Retailers have been hammered by the coronavirus, forcing hundreds of iconic brands to close up shop and sell their company for parts to pay off debts. In the age of e-commerce, a brick-and-mortar company’s hard-won and fiercely protected client list has suddenly gained enormous value. Where bankruptcies loom, a crop of firms hoping to win a retailer’s customer data is willing to pay sky-high prices to buy that brand’s relationship with its former customers.
“Knowing somebody has bought my product and knowing what they bought and knowing when and why they bought it puts me in a better position to sell them more products,” Ramez Toubassy, brands president with Gordon Brothers, which acquired Laura Ashley in April, told NBC News. “That is incredibly valuable information.”
Over the last decade, retail companies in bankruptcy have increasingly sold off their intellectual property for millions of dollars as online shopping outpaces brick-and-mortar sales. That trend has led to a surge in value for brand affinity and awareness, two metrics that experts use to determine the price of a retail brand, according to attorneys and investment firms familiar with these negotiations.
A buyer typically wants that customer list because it's a way for a new buyer to take on that brand and give it new life, including to market similar products to the same customer base.
Before the Great Recession and the rise of e-commerce, a retailer's value was based on store profits. But now, intellectual property and customer data linked to particular brands are fetching steep prices in bankruptcy auctions with buyers leaving store leases behind in their deals. Authentic Brands Group, which has been on a retail buying spree, acquired the Barneys brand last year along with the financial service company B. Riley Financial Inc. for roughly $271 million. Last month, Retail Ecommerce Ventures bought the intellectual property for Pier 1 Imports and Modell’s Sporting Goods for $31 million and $3.7 million, respectively.
“I would say that [customer data] is the preeminent valuation factor that we look at because we’re buying companies that are failing in their old methodology,” Tai Lopez, president of Retail Ecommerce Ventures, told NBC News. “You can’t base it on business profits.”
Customer data — including emails, addresses, purchase history, income, phone numbers — have become invaluable in the age of e-commerce, according to Toubassy. Market researchers sell databases full of customer demographic data in a particular market for millions of dollars, but those lists do not come with an existing relationship that may have taken decades for a retailer to nurture, he said.
“Lists are not hard to get, but lists that are connected to a brand that I own, I can’t go buy that as easily,” he said. “You gain tremendous value by having conversations with customers who already have a relationship with that brand.”
A customer database typically sells for roughly $10 per contact. But that figure can skyrocket when that data is connected to a specific brand, said Lopez. In the case of Pier 1, Retail Ecommerce Ventures paid nearly 10 times as much as it paid for Modell’s Sporting Goods because its customer list was larger and the attachment customers have to the brand is stronger — which requires less leg work for the new owners, he said.
“Is [the brand] big enough to revive?” Lopez said. “It’s a bit of math and some gut feeling.”
“A buyer typically wants that customer list because it's a way for a new buyer to take on that brand and give it new life, including to market similar products to the same customer base,” he said.
More than 90 percent of S&P 500 companies’ market value is in their intellectual property and what are called intangible assets, a reversal from roughly 25 years ago, according to a July report from the intellectual property advisory firm Ocean Tomo. That figure is likely to increase in a post-coronavirus world as more businesses slough off expensive real estate and burdensome leases and focus on furthering their digital capacities through restructuring, the company said.
“In bankruptcy we’re seeing companies use brands to raise capital and in the pre-bankruptcy process it is used to avoid bankruptcy,” said Greg Campanella, managing director of Ocean Tomo’s intellectual property strategy and valuation practice. “Where we’re seeing customer lists come into play is when [companies] go into complete bankruptcy and that is the value of the brand.”
California requires companies to alert customers when their data is sold to another party. Nevada passed an amendment to its online privacy law last year which requires businesses to offer consumers a right to opt-out of the sale of their personal information. But other than these states, customer data is bought and sold with little notice to consumers, said Meyer.
“Many of these brands have extensive histories and established reputations with consumers,” said Lorber with Kirkland. “The longer the pandemic continues, the more likely it is that retailers will consider engaging in these types of transactions.”