Consumer Sentiment Continues to be Challenged

After showing potential signs of stabilization, the end of Q3 experienced a decline in consumer sentiment, dropping to 63.8 from 67.9 in September. The third quarter also experienced a continued decline in M&A activity. While overall acquisition activity was down, we have observed an increase in activity in the apparel and lifestyle brands sector. As outlined in the attached newsletter, there were several sizeable transactions in the space including, Sycamore’s acquisition of Chico’s and Tapestry’s acquisition of Capri Holdings. We also continue to see strong interest in iconic brands, such as the investment in Cloudco Entertainment, the owners of the renowned children’s brand The Care Bears, by IVEST Consumer Partners and Kering’s investment in Valentino, one of the most internationally recognized Italian luxury houses.

While the market has had recent challenges, our conversations with private equity and strategics indicates a continued appetite for acquisition opportunities. We have also observed some bright spots in business performance with brands with exposure to brick-and-mortar retail experiencing an uplift in sales volume.

Key Characteristics for Consumer Investors Right Now Include:

• Meaningful retail presence (either owned or third-party) in order to mitigate exposure to rising customer acquisition costs related to direct-to-consumer sales
• Technical or functional product components (“need to exist”) mitigating fashion risk amidst wavering consumer spending
• For direct-to-consumer businesses, growing profitability and sustainably is likely to peak investor appetite more than businesses that drive growth at all costs
• B2B consumer products and services are in favor in recent years given added insulation from current consumer dynamics
• Organic following, whether it’s from the brand’s devout community or built on a creator or celebrity’s existing personal online following

If you are interested in learning more about the latest market conditions or potential options for your business, please do not hesitate to reach out to our team.