Betting On Next-Generation Retail: New Company Is Shopping For Brands To Buy

It has reopened 11 of those stores, and Jones and Freihofner said they plan to continue to operate physical stores, in addition to Frank and Oak’s online business.

Frank and Oak is an example of a brand that checks all of the ‘Ds’ that UCG is looking for, Jones said. They own the data for every customer transaction, and they use it to get to know their customers better and serve them better. All of its sales are from direct interactions with customers according to the reports published in forbes.com.

“Whether you have stores or an online business, we want owned stores and owned digital to be the primary volume driver of the business,” Jones said.

Having a direct relationship with customers allows brands to “respond faster to changes and to shifts like a pandemic,” he said.

While Frank and Oak had to close its physical stores due to the pandemic, it didn’t lose its direct, online connection with customers, Jones said, unlike brands that rely primarily on wholesale orders to department stores. Those brands saw their revenues fall dramatically as department stores cut orders.

Unified Commerce Group has interviewed over 70 brands as potential acquisitions, and Frank and Oak was “on our list of to 10 brands we wanted to pursue” even before the pandemic hit, Jones said.

“The fact that it went through bankruptcy created an opportunity for us to buy it at a discount, but it wouldn’t have prevented us from buying it one way or another,” he said.

Jones and Freihofner, along with other UCG executives and advisors, have seen first-hand how the retail world is moving away from department stores as brand gatekeepers, to more direct customer relationships.

Jones is a former managing director of Hong Kong-based Fung Retailing Group. Prior to that he spent over 10 years at Macy’s M +0.6%, including almost three years as managing director of Macy’s China, a joint venture partnership designed to build the Macy’s brand in China,

Freihofner is a former managing director of Societe General and a former senior vice president at Credit Suisse CS +3.7%.

UCG was born when Jones and Freihofner saw the impact the Chinese consumer was having on the global economy, particularly in the luxury category. It got them thinking about what it takes to be a global brand, and how brands can scale globally.

“We saw this convergence of demand, where through social media, through digitization, consumers are experiencing the same things all over the world, and they’re wanting the same things all over the world,” Jones said.

The brands that are poised to take advantage of this, Jones and Freihofner believe, are “purpose driven brands.” That can include brands like Frank and Oak, a certified B corporation, with a strong environmental and sustainability narrative, but it can also include brands where the purpose is giving customers an identity they respond to.

The purpose of an outdoor, or athletic brand, for example, could be supporting a consumer’s goal of getting out in nature, or being more active, Freihofner said.

“There’s a global convergence of people wanting brands that have purpose, however they define that,” Freihofner said. “They want a brand to have some sort of function in their lives, ands they’re voting with their dollars on how they’re spending that money,” he said.

While their first acquisition, Frank and Oak, was a bankruptcy acquisition, Freihofner and Jones say they are not focusing solely on distressed brands.

They said they define opportunity not only in terms of price, but by growth potential.

“A brand may be an opportunity because it is growing very quickly and it’s ready to scale globally,” Freihofner said.

Their target revenue range for acquisitions is brands with sales of $50 million to $250 million.

UCG has assembled an eclectic and high-profile advisory board that includes former Macy’s Chairman and CEO Terry Lundgren; Chinese supermodel and influencer Bonnie Chen; Lale Kesebi, founder and CEO of strategy lab Human-at-work; television personality and designer Nicole Richie, and Joel Madden, CEO of music management and marketing company MDDN and lead singer of Good Charlotte.

Lundgren, who spent more than four decades in department store retailing, agrees that old-school retail has to make way for next-generation retail.

“The retail landscape is changing in unprecedented ways, from the pandemic to new digital and direct to consumer players, as well as changing lifestyles and fashion choices,” Lundgren said in a statement when UCG announced its Frank and Oak acquisition. The UCG team, Lundgren said, has the “skills, the innovative thinking, and the global network to bring a new model to the market when it is most needed.”

The pandemic, Jones said, has ramped up the need to create new, more direct, retail models.

“All those things that are direct are being accelerated,” he said. “On the other side, all those things where there was a middle man are being completely disrupted.”

He still sees a role for those middle men known as department stores, but said they are going to have to figure out ways to have direct relationships with customers.

“For department stores to survive, they’re going to have to come up with direct models that enables brands that they serve,” Jones said. “It doesn’t mean that they have to completely go away, though it also doesn’t mean that they have permission to stay.”

That is some pretty direct, next-generation advice for past-generation retailers.