What Happens When Big Companies Buy Cool Ones
Zalando’s acquisition of Highsnobiety is just the latest in a spate of deals in which a company seeking relevance snapped up a smaller, hipper entity in the hopes of reaching a savvier, often younger, consumer. But does chasing cool ever work?
This week, Zalando, one of Europe’s leading fashion e-commerce players, acquired a majority stake in Highsnobiety, the streetwear blog that has established itself as an agency of cool through content, commerce and brand consulting. The financial terms of the deal were not disclosed, though it’s possible that Highsnobiety was valued between $180 million and $250 million.
It’s obvious why Highsnobiety wanted to sell: Zalando offered an exit after more than 15 years, as well as an opportunity to more robustly build out its fast-growing commerce business.
The real question is why Zalando wanted to buy Highsnobiety. It’s clearly not about the money, at least not directly: Zalando generated more than $12 billion in sales in 2021, and neither Highsnobiety’s revenue nor the cost to operate it will have much of an impact on the retailer’s balance sheet. But the value Highsnobiety could generate is significant. Zalando, a mass-market apparel player, has been working to gain a foothold in high fashion. Highsnobiety will essentially serve as an in-house consultancy that can help introduce the retailer to the younger luxury customers it wants to reach. (Over the past few years, Highsnobiety’s creative agency, which advises brands and retailers on content, has become a larger part of the overall business and is growing, according to Highsnobiety co-founder and chief executive David Fischer.)
The fact that Zalando and Highsnobiety are both based in Berlin and run with a German sensibility is another plus.
The deal also reflects a prevailing trend in M&A in the fashion industry, with a spate of established firms snapping up businesses that cater to younger and/or savvier consumers. Just a few weeks ago, Spanish beauty conglomerate Puig bought Byredo in an effort to reach the growing demand for niche fragrance over designer. Management firm Marquee Brands, which owns names like Martha Stewart and Ben Sherman, recently acquired the polarising streetwear label Anti-Social Social Club with an aim to better understand the Gen-Z customer. And a few months back, Farfetch scooped up Los Angeles-based high-end beauty purveyor Violet Grey in an effort to establish authority as it makes a major push into the category.
The reality, however, is that 70 to 90 percent of mergers and acquisitions don’t deliver value, according to Harvard Business Review, because of the way the two companies are integrated after the merger. HBR didn’t single out deals like Zalando’s, where cultural cachet rather than pure revenue and profits was the driving rationale, but the failure rate for these sorts of deals may be even higher.
Oftentimes, the culture of the more innovative business is lost, and the cool factor dissolves. A classic case is Banana Republic. When it was acquired by Gap in 1983, it was a chic outfitter of safari clothes, subsequently transformed into a wear-to-work brand designed to compete with Ann Taylor. But despite some success in the 1990s and more recently, its identity remains blurry and performance is inconsistent. The American beauty group Estée Lauder, which found great success with its purchase of M.A.C., has struggled more frequently in recent years with acquisitions. For instance, five years after buying Becca Cosmetics in 2016, it decided not to resell it, but to simply shut it down, citing poor performance.
It is quite possible for a brand to lose its magic once it’s absorbed by a larger entity, and Highsnobiety fans took to social media to express their concerns. “What a bummer,” said @marcjanssenberlin, a personal shopper. “Puh, I don’t know if this is a good deal for @highsnobiety !?! When they can/will do their [independent] business in the future, then okay. If not, then I would call it a fail…” added @sven_moye.
On the other hand, strong brand management can result in success. VF Corp. has managed to build out The North Face and Vans without, for the most part, damaging their reputations with their core customer bases. Perhaps that’s why Supreme, the ultimate “cool” brand, chose VF as its partner when it “sold out” at a $2.1 billion valuation. Thus far, the queues in front of its Lower Manhattan store remain just as long.
There are signs that Highsnobiety will maintain quite a bit of independence from Zalando: not only editorially, but physically. (They are not merging offices.) In the best-case scenario, Highsnobiety will help to polish up Zalando’s brand, while growing the Highsnobiety business and maintaining some of the magic that made it so special in the first place.