HGGC Amazon Effect

How HGGC Private Investments is Fighting the Amazon Effect

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In 2017 alone, Amazon spent an extraordinary $22 billion on improvements to solidify its dominance of the retail industry. And the Seattle company is beyond serious about remaining the biggest game in town, boasting an astonishing 613,000+ employees and dozens of subsidiary companies that canvas various corners of the market, from gaming to publishing, groceries to robotics.

But just as Amazon continues its skyrocketing trajectory, other online retailers — and brick & mortar companies — are being slowly strangled out of the market. This phenomenon, along with all the things retailers must change just to survive in the Amazon era, is called “The Amazon Effect”.

HGGC Private Investments saw major retailers, most with a strong ecommerce component, close more than 5,000 stores in 2017 alone.  With retailers like CVS, American Apparel and Abercrombie & Fitch closing shops by the dozen, the Amazon Effect is in full force.

So the private equity firm stepped in to do something about it.

Investing in a Retail Future

Mi9 HGGC

For Palo Alto-based HGGC Private Investments, preserving middle-market companies is nothing new. Investing in companies that exist in the broad area between small mom & pop shops and massive, global retailers, is the firm’s specialty. The HGGC staff has made more than 100 portfolio investments, many of them in the retail or retail manufacturing areas, mostly all middle-market.

But HGGC made a different type of middle-market acquisition this time, taking two existing HGGC portfolio companies, and merging them. The firm took MyWebGrocer, a software provider for grocery chains and distributors, and merged it with a leading provider of omni-channel solutions, Mi9 Retail. The key component to this merger? Software, of course.

Mi9 provides end-to-end software for everything from brands to retailers to wholesalers. The company’s software serves as the backbone of the entire sales process, allowing their clients to automate the sales process, from planning to advertising to the actual sale.

With Mi9’s existing suite of solutions, more than 300 clients including 24Hour Fitness, BevMo! and Dolce & Gabbana are able to boost customer engagement, process transactions, and make improvements due to extensive analytics and data. The company’s software can be used across ecommerce and brick & mortar stores, and is specifically designed to reach customers at every step of their retail journey.

MyWebGrocer (MWG), on the other hand, provides software and digital media for grocery businesses. Established in 1999, the company was one of the pioneering providers of software for grocery vendors. Target, Wal-Mart and other major retailers have chosen to acquire software providers rather than develop their own software in-house, so Mi9’s acquisition of MWG is perfectly aligned with recent trends.

Mi9 has also acquired software designed to build out its online suite. The HGGC portfolio company bought JustEnough Software early this year, and purchased both Upshot Commerce and Application Systems Corp in 2016.

On the tail-end of a year that saw Subway, Rite Aid, Sam’s Club and other retailers close stores, Rich Lawson recently spoke on the failure of many retailers to harness technology for a better sales experience.

“Retail is at a tipping point,” he said. “Someone better come in and help them compete, help them know their shoppers, know what they’re browsing for.”

Mi9 and MWG could solve that problem.

Teaming up with General Atlantic and Respida Capital, HGGC took the lead in the merger of Mi9 Retail and MWG. As a result of the merger, both Mi9 and MWG combined will take a larger piece of the market, offering its software to retailers that have revenue ranging from $250 million in revenue to as much as $1 billion in revenue.

At the moment, MWG processes over 3 million orders per year. This represents close to $500 million in online and in-store sales5.

With the new, more robust software, retailers will have a clearer view of what customers want and need throughout the sales process. From showing customers relevant deals at the right moment to empowering them to set up wish lists and virtual closets, the Mi9 framework — combined with the software from MWG — could rival Amazon’s own platform.

This is particularly poignant due to Amazon’s recent aggressive moves into the grocery realm. One high-profile example is Amazon’s purchase of Whole Foods for $13.7 billion, and its subsequent online offerings via Amazon Prime. In fact, while sales at the stores stayed fairly flat, Amazon’s 100 million Prime users were responsible for more than half of Whole Food’s sales since the acquisition.

Other moves by Amazon? Expanding the online retailer’s grocery pickup service for Amazon Prime members. With this setup, which is available in five U.S. cities at the moment, Prime users can order their Whole Foods groceries online, and then drive to their local Whole Foods store and pick up their purchases — in as little as 30 minutes from ordering.

While HGGC hasn’t exclusively invested in retailers, the company is definitely invested in the realm of retail. A few examples would include HGGC portfolio company Hollander, a top supplier of sleep products for Walmart, Target and other retailers, Nutraceutical, which manufacturers and distributes vitamins and personal care products all over the world7, is another solid example of HGGC’s commitment to preserving the retail experience.

Neil Moses, CEO of Mi9, touted an omni-channel strategy as a way to bring positive change to retail.

“Consumers expect all retailers to offer a unified experience across their online and in-store channels, and retailers need to invest in omni-channel technology to keep up,” said Moses. “This investment from HGGC and the combination with MWG enables Mi9 to accelerate deployment of our technology to new markets in retail.”

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