Selling on Amazon and other marketplaces can be lucrative for merchants these days — so lucrative that companies like Thrasio, Perch and Elevate Brands have raised over $2.3 billion in funding to acquire and grow these third-party sellers’ brands.
But if you were an Amazon seller just a few years ago, capital was hard to come by. Adam Feinberg, CEO of Web Deals Direct, told PYMNTS that in 2017, after his company had several products and $25 million in sales, banks refused to lend him money unless he signed his house over as collateral, “which was a non-starter.” Web Deals Direct started in 2015 selling vacuum storage bags before expanding into other categories, including office products, pet supplies, home and kitchen, and sports and outdoor.
“It was totally the opposite of what’s going on now, where VCs are throwing hundreds of millions of dollars at these unproven companies to acquire Amazon small-fry businesses,” Feinberg told PYMNTS. “No one trusted an Amazon business as far as they could throw it. They just thought it was the riskiest thing in the world.”
Feinberg and his partner ultimately sold Web Deals Direct to Perch last month, one of the brand aggregator’s largest acquisitions to date. Feinberg met with six or seven other brand aggregation companies who wanted Web Deals Direct to spin off some of its brands, but said that based on overhead costs, the only way it made sense was in an all-or-nothing sale.
Perch, Feinberg noted, was “super-duper aligned” with the way Web Deals Direct was currently operating. “I’m confident that if they bring the right expertise into the business, it will continue to grow,” he told PYMNTS.
Loading Up on Logistics
Feinberg noted that one of the biggest risks as an Amazon seller is running out of stock, because it means immediate lost sales from consumers as well as penalties that Amazon levies on those who can’t fulfill customer demand. In light of this, as part of the acquisition deal, Perch not only bought all of the brands that Web Deals Direct had been selling, but also the company’s 230,000-square-foot warehouse in California.
Chris Bell, CEO of Perch, said that building out warehousing and fulfillment operations “will be critical to our success.” The company is currently evaluating multiple warehouse options on the East Coast to make a larger push into asset-based and fulfillment operations.
For Feinberg, one of the biggest factors driving the decision to sell to Perch was the ability Perch has to scale brands. “Based on their access to capital that we didn’t have, they can grow the business in a lot of directions that we discussed but weren’t ever able to do,” he said.
Still, Feinberg considers himself one of the lucky ones. Despite an explosion of companies looking to acquire and build third-party brands that sell on Amazon and other marketplaces, Feinberg said that about 50 percent of the people he talks to get caught up in deal discussions that ultimately go nowhere.
Meeting the Criteria
Part of that may be because of the strict criteria that Perch and similar companies use to decide which brands are worth buying and investing in. Bell told Karen Webster earlier this month that brands have increasingly been reaching out to the company with the intention to sell, but not everyone makes the cut. To be acquired by Perch, a brand must be among the top five brands in its niche, must have a low return rate and must be profitable and not spend more on ads than it’s making.
“We wait until they’ve gotten that product market fit and they’re winning within their category before we step in,” Bell said, adding that he’s aiming to build the consumer products company of the future.
In Web Deals Direct, Bell said Perch achieved “a major milestone,” as the company and its brands had $80 million in sales last year. “The complexity and size of the business is a testament to the excellent organization Adam and the entire team at Web Deals Direct have built,” he said.