastest to a digital twin.
• “Transportation and logistics, construction, healthcare, and wholesale continue to be verticals that see funding activity.”

3. Which B2B marketplaces are getting funded?

• A look at 13 recent transactions reveals a wide range of investor totals. For example, in February, ShiftMed raised $200 million. ShiftMed is a B2B marketplace for health care systems looking for help such as traveling nurses.
• On the other end of the spectrum, ePallet in August raised $5 million in new cash from Bowery Capital to expand. EPallet is a B2B marketplace that restaurant chains, franchises, and other companies in the hospitality industry use to get manufacturer-direct deals.

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But marketplaces in the right industries, niches and markets are getting funding from picky investors, according to new data from Bowery Capital. Bowery is an investment management firm focused on B2B marketplaces and similar categories.

B2B marketplace investment deals

A look at 13 recent transactions reveals a wide range of investor totals. For example, in February, ShiftMed raised $200 million led by health care investors, Panoramic Ventures with participation from Blue Heron Capital and Audacious Capital. ShiftMed is a B2B marketplace for health care systems looking for help such as traveling nurses. Funds will be used to expand ShiftMed’s national footprint across all segments of the health care market.

On the other end of the spectrum, ePallet in August raised $5 in new cash from Bowery Capital to expand. EPallet is a B2B marketplace that restaurant chains, franchises, and other companies in the hospitality industry use to get manufacturer-direct deals.

In the middle, B2B marketplace TruckSmarter closed a $25 million funding round led by Thrive Capital with participation from:

• Bain Capital
• FJ Labs
• Founders Fund
• Andreessen Horowitz
• Fin Capital

The funding will help TruckSmarter to continue building on its marketplace platform for owner-operator truckers and freight haulers. To date, TruckSmarter has raised more than $44 million in funding. TruckSmarter offers drivers a free marketplace app that displays loads from hundreds of brokers in need of a freight hauler.

“Since the beginning, we have put the needs of the truck driver first,” says TruckSmarter Daniel CEO Kao. “Not just from a large carrier perspective but through the eyes of the owner-operator — the entrepreneur.”

P‍icky investors

B2B marketplace investors have tightened the reins and narrowed the focus on which marketplaces receive funding, says Bowery Capital.

But the marketplace platforms that are raising money have a common trait: a viable business model with a good financial base and a clear path to market growth.

For example, ePallet says it carries 10,000 products from food and beverage companies such as PepisoCo., General Mills, Conagra and Campbell’s. It carries products from over 800 total brands and more than 400 suppliers.

“EPallet’s marketplace fills a crucial gap in the wholesale supply chain that has historically seen limited investment in transformative technologies,” says Bowery Capital general partner Loren Straub.

In health care, ShiftMed fills what it says is a costly void in the health care industry. ShiftMed offers a nursing jobs app that delivers an on-demand workforce marketplace for credentialed nursing professionals. It matches affordable professionals such as nurses with temporary openings at hospitals, long-term care facilities and at-home health care agencies. To date, ShiftMed says, it has over 350,000 nursing professionals with more than 1,500 enterprise health care organizations for direct access to labor for shift scheduling.

“Health care providers continue to struggle with access to credentialed workers as patient needs and volume continues to rise,” says CEO Todd Walrath. “ShiftMed is positioned to provide health systems with a regulatory-compliant W-2 solution that leverages local and part-time resources.”

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What is the Ghost B2B marketplace?

Ghost aims to give retailers a new way to liquidate surplus inventory using a marketplace platform. It has raised $30 million in new funding from Cathay Innovation. The marketplace formed about a year ago. It now has raised more than $50 million in total funding, the company says.

The B2B marketplace will use the new funds to hire for several roles in product, engineering and to continue to build out the technology features on Ghost.com. Ghost now has over 1,000 members on its platform, including some of the retailers in categories such as apparel, footwear, beauty and home goods, the company says.

The B2B marketplace intends to find an ecommerce opportunity in surplus inventory, which Ghost says is mostly a paper, email and fax industry.

“Surplus inventory continues to be one of the most significant pain points for retailers and brands who have historically suffered from limited, inefficient and archaic liquidation options,” the company says. “In 2022, over $500 billion of excess inventory was sold at discount retailers, expected to grow to $830 billion by 2030 — while over $163 billion is discarded annually. The problem is becoming more complicated as supply chain issues continue to arise and demand becomes more difficult to predict.”

The B2B marketplace platform has digital tools and features for buyers that include:

• Inventory matching
• Bidding
• Logistics and payments

Ghost B2B marketplace seller tools and features include:

• Digitally matching inventory lists
• Negotiation and bid acceptance
• Next-day payment after shipping
• Shipping support

“We are leveraging data science and technology to solve a problem that has previously been addressed with phone calls and fax machines,” said Josh Kaplan, co-CEO of Ghost.

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And the source of the funding is from one of the investors that over time has become the biggest investor of B2B marketplaces: Bowery Capital.

ePallet secures funding from Bowery Capital

EPallet is a five-year old B2B marketplace based in Los Angeles. It has secured $4 million in new funds from Bowery Capital.

Bowery Capital conducts extensive market research on the B2B marketplace market. It currently has a stake in more than 40 internet, sales-as-a-subscription (SaaS) and B2B marketplace companies.

The money ePallet raised from Bowery will be used for ongoing technology development and user recruitment, says ePallet CEO Joe Gozzi.

“EPallet makes wholesale trade easier,” Gozzi said. “And we are excited to be at the forefront of digital transformation in the wholesale industry. This seed funding will allow us to further enhance our technology and expand our market presence, ultimately benefiting our valued customers.”

EPallet says it carries 10,000 products from food and beverage companies such as PepisoCo., General Mills, Conagra and Campbell’s. It carries products from over 800 total brands and more than 400 suppliers.

“EPallet’s marketplace fills a crucial gap in the wholesale supply chain that has historically seen limited investment in transformative technologies,” says Bowery Capital general partner Loren Straub.

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Overstock’s $21.5 million cash offer has been selected as the lead bidder for Bed Bath & Beyond’s intellectual property, according to court papers filed June 13. That sets the price floor for the bankrupt retailer’s brand.

A bankruptcy judge must approve the bid. It doesn’t include the retailer’s desirable Buy Buy Baby brand or its Harmon unit, court papers show.

Overstock.com is No. 50 in the Top 1000. The database is Digital Commerce 360’s ranking of the largest North American online retailers. Bed Bath & Beyond ranked No. 47 prior to its bankruptcy.

Bed Bath & Beyond brand rights could go to Overstock

The offer puts Overstock, one of the nation’s top Internet retailers, in a favorable position to acquire Bed Bath & Beyond’s intellectual property out of bankruptcy. If Bed Bath & Beyond’s advisers select a competing offer, Overstock receives a break-up fee of up to $430,000 plus expenses.

Final bids for Bed Bath & Beyond’s assets are due June 16. An auction will be held June 21 if rival bids materialize in the next couple days. A New Jersey bankruptcy judge is scheduled to consider approving the sale at a June 27 hearing.

Lawyers representing Bed Bath & Beyond and its unsecured creditors declined to comment. Overstock didn’t immediately return a message seeking comment.

Bed Bath & Beyond filed bankruptcy in April with plans to liquidate the retail chain listing more than $5.2 billion in total debt as of last year. A company lawyer said at the time Bed Bath & Beyond filed bankruptcy that they were still hopeful the retailer would be able to complete a going concern sale for the business.

The bankruptcy is Bed Bath & Beyond, Inc., 23-10574, US Bankruptcy Court for New Jersey (Newark).

A long time coming

Bed Bath & Beyond never quite caught on to ecommerce, says Rich DePencier, area managing partner and chief marketing officer of Chief Outsiders. Chief Outsiders is a management consulting services company.

The retailer didn’t experience the pandemic-induced burst of ecommerce growth other merchants did. Of the top five merchants in the houseware/home furnishings category, Bed Bath & Beyond was the only retailer to have less than 10% 3-year CAGR, according to Digital Commerce 360 analysis.

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The firm is in the early stages of consideration. The IPO’s size has also yet to be determined, according to people familiar with the matter. The business group is in talks with banks that could potentially help prepare for the IPO next year, said one of the people. The person asked not to be named as the matter is private.

The unit, which competes with rivals such as Amazon.com Inc. in markets outside China, is one of six parts that Alibaba is splitting into. Valuations for the international business units vary: Morgan Stanley in March priced “international retail” units including Lazada and Trendyol at roughly $29 billion. Meanwhile, a CICC analyst report from the same month valued the firm’s international division at about $39 billion. In recent quarters, however, growth has been volatile in the face of global recessionary fears.

If it goes ahead, the Alibaba unit would join a number of high-profile Chinese firms including fast-fashion leader Shein seeking to tap American capital even as tensions rise between the world’s two largest economies. A listing in the U.S. could help the business — formally Alibaba International Digital Commerce Group, or IDCG — attract global investors wary of putting money directly into China.

Alibaba owns Taobao, No. 1 in the Digital Commerce 360 database of Global Online Marketplaces. The database ranks marketplaces by total value, or gross merchandise value of sales. Alibaba also owns Tmall (No. 2).

Amazon is No. 3 in the Global Online Marketplace Database. It’s also No. 1 in the 2022 Digital Commerce 360 Top 1000 database. The Top 1000 ranks North American web merchants by sales.

Shein is No. 36 in the Digital Commerce 360 2022 Asia Database, which ranks Asia-based retailers by their online sales.

Alibaba empire considers IPOs

Alibaba in March unveiled plans to break up its empire into units such as ecommerce, logistics and the cloud, with each business potentially exploring fundraising and an IPO at an appropriate time. The company will consider gradually giving up control of some of the businesses, CEO Daniel Zhang said at the time, but declined to specify a timeline for any Alibaba IPOs.

IDCG includes:

• Southeast Asian online mall Lazada
• AliExpress, popular in Russia, Latin America and parts of Europe
• Trendyol in Turkey
• Daraz in South Asia
• Business-to-business marketplace Alibaba.com

In the final three months of 2022, the combined orders of Lazada, AliExpress, Trendyol and Daraz grew 3% from a year earlier, led by Trendyol. The international unit accounted for roughly $9.5 billion or 7% of Alibaba’s revenue in the last fiscal year and is headed by Jiang Fan, the former president of Alibaba’s domestic online retail businesses Taobao and Tmall.

Other parts of Alibaba’s empire have already begun moving ahead with spinoffs. Cainiao Network Technology Co., the logistics arm of Alibaba, as well as Freshippo, its grocery chain, have started preparations with banks for IPOs in Hong Kong.

Deliberations around an IPO are very preliminary and the situation may change, the people said. IDCG said in response to queries from Bloomberg that currently, there is no IPO plan.

Alibaba has in the past explored splitting off Lazada. The unit, bought in stages from Rocket Internet SE, is considered one of the Chinese firm’s most high-profile international brands. It competes with Amazon and Sea Ltd.’s Shopee in Southeast Asian markets such as Thailand, Malaysia and Singapore.

In 2022, Alibaba discussed raising at least $1 billion for Lazada before calling off negotiations with potential investors when talks bogged down over its valuation. It had aimed to secure the funding as a precursor to a spinoff. Alibaba has since mothballed the fundraising and injected additional funds into the company instead.

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IoT is a network of physical objects — “things” — that are embedded with sensors, software, and other technologies for the purpose of connecting and exchanging data with other devices and systems over the internet.

New research from Avnet Abacus analyzed Crunchbase data for companies listed under the Internet of Things and Industrial Internet of Things to provide insight on the level of investment activity across the sector. Avnet Abacus an electronics distributor that consults engineers when they’re designing new products.

They found that while there had been a 22% drop in total funding within the sector in 2022 — mirroring the trend across venture capital markets — the average funding round for Industrial IoT startups more than doubled in 2022. It was also the highest since 2006 (a year in which there was only one deal on record). IoT companies raising funds in 2022 pulled in $15.9 million on average, up 30% from the previous year, according to Avnet Abacus.

“The amount of funding companies receive in any product category gives an indication of how investors view the future for that technology,” says Avnet Abacus technical director Dr. Sara Ghaemi. “Despite venture capital generally cooling off due to current economic conditions, the research reveals investor confidence is higher than ever for the long-term prospects of companies developing products in the IoT.”

The IoT deal making continues

The Industrial IoT also experienced a record year in 2022. Last year, the average funding round reached $16.1 million. That’s more than double the average investment of $7.3 million in 2021, according to Avnet Abacus.

Acquisitions of companies in IoT worldwide reached their second highest ever in 2022 with 116 companies snapped up. That’s marginally down from the peak of 117 companies in 2021. In the United States, 48 IoT startups were purchased in 2022. That’s down from an all-time high of 58 in 2021.

While the total amount IoT startups raised globally dropped from $5.6 billion in 2021 to $4.3 billion in 2022, the money invested in early stage startups was on the rise, according to Avnet Abacus.

The investment into early stage IoT startups (those seeking funds in venture rounds A and B) reached the highest amount on record last year at $2.45 billion. That’s up 12% from $2.19 billion the previous year.

Angel and seed investors in the IoT were also proceeding more cautiously last year, providing funds of $261 million in 2022 compared to $404 million in 2021.

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Given her investment banking pedigree — a nearly two-decade stint at Goldman Sachs, where she served as managing director and head of consumer and consumer-tech equity capital markets — she’s well-positioned to evaluate the retail industry and make predictions. And Q1 and Q2 earnings have been rough for a lot of Il Makiage’s peers, she says.

“A ton of direct-to-consumer companies are in a poor cash position, are burning cash, are not profitable — and they’ll need to find alternative sources of funding from outside capital. Or they’re significantly cutting a lot of costs, including their customer acquisition and marketing expenses. As a result, their top line significantly slows or contracts,” says Drucker Mann, who was brought on as the global chief financial officer for the fast-growing brand’s parent company, Oddity, in September 2021. “That’s not our issue.”

Lindsay Drucker Mann, global CFO at Oddity

While other companies are wondering “How on earth are we going to make rent this month?,” Il Makiage and Oddity leadership’s biggest challenge is figuring out what to do with all of their money, she adds. According to Drucker Mann, the brand is completely self-funding, and its cash position is growing. So now, it’s a matter of identifying the biggest opportunities and prioritizing the investments that will have the highest returns. That includes continued nurturing of Oddity’s recently launched wellness brand called SpoiledChild, building — or acquiring — additional new brands to plug into the company’s tech platform and more expansion into international markets, Drucker Mann says.

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Il Makiage, a social media darling that bills itself as “makeup for maximalists,” must be doing something right. The company has found a way to achieve big — and steady — online growth since it burst onto the scene in 2018 and raked in $10.0 million in sales. By 2019, web revenue increased 400.0% to a Digital Commerce 360-estimated $50.0 million. It then tripled, reaching an estimated $150.0 million in 2020. That was despite consumers largely skipping the full makeup routine as the pandemic raged, employees worked from home in loungewear, and social events like parties and weddings were canceled. (Although the widespread lockdowns and subsequent quarantine lifestyle did lead to a surge in online makeup tutorial devotees as consumers tried to stave off boredom with new hobbies.)

Last year, Il Makiage nearly doubled the brand’s online sales to an estimated $293.4 million. (At one point, Oddity confirmed Il Makiage surpassed $260.0 million in ecommerce revenue for 2021, but the company declined to give more specifics since then.) And once again, it topped the list of the fastest-growing retailers in the health and beauty category within the 2022 Digital Commerce 360 Top 1000, a ranking of North America’s biggest online merchants. The brand has occupied a spot on the list of top 10 growers overall — most recently claiming the No. 8 slot behind three other brands — for years, too. It also came in second in 2021 growth among all Top 1000-ranked digital natives.

In January, Oddity announced it secured another $130.0 million in funding at a $1.5 billion valuation. And lately, rumors have been swirling that the company is considering an initial public offering. Drucker Mann declined to comment on the speculation.

But after a decade or more of web-first brands — like eyeglasses pioneer Warby Parker, millennial beauty favorite Glossier and eco-friendly shoe brand Rothy’s — generating a lot of buzz and commanding the attention of the retail industry, Oddity is coming of age at a challenging time for this group. Experts agree that growth is harder to come by, macroeconomic factors like inflation haven’t helped boost consumer spending, and supply chain snafus — a particularly thorny issue for brands looking to scale — have persisted. Additionally, profitability is elusive, funding is drying up, and the path to an IPO has largely disappeared.

Eric Roth, managing director, consumer at MidOcean Partners

Eric Roth, managing director, consumer at private equity firm MidOcean Partners, is one such voice sounding the alarm. This cohort of digitally native, vertically integrated brands, or DNVBs, has “lost its luster” a bit, he says. Many of them relied too heavily on marketing and not enough on product innovation to help them stand the test of time. So as the marketing dynamic has shifted, growth has stagnated, Roth adds. On top of that, with so many DNVBs expanding with wholesale partnerships and physical stores in today’s “omnichannel environment,” they’ve relinquished some of their biggest competitive edge over other retailers: the ability to mine the vast amount of data collected from the consumers shopping and buying directly from them.

So how have merchants like Oddity managed to buck the trend? And where do the other DNVBs go from here to avoid becoming a casualty of the bubble burst Drucker Mann anticipates?

How’d we get here?

As a whole, Top 1000 consumer brand manufacturers performed well online in 2021. The group collectively grew web sales 19.9% year over year — the highest rate of all merchant types in the Top 1000 and notably higher than the 15.7% overall jump. That marked a reversal from 2020, when retail chains’ digital revenue swelled 57.7% over 2019 thanks to their big store footprints that allowed consumers to skip crowded public spaces during the peak of the pandemic and still get their goods quickly through omnichannel offerings like buy online, pick up in store, or BOPIS, and curbside services.

In 2020, brands were the second biggest beneficiary of the COVID-19 ecommerce bump, collectively growing digital revenue 45.1%. The same is true when considering the two-year stacked growth, which compares 2021 web sales to a pre-pandemic 2019: Retail chains received the largest COVID-19 boost at 75.9% vs. consumer brand manufacturers’ 74.0%.

An analysis of median growth by merchant type reveals the same trends, meaning 2021 performance wasn’t overly skewed by the financials of some bigger retailers that were growth outliers. Consumer brand manufacturers had the highest median year-over-year jump in web sales last year at 24.8%. Meanwhile, retail chains took the top spot in 2020 with 31.9%.

Zeroing in on the 81 DNVBs in the Top 1000, which historically have increased digital revenue much faster than more traditional brands in the rankings, it’s apparent how much the gap has closed in recent years as the younger cohort has matured. In 2017, DNVBs collectively grew 54.0% — nearly three times as fast as other brands. They continued to outperform their peers by a wide margin until 2020. But during the peak of the pandemic, shoppers gravitated to the recognizable names of bigger brands. That was, in part, due to larger companies with more suppliers being better able to navigate supply chain disruptions than smaller startups like DNVBs. In 2020, consumers spent 46.7% more year over year online with established brands while DNVBs saw just a 29.4% collective increase.

By last year, those trends were less pronounced as the pandemic began to ease, and the digital natives once again outperformed their more established competitors. DNVBs grew online sales 24.6% to other brands’ 19.5% vs. 2020. But that’s still a far cry from the lowest roughly 15 percentage-point advantage DNVBs had in their pre-pandemic heyday.

And 2022 has been less kind. A dozen public DNVBs are ranked in the Top 1000 and break out ecommerce figures or guidance. (Some web-first brands, like Warby Parker, have a large number of stores, and others, like health and wellness brand Hims & Hers, have wholesale partnerships. So not all revenue is attributable to online channels.) Of those, nine do so on a quarterly basis. After this group collectively increased web sales by 21.2% in 2021, it has registered roughly a quarter of that growth — just 5.2% — in the first half of 2022.

Many brands are struggling to maintain growth as the online channel isn’t achieving the same year-over-year performance. And research is showing lower brand loyalty among consumers, according to Bernardine Wu, executive managing director at OSF Digital Strategy. The technology implementation and consulting firm was formerly known as FitForCommerce.

Funding dries up for DNVBs

One aggravating factor is there’s less funding to go around to help fuel brands’ growth.

“With endless amounts of capital, lots of people can grow, but we’re in this transitional period now where a lot of that easy capital is done,” Drucker Mann of Il Makiage says.

Up until this year’s secondary funding raise, private equity group L Catterton had been the only outside investor in the company, investing $44.0 million since 2017. And as far back as 2020, the brand mentioned it was profitable — a milestone that has become a big sticking point in retailers’ quest to raise money more recently.

“You’ve seen investors rotate away from some names. They’re just focused now on profitable businesses as opposed to businesses that have great dreams of being profitable in the future but are (blowing through) cash in the near term,” Drucker Mann says. “The funding environment for that is gone. Maybe it comes back some day, but for now, it’s gone.”

Polly Wong, president of direct-to-consumer marketing agency Belardi Wong, agrees. She says investors have been burned by many digitally native brands that have not managed to scale profitability. And that poor track record — combined with economic instability — is impacting the funding available today. Most of the private equity firms Belardi Wong currently work with want to see $8 million to $12 million dollars in profit before investing.

“This puts smaller, emerging (direct-to-consumer, or DTC) brands at risk of running out of money before getting the funding they need,” Wong says. “This could negatively impact the landscape for DTC in the next three years. It’s very possible consumer demand will outpace investor demand.”

Of the 23 Top 1000 retailers that raised funds (excluding debt-related rounds) in 2021, nine are DNVBs, according to a Digital Commerce 360 analysis of data from funding tracker Crunchbase. Digitally native brands accounted for 39.1% of the group that year. That’s compared to 2019, when of 30 retailers that raised funds, 14, or 46.7%, were DNVBs. And analysts and consultants say there’s bound to be an even bigger drop-off in 2022.

MidOcean Partners’ Roth says tech investors will have a much higher bar in the next six to 12 months. When interest rates are very low, high-growth companies that need a lot of cash to grow have a better profile because the cost of capital goes down and the value of the business is in the future. With interest rates expected to continue to climb, high future growth companies will be less attractive to investors than more mature businesses whose value lies more in the five- to six-year range, he adds.

The omnichannel tradeoff

A number of well-funded DNVBs have embraced more traditional sales channels as part of their growth strategy, straying from their digital roots. Eco-friendly shoe brand Rothy’s, which raised the largest non-debt funding round of all Top 1000 retailers in 2021 with $475.0 million, according to Crunchbase, opened eight stores and has previously partnered with Nordstrom Inc. And after launching its lines in Target Corp. stores in late March 2020, Hims & Hers went public in January 2021 via a merger with a special purpose acquisition company, or SPAC, and raised $75.0 million that year. In the first half of 2022, the brand’s wholesale revenue more than tripled year over year, bringing in $13.3 million.

Glamnetic, a digitally native cosmetics brand known for its magnetic false eyelashes that launched in mid-2019, found similar success in placing its products in stores. And founder and CEO Ann McFerran says DNVBs must become omnichannel to survive in 2022 and beyond.

“To continue to grow past a certain point, you want to cross over into brick-and-mortar stores,” she says. “We were a DTC brand first, and that’s where we were able to build our first customer base and get momentum. When we were able to land space on store shelves, though, is when we knew we had real staying power.”

Without any outside capital, Glamnetic pulled in $50 million in online sales in its first year. By 2021, the brand also secured a partnership with Ulta Beauty, entering into 1,000 stores, and started selling on Sephora.com and Nordstrom.com.

“Even major stores like Target, Ulta and Walmart are embracing newer and smaller companies,” McFerran says. “There are great opportunities for brands to land valuable in-store placement while maintaining the thriving DTC aspect of their business.”

McFerran declined to comment on the specifics of her brand’s growth through different channels.

It’s worth noting that although wholesale has been a popular pivot for DNVBs in the last handful of years, the move doesn’t necessarily translate into higher growth. Digital natives selling their products through third-party retailers had a median web sales growth in 2021 of 19.3% vs. 28.2% for DNVBs without a wholesale segment. It is true that DNVBs that have scored wholesale partnerships are likelier to be bigger brands — their median Top 1000 rank is 363 vs. 454 for their purely digital counterparts — and revenue growth is harder to achieve as the base dollar figure gets larger. But that’s still a sizable disparity.

A smaller — but present — disparity exists for DNVBs that opened stores. One-third of the 81 DNVBs in the Top 1000 operate at least one physical location, with the median being eight. The median increase in 2021 web sales for digital natives with a brick-and-mortar presence was a little lower than that for DNVBs without a store footprint — 22.6% vs. 25.9%.

Oddity has no plans to take Il Makiage down the wholesale or physical store path, Drucker Mann says.

“It would be so easy for us to open up retail distribution and just — poof — massively increase our revenue and profit, but in the long term, we see a consumer who is at least 50% digital,” she adds. “And if you want to win at 50% digital, you can’t chase easy money in a physical wholesale format. You’ll miss the prize.”

Drucker Mann acknowledges that Il Makiage’s predecessors — the “incumbent” cosmetic brands like Estee Lauder and L’Oreal — created so much value in a brick-and-mortar wholesale model that it’s hard to opt out. But a brand looking to grow via a third party — whether that’s through department stores or a Sephora or Ulta — is missing the opportunity to really understand what shoppers want, she says.

“They don’t have control of the data, they don’t have the ability to create those tools that really work to drive acquisition, repeat retention, etc. — all of those things that we’re maniacally focused on,” Drucker Mann says. “They give up control, and the retailers become more powerful as they cede those capabilities over.”

Roth is of the same opinion. The ability of DNVBs to mine data is “a wild advantage” — one they surrender by wholesaling, when any visibility into the consumer gets lost, he says. Data analytics allow direct-to-consumer brands to go beyond oversimplified demographics and dig into psychographics to figure out how to serve shoppers better.

“Knowing who’s buying and why they’re buying as best as you can or better than the competitors — that’s hugely challenging when you have other channels,” Roth says. “Bucketing someone as a millennial is using a pretty broad brush. There’re all kinds of overlays. You gotta look at are they men or women? Are they affluent? Educated? Are they rural or urban?

“Understanding that better is going to enable those folks — over this probably more rocky period in the market — to have higher confidence of where those pockets of customers are,” he adds. “When DTC businesses sell through wholesale channels, they have no idea who’s buying or what to do for them.”

Data and product innovation

Oddity co-founder and CEO Oran Holtzman has long said technology is the main driver of Il Makiage’s success, pointing to the size of their tech team — data scientists and engineers make up more than 40% of the total employee head count. And that group spent more than two years developing its machine learning and color-match quiz, called PowerMatch, in house. The algorithm can pair an online shopper’s foundation shade to one of 50 hues without seeing her face with more than 90% accuracy, according to Il Makiage. Formulas are fueled by data from more than 30 million shoppers who have used interactive features on the brand’s site.

Drucker Mann says that’s exactly why Oddity conceives of itself as a consumer technology platform rather than just a cosmetics brand. IlMakiage.com users give the company a constant stream of information on their beauty routines, how they use products, ingredients they care about, what’s missing from the brand’s offerings and more. This data infrastructure is Oddity’s competitive moat, Drucker Mann says.

The company’s new brand SpoiledChild, a beauty line with rapid recovery haircare and anti-aging skincare products as well as supplements, was developed based on data collected on IlMakiage.com. After launching in February 2022, SpoiledChild had “an extraordinary first six months — really just an incredible early performance,” Drucker Mann says, declining to share more specifics. And Oddity will continue to either develop additional complementary brands or “look opportunistically” for acquisition targets to add to its portfolio and address unmet needs, she adds.

Glamnetic’s early digital insights are the “golden ticket” that allowed for better product evolution, according to McFerran. She expanded her line, too, branching out beyond magnetic lashes with magnetic eyeliner and press-on nails, which have sold out more than 10 times.

Roth thinks that’s a good move. In his estimation, too many DNVBs operated more like marketing vehicles, with their products being a secondary side of the business. And when more popular marketing channels got crowded, that’s left them in a lurch.

“(DNVBs) didn’t necessarily innovate in their core areas as much as they should have,” he says. “Product innovation and potentially product adjacency — I think that’s gonna be the key going forward.”

The post What’s the state of the ecommerce market for consumer brand manufacturers? appeared first on Digital Commerce 360.

The combined entity will be handling about 50,000 orders a day, a scale that makes it profitable, founder Muhammad Omer Khan said without disclosing a value for the deal. The acquisition gives PostEx delivery operations in 500 Pakistani cities, compared with its previous base that consisted of just the three main ones.

“While others are going on the backfoot and slowing down, we plan to become even more aggressive,” Khan, who is PostEx’s CEO, said in an interview in the southern city of Karachi.

Pakistan has a population of about 230 million, making it the world’s fifth-largest nation. The majority of the population still hasn’t switched to online shopping. That provides room for the sector to grow and transactions to reach $10 billion before 2025 from about $6 billion now, Khan estimates.

More than 90% of Pakistan’s ecommerce deliveries are paid with cash. That results in long delays before the merchants receive the proceeds for the sale. PostEx offers these businesses upfront payments before deliveries, giving them liquidity. The financing services help PostEx stand out from the region’s other delivery companies, Khan said.

Khan started PostEx in 2019 with a friend. They went door-to-door to small shops to convince them to allow the company to handle their deliveries. The acquisition more than triples its number of employees to 2,400.

PostEx funding

The country’s startups raised more than $350 million in 2021, a record, with several global venture funds investing for the first time. PostEx raised $8.6 million last year in one of Pakistan’s largest early-stage funding rounds.

Pakistan’s ecommerce industry has lured the most investment in the recent funding rush. The majority of the population still hasn’t switched to online shopping, providing room for the sector to grow and transactions to reach $10 billion before 2025 from about $6 billion now, Khan estimates.

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The post PostEx buys rival to become Pakistan’s top ecommerce courier appeared first on Digital Commerce 360.