This month Elevate Brands bought its 20th Amazon seller, and it’s targeting a stable of 100 brands selling on the marketplace by the end of next year. It will soon open a European office in London as it looks to expand beyond its home market in the US – and predicts it will turn over $150m this year. It’s a fast pace of growth for a business that started life as an Amazon seller as recently as 2016.
Elevate Brands is one of a number of new brand aggregators now turning marketplace selling into big business, super-fuelled by the way Covid-19 restricted face-to-face retailing over the last year. Elevate estimates there are now more than 40 different seller aggregators, most of which didn’t exist six months ago, the collective recipients of nearly $3bn in funding since 2019.
The sector has thrived in the disruption thrown up by the pandemic, says Elevate Brands co-founder and chief Ryan Gnesin, a former commodities trader. Covid-19 restrictions meant that shoppers discovered the benefits of buying online rather than in shops and, he says, that represents a shift online that is now here to stay.
Online, says Gnesin, “is just a far better shopping experience”. He adds: “The question was how do you change consumer behaviour where people have their entire lives been buying in-store and you want to shift them to buying online – and the pandemic did that for us. And now those people have experienced the benefits of online shopping I believe that behaviour is here to stay for the vast majority of people.”
The online shift has, in turn, kickstarted the Amazon aggregator business model.
Gnesin says: “The pandemic was one of the critical factors that ignited the whole industry. It also brought a spotlight not just to the industry but to our business model, as investors have started to pay attention to our business model of acquiring businesses.” He adds: “There used to be a feeling that it was very difficult to build a real established brand on Amazon. Now people are realising it is possible to build very substantial brands on Amazon.”
Elevate Brands, based in New York and Austin, Texas, was founded as a branded clothing reseller towards the end of 2016 and three years later, in 2019, bought its first brand – a beauty brand with $80,000 in earnings before interest, tax and one off costs (EBITDA) beauty brand. Since then it has expanded quickly on the back of investment, taking its stable of brands, with the twentieth bought this month. Elevate does not give details of the individual brands, but the company says that it has expanded out of its initial beauty and clothing niche, buying sellers in a wide variety of categories.
That expansion is driven by investors moving into the market. This year alone Elevate Brands says it has raised $67.5m from fintech and ecommerce investors, and is now looking to buy brands with annual EBITDA (earnings before interest, tax and one-off costs) of at least $0.5m – and preferably more than $1m. Its focus is currently on the US, but from the third quarter of this year it expects to start buying UK brands from its new London office. Elevate expects to turn over more than $150m by the end of this year.
This appetite has come as shoppers, especially in the US market, have been converted to online shopping - and in particular to buying on Amazon, where, says Gnesin, 70% of people now start their product searches. “If you’re not on Amazon you’re probably missing a large chunk of revenue and a large chunk of the market,” he says. “It’s a great place for big and small brands in my view. The ecosystem is growing. Ecommerce penetration is growing from 16% to 27% of retail now [in the US] - in my view over the next decade that figure is likely to continue growing. You want to be where the customers are and today the customers are on Amazon.”
The pace of change is fast. Elevate is buying an average of three or four new brands a month. It reports post-acquistion growth of nearly 100% and has itself grown its operations and marketing team by more than 200% since January. This represents a degree of consolidation within what Gnesin describes as the “massive landscape” of Amazon, which he says was a market worth $300bn last year. But, says Gnesin: “If you were to count all the brands acquired by aggregators it’s maybe a few hundred brands. Yes, the aggregation will continue but the number of standalone brands and sellers is also increasing - there are hundred of thousands new sellers joining the platform every year.”
He adds: “There have been a plethora of Amazon Marketplace sellers looking to exit in the last three months, a significant step up from last year. As Amazon FBA sellers ourselves, we can truly relate with these business owners and ensure an efficient and pleasant acquisition process. We have a strong playbook for growing these brands post-acquisition and this bridge funding will enable us to maintain our momentum.”
Long-term Gnesin is certain that marketplaces in general and Amazon in particular will continue to dominate ecommerce. “Marketplaces overall will continue to dominate ecommerce,” he says. “The reason for that is the formula is based on customer acquisition cost and lifetime value, and the lifetime value of a customer on a marketplace tends to be much higher than on a standalone store. As a result the marketplace can outspend on advertising in order to acquire their customer. Therefore we think marketplaces will continue to dominate and Amazon is the mother of all marketplaces.”