Retail & Consumer Corporate Activity Predictions 2023
Written By
Partner
UK
A seasoned partner in the London Corporate team, I have over 20 years' experience covering cross-border M&A (public and private), equity capital markets and public company governance including ESG.
We take a look at how current hot trends are driving corporate activity, and creating opportunities and risks, in one part of the market: the thriving luxury goods resale and rental space.
It is an uncertain market for investors looking to grow in the retail & consumer sector. As inflation rates rise and spontaneous ‘TikTok made me buy it’ purchases become more infrequent, consumer spending becomes increasingly difficult to predict.
One thing that is certain, consumers continue to shop with sentiment, and ‘sustainability’ continues to be a driving force in decision making for both retailers and consumers. According to a recent survey, 16% of fashion brands state sustainability projects to be the most important opportunity of 2023.[1] Similarly, a quarter of consumers in the UK say sustainability impacts their decision making when it comes to purchases.
It is no surprise therefore that there is a clear trend of consumers searching for timeless, good quality pieces and more easily accessible luxury goods. We expect to see the money continue to follow that trend – with more investment and M&A in the luxury goods resale sector. It is an area of huge potential but also an area where focussed specialist legal and other diligence is important for potential investors and buyers.
Luxury resale sector
The revenue of the luxury resale sector is expected to grow to $47 billion by 2025.[2] The likes of China based resale platform ‘Plum’ recently secured a $100 million in a Series C funding round. French origin second-hand luxury resale platform Vestiaire Collective closed its most recent €75,000,000 debt financing round in December 2022, raising a total of $772.3 million over nine funding rounds. The UK M&A and venture capital (VC) markets are focusing on similar trends.
Only last month, the UK luxury resale company Sellier Knightsbridge acquired the assets of luxury resale platform ‘Worn’, in its aim to become one of the largest UK luxury resale retailers. The Sellier Group alone has grown by 442% since 2020, and expects revenue growth of £20 million in 2023.[3]
Similarly, in December of last year, London headquartered Farfetch acquired the resale platform Luxclusif for an undisclosed amount.
VC funds have displayed similar interest, where for example, luxury resale platform Cudoni raised £7.5 million in their latest funding round, backed by Ebay’s venture arm as well existing investor, consumer focused VC fund DMG ventures. In November 2022, Advanced Clothing Solutions, a leader in sustainable fashion, closed a £10 million ($12.1 million) investment from Scottish fund manager Circularity Capital, a fund focused on Europe’s circular economy.
The resale of luxury goods is well-placed to address both the need for sustainability and the desire to bargain hunt, and is one that is highly popular with the millennial and Gen Z shoppers. We believe this trend will only accelerate over the next two or three years.
What else is in store for the luxury goods sector?
For consumers not wanting to fully commit to a purchase, there are growing luxury goods rental platforms which are gaining investor support. This has provided a similar, but different, sub-sector for investors.
Hurr, the London fashion rental marketplace recently secured a £4 million funding round from European VC fund Octopus Ventures, as well as luxury handbag rental platform Cocoon, which very recently secured an investment from Gucci’s parent company Kering.
The UK luxury goods rental market is predicted to be worth £2.9 billion by 2029[4] and is one that consumer-focused VC funds and other investors should look out for when looking for investments with long term growth potential.
Resale & rental and tech go hand in hand
Whether its resale or rental, investors looking to take a stake in this sector should note the following; technology is key.
Farfetch acquired Luxclusif not only for their stock of second-hand luxury goods, but also for its key B2B technology features, which provide for automation and authentication features.[5] Similarly, Cudoni, known for its data driven pricing algorithms, allows retailers to extract the highest price for its second-hand luxury goods[6].
Investors will therefore be prioritising investment opportunities, and joint ventures and acquisitions of, those luxury goods companies that pioneer technology and provide for scaling opportunities in this ever-growing sector.
Where are the legal risks?
One of the advantages of the resale and rental sectors is that many of the sustainability attractions are self-evident in the businesses. There are therefore fewer supply chain issues than with some other sector businesses.
The primary legal risks we see are more about the technology. The robustness and scalability of technology is not always immediately apparent and nor are the risks of data breaches, intellectual property infringement and cyber-risks that come with it and therefore it is important that fast-growing platforms and brands have ensured that their infrastructure, policies and practices develop alongside their sales numbers. Investors and acquirers should expect that, given the scale of growth in these sectors, there will be gaps here and a need to be ready to help mend those gaps either before or immediately after the transactions.
This article was authored by Anna Mikhalkovich.
[1] https://cdn.businessoffashion.com/reports/The_State_of_Fashion_2023.pdf
[2] https://cdn.businessoffashion.com/reports/The_State_of_Fashion_2023.pdf
[4] https://luxurylondon.co.uk/style/hers/the-best-luxury-fashion-rental-services/
[6] https://medium.com/dmg-ventures/why-we-invested-in-luxury-resale-platform-cudoni-a27f465de610
