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Month: June 2021

Why should you care about DTC?

Author: Andrew Woolston (Intern)

Reviewed by: Ralph DiFiore (CCO), Marcus Magarian, Chris Gioffre

COVID-19 forced our world to find new ways of purchasing goods. As you may have experienced first-hand, consumers leveraged ecommerce platforms to purchase discretionary and staple goods.

Powered by the global pandemic, ecommerce is expected to account for 6.6% of all consumer-packaged good sales. The direct-to-consumer (DTC) movement accounts for 40% of the sales growth in the sector. Additionally, DTC ecommerce customers are expected to hit an all-time high of 103 million by 2022, and numbers are expected to continue to grow as more businesses offer and adopt DTC services. DTC offers brands significant benefits that are expected to enable DTC to thrive in a post-pandemic world.

Why DTC?

DTC retailers lower risk exposed to their supply chain. In a retail environment placement on shelves significantly impact sales and are out of the company’s control. Minor differences in shelf level can cause up to a 25% dip in sales of the product. By adopting a DTC channel, businesses can eliminate typical concerns surrounding retail stores.

DTC improves brands’ bottom line. Eliminating middlemen and supplying products through their own channels allows companies take fewer cuts in their profits and helps improve the company’s margins. As a result, companies can offer their products at lower, more competitive prices than at traditional retailers.

Additionally, DTC allows companies to understand their customers better. The firms can then optimize their business based upon data unrealizable from typical retail channels like big-box retailers. Brands and companies will develop faster and with greater success by utilizing DTC. Enabled by DTC’s ability to understand consumers, Allbirds has made over 35 changes to their original Wool Runner based on concerns and experiences from their customers since its initial launch in 2016. Allbirds now boasts a $1.4 billion private evaluation and generates $100 million in annual revenue.

By focusing on DTC operations, brands have increased their top line and achieved astounding growth. In addition to Allbirds, Bombas (first selling in 2013) brought in over $100 million in sales in 2018 and experienced 40% YoY growth from 2019 to 2020.[1] Chubbies achieved 50% YoY sales growth. Gymshark, which exclusively operates DTC, saw $18.6 million in profit on $176.2 million in sales in 2019. Gymshark currently holds a $1 billion valuation.

DTC’s Necessary Growth

DTC became many consumers’ only option as local stores closed down due to the pandemic. COVID-19 hit brick-and-mortar stores the hardest, forcing businesses to close for many months. As a result, 84% of consumers utilized online retail. 150 million online shoppers claimed it was the first time they have shopped virtually. A staggering 10 years of ecommerce growth occurred in 3 months of the pandemic. Brands are scaling down their retail strategies and focusing efforts on DTC initiatives.

Timeline Description automatically generated

Via McKinsey

VC Involvement in DTC

Investors see the value in improved profit margins with lowered risk and headache from dealing with big-box retailers. Almost 60% of the $3.3 billion invested in consumer-packaged goods involved a DTC component between 2015 and 2019. The inflow of cash to CPG with DTC capabilities has caused big-box retailers to alter their operations. Most notably, Unilever acquired DTC legend Dollar Shave Club for $1 billion in 2016.

DTC Concerns

DTC comes with specific challenges that successful brands manage to overcome. A poor reputation can kill a brand. DTC brands must offer the best possible purchasing experience throughout the process. Everything that may go wrong falls directly on the brand and can significantly impact brand performance. Additionally, Amazon dominates DTC as a marketplace. Brands that rely on DTC must use large amounts of cash for marketing to bypass Amazon’s dominance. 63% of shoppers check Amazon first. To compete, DTC brands increased marketing investment by 30%.

Moving Forward

DTC does not have to be the only option. Nike and Lindt have successfully demonstrated increasing profitability can come from maintaining a big-box retail presence while also utilizing DTC for its specific advantages. Expect continued use of DTC from consumers and more companies to develop a stronger ecommerce presence.

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Source: (Shopify) DTC-First: Why More Brands are Using the Direct-To-Consumer Model

“The Ultimate Guide to Direct to Consumer Retail (2021) – Shopify.” Shopify Plus, 2021, www.shopify.com/enterprise/direct-to-consumer?utm_source=marketo. Accessed 30 June 2021.

[1] Dishman, Lydia. “How Bombas Grew through Software and Shopper Insights.” Https://Www.uschamber.com/Co, CO- by U.S. Chamber of Commerce, 6 Apr. 2021, www.uschamber.com/co/good-company/launch-pad/bombas-startup-growth. Accessed 30 June 2021.

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The Visa Back to Business Study

Author: Andrew Woolston (Intern)

Reviewed by: Ralph DiFiore (CCO), Marcus Magarian, Chris Gioffre

The Visa Back to Business Study provides a look into changes seen in SMBs over the past year. COVID-19 changed day-to-day operations and payment processing, causing small business owners to be creative and adapt. Three key areas saw changes resulting from the pandemic: the business, the consumer, and 2021 outlook.

Businesses

Businesses have accelerated digital transformation efforts in lieu of COVID. As a result of the need for contactless payments, SMBs needed to adapt to survive the pandemic. Globally, in winter 2021, 82% of SMB owners have made updates to their operations to meet the new demands brought on by the pandemic – up 15% from summer 2020. Adjustments include, but are not limited to, selling products and services online (43%), accepting contactless payments (39%), target advertising on social media (38%), and digitizing business functions like backend payment operations (30%).

Consumers

Consumers are shifting preferences toward digitized payments in both the near and long term. To avoid contaminants and possible exposure to the virus, 56% of consumers have used contactless payments whenever possible. Powered by Covid-wary consumers concerned about interactions at the point-of-sale, we have seen a 19% increase in the amount of SMBs that offer contactless payments (20% in June 2020 to 39% currently). These shifts of consumer and business behavior toward a digitized marketplace will stay post-pandemic. Almost two-thirds of consumers say that post-vaccine, they would prefer to use contactless payments as much as, or even more than, they are currently. Furthermore, 75% expect consumers to prefer contactless payments even after a vaccine is widely available.

2021 Growth

United States businesses will be integrating innovative payment plans and transforming backend payment operations to keep up with demand in the remainder of 2021. Two areas to watch in 2021 are “buy now, pay later” platform growth in the U.S. and the digitizing of backend payment operations. Consumers are expecting greater speed, flexibility, and convenience when it comes to making payments. The U.S. lags behind foreign acceptance of these payment plans. “Buy now, pay later” platforms in the U.S. have grown 2.5x faster than credit cards. Coming in 2021, expect to see growing adoption of these systems domestically. 36% of small businesses believe that allowing for installments for online payments is imperative to meet consumer demands. Additionally, 31% of small businesses believe that investment in digitized backend payment operations is necessary to meet consumer expectations.

2022 Expectations

The elimination of pandemic risks will not significantly alter consumer behavior in 2022.

As of February 2021, Americans anticipate 389 days until the physical world, as we saw in March of 2020, will be back. Restoration of normality will involve a few key factors: a decrease in COVID-19 cases, a vaccine, availability of a treatment, the U.S. CDC reporting that travel is safe, the government relaxing restrictions, large-scale testing for COVID-19, and public schools reopening. Although we will see the key factors addressed during the remainder of 2021 and moving into 2022, consumer behavior will not drastically change. 75.4% of consumers will maintain at least some of their pandemic behaviors regarding how they eat. 78% will maintain at least some of their behavior in how they shop for groceries. 77.3% will maintain at least some pandemic behavior when shopping in general. 78.8% of consumers will keep some pandemic behaviors in any facet.[1] The evolution of SMBs and consumer behavior resulting from the pandemic will remain present for the foreseeable future

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[1] https://www.pymnts.com/digital-payments/2021/what-consumers-say-about-the-reopening-of-the-physical-world-and-what-it-means-for-business/

4 Reasons Why Analytics Are Crucial for Investment Bankers

If you aren’t paying careful attention to your analytics, you’re letting your business down. Data plays an important role in everything we do today. Knowing how to use it is only to your advantage. It saves you time, it answers questions without your having to ask them, and it adds tremendous value to any transaction.

So, you ask, what can I do with analytics?

1) Analytics Allow You to Accurately Measure & Track Data

Analytics are what we used to call Big Data, Sentiment Indicators, or Technical Analysis, something that traders have been using for decades. Today, it’s a common MarTech (Marketing Technology) tool and can be found on every platform, such as Shopify, WordPress, Squarespace, etc. Companies provide these tools to eCommerce or digital groups because they are designed to help them sell more. However, they can only do so much, because it requires users to understand the purpose of their data.

Analytical data tells you a story of your customer’s behavior. For an investment banker, this data can come from a data room, email open rates, or link clicks. This is the beginning of what technology groups call the Customer Journey. This data is invaluable because it is first-party data: data collected on your content. It answers many questions before having to ask a client.

2) Allows You to Better Understand Your Digital Visitors, Prospects, and Customers

I have had many prospects tell me that they loved my presentation or that they thoroughly went through the entire data room. However, the data tells me they spent 10 seconds on the presentation — probably scanned through the pictures, not absorbing the content. This information is invaluable because it takes away the guessing of what I need to discuss with the individual or group.

Imagine you are negotiating a transaction where your investor or buyer is not giving you the feedback you need. Through analytics, data can be used to focus how you will pitch an investment idea and better guide your discussion. The data is very clear. Knowing how much time people spend on your content tells you a story about their journey through this information.

3) Analytics Help You Optimize for Conversions

Many people do not like to be asked direct questions in the fear of embarrassment or being cornered, so asking them only risks creating distance and making your customer not like you.

Take a deal that my team worked on in summer 2020. We had an investor who was plowing through the data room, many page views, a lot of time spent going through the documents thoroughly. However, I noticed very little time spent on one of the most important pages of a cash-flow agreement. Going into the call, I knew this was a point to focus on.
Without asking the question, we were able to go right to a key point in the discussion about the transaction.

Analytics help focus on getting deals done, not on who knows what!

4) Analytics Can Help You Generate New Customers

Analytics are important not only for your proprietary data or enclosed content but also for content that is distributed on the Internet via news articles, blogs, etc. Publishing articles that entice viewers to click tells you what traffic is interesting to the market. If you are a U.S. investment banker focused on the payments space, and you are able to see that a lot of traffic coming from your article is being reshared on a blog in France, this could be data used for your group to find new customer opportunities in Europe.

This is what happened to me in Q3–2020. One of my articles was reposted in the Netherlands, with massive traffic flowing into an article we published. This created a lot of dialogue with new potential customers that I normally would have to contact directly. It was an advantage being able to see the source of the traffic, through the publishing site’s analytics. This allowed me to see what traffic sources drove the most interest to my content.

Final Thoughts

Accurate analytics should be a must-have for all investment bankers. Without hard data that allows you to track online activity in a reliable way, you could be left in the dark and forced to spend a lot of time on the wrong things during your client or investor calls, instead of utilizing actionable data that helps push the story or the deal forward. Data is black and white, it is very clear, using it takes away the guessing. It builds the confidence you need to firmly plan your client calls, investor meetings, and deal closings.

For any comments, please reach out to Marcus Magarian.

About Us

Chatsworth Securities LLC is an investment banking firm that provides a wide range of services to institutional clients. The principal areas of our business are advisory services and private capital raising. We have served as an advisor on both domestic and international M&A transactions, have raised capital for large and small companies, participated as an underwriter in several hundred equity public offerings, and raised nearly $3 billion for traditional and alternative money managers. In addition we have been an underwriter in municipal bond underwritings. Our professionals have substantial and successful experience in assisting domestic and international corporations, asset managers and entrepreneurial companies.

Chatsworth takes an integrated approach in its efforts to deliver solid results for its clients. Chatsworth joins people, ideas and capital to help clients achieve their objectives. We believe our role is to provide our clients with expert advice matched by first class execution. Our objective is to build long-term relationships and deliver superior value to our clients.

The firm, founded in 1996 traces its roots back to 1992 and is based in Greenwich, CT. Chatsworth has affiliations with a number of firms that provide us with research, placement and banking capabilities.