Every entrepreneur starting an online retail business at her kitchen table dreams of getting rich. It can be done, even if Amazon.com Inc.’s growing dominance of online retailing makes it tougher, and Internet Retailer has produced a new, 32-page report that shows how.
The report, “Valuing America’s Top E-Retailers: A Guide for E-Retailers and Investors,” is based on an analysis of 553 privately held web-only and catalog retailers in the Internet Retailer 2016 Top 1000. It concludes that the typical privately held e-retailer can command a value of just under one times annual sales. But there is a big range, with larger retailers and those that sell private-label product not available elsewhere commanding significantly higher multiples.
The best way to compete with Amazon and all the other online and offline retailers is to sell merchandise they can’t offer. That gives an e-retailer something unique to offer consumers and means it isn’t as vulnerable to online price comparison because—if the consumer wants the product—there’s only one place to get it.
That provides the kind of defensive moat that gives investors confidence a business will be able to grow and prosper.
“We find that what investors want is companies that have a defense against Amazon,” says Stuart Rose of Tully & Holland. “And the only effective defense we’ve found is proprietary product or customization or personalization—things Amazon doesn’t play well with.”
The Internet Retailer analysis shows that the median value of e-retailers that largely sell proprietary product is 1.35 times sales, versus .54 for other web merchants. Prominent examples of retailers benefiting from selling their own branded goods are outdoor clothing retailer L.L. Bean Inc., No. 34 in the Internet Retailer 2016 Top 500, eyeglass retailer Warby Parker (No. 197) and preppy apparel brand Everlane Inc. (No. 314).
Besides proprietary product, investors also evaluate e-retailers on:
- How they sell, with a big portion of sales coming from Amazon and other web marketplaces deemed less valuable than sales from a retailer’s own website
- Their size and potential for growth
- Strength of management team
The new Internet Retailer report goes into detail on all these strategies, giving examples of retailers that are attracting investor interest by ticking these boxes.
The $199 report also includes:
- A summary analysis of the value of 553 privately held online retailers, with estimates of valuation multiples broken down by size, merchant type, sales channels and the extent to which retailers offer private-label product.
- An analysis of 25 recent acquisitions of online retailers and the stock market value of 16 publicly held Top 1000 web merchants.
- List of the top 10 privately held Top 1000 online retailers in value-to-sales ratio.
- Advice from retailers and investment bankers on key strategies that can help a retailer build the value of its online business as well as guidance on how to position an e-retailer for a successful sale or capital raise.
- Tips for investors on what to look for in an online retail business today that is likely to grow in value in the future.
- An article by Lazard Middle Market investment bankers on how an online retailer can build value in the age of Amazon.
Click here for more information or to purchase the report.
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