Thrasio – Amazon Aggregators Landscape & Growth Outlook

SP: Yes, good question. The aggregator space as a whole, what it is, it is the acquisition of the best brands on Amazon. We refer to them as old sellers, so an old seller is somebody that ran a brand that the majority of the sales of that brand are fulfilled via FBA, meaning the product is listed on Amazon Seller Central, the orders are fulfilled by Amazon’s logistics company. When you see Amazon trucks on the road here in the States, that’s FBA. All of those fulfilments are FBA, and these very large original sellers, or old sellers, they have brands that make anywhere from USD 500,000 to USD 50m in annual sales. Usually, at least for Thrasio, the criteria is that your brand is the best seller in that sub-level category. A sub-level category means you are within a top level. A top level, for example, would be furniture. An example of a sub-level would be office chairs within the furniture category.

If you have the number one brand for office chairs under furniture, let’s say you brought in USD 3m in annual revenue this past year and your next closest competitor brought in USD 2m, you at USD 3m would have the Best Seller badge for at least your top product. Maybe not on your other products, that’s very difficult to do, but if at least one of your ASINs, or products, it’s referred to as an ASIN on Amazon, if you have that badge, it’s the orange badge that’ll be listed there, that means to customers that see that when they’re on your product display page, that you are what we should buy. We trust you, Amazon trusts you, it has its seal of approval on it. Honestly, there are going to be thousands of reviews on that product most likely, with a very high review number, maybe 4.8 or above. A lot of those brands have issues after a certain number of years with logistics. Maybe they have too much inventory, maybe they’re bleeding because they’re doing advertising, too much ad spend, or maybe too little, maybe they’ve never done Amazon advertising before.

That is where Thrasio thrives, they thrive in the areas of expertise that the old seller may not have had. Typically, the old seller was somebody that was an individual or a partner with somebody else, they ran that brand out of their garage or some sort of system where they had a Shopify website typically, maybe 80% of the time, where they sold products on the website and also on Amazon. An aggregator, we would buy that brand. Typically, it would be a cash purchase, but a lot of new aggregators prefer to do debt purchases. Thrasio typically does a cash purchase. A cash purchase is based off of the EBITDA multiplier, at least for Thrasio. If you make a certain number for EBITDA, we might give you a 2x multiplier depending on the amount of competition for you as a brand, depending on the prospects of the growth of your brand. That’s something that would be a one-time chat. It would be a full payment of the brand, 100% takeover. There is a transitional period for a few weeks and then after those few weeks, then it’s just conversational with the old seller to understand seasonality.

I might speak with the old seller about the brand three months after the purchase and say, “I want to know what should I expect in the month of October for my brand?” They’ll tell me why there’s seasonality. I’ll see seasonality with forecasts and previous year data, but I’ll have to ask the old seller directly, who is an expert in that sub-level category, in office chairs, because I’m not an expert in that. I’m just an expert in Amazon and the different things to grow a brand on Amazon, whereas they were an expert in a particular industry, so you want to get that industry experience. You work together for several months, and at the end of the first year, typically there’s an earn-out for that old seller. That can be anywhere from 5% to 15% of overall net profit for the brand. That is why the old seller is incentivised to continue to speak with us. Typically, that talk that I said a few minutes ago, a few seconds ago about speaking with them about October, that sort of call would be a Zoom call for maybe 30 minutes every two weeks just to get caught up on how things are going.

It’s kind of an underwritten contract where we continue to speak with them, they give us data, seasonality forecasting, but overall, we’re driving the ship. We just ask them for advice if we’re trying to get more colour on the situation, why there might have been a spike or a drop-off that particular month the previous year. Overall, it’s an overall takeover. As an aggregator of the old brands, we run them as experts. Typically, it’s a full team. An individual like myself, a brand manager, would run the brand, but there are a host of different areas of the business, logistics, customer service, FP&A, financial planning and analysis, marketing, advertising, so six or seven different areas of the business. We’re all going to be working on the brand together, but me as the brand manager in operations, I’ll be the person responsible for the brand and working with those cross-functional teams. That’s really how we drive the business, and of course we speak with other brand managers that will look over our brands just to make sure we’re not missing anything. That’s really how we would drive the growth of brands.