Focus

From the outset, the coming together of Thrasio and IdeaStream seems like David succumbing to Goliath. Looking closer, however, this is far from an uneven match

In September of last year, IdeaStream Consumer Products was acquired by Thrasio. Regarded as the original Amazon aggregator, Thrasio is known for first identifying and then buying top-performing brands on Amazon. Combining its e-commerce expertise with deep pockets, the company then drives those brands to greater levels of volume and reach on the online giant’s platform, thereby boosting both revenues and profits.

While the narrative of Thrasio buying ‘one of our own’ – clearly seeing its potential in the online space – is interesting in itself, it’s perhaps even more relevant for our readers to learn that the IdeaStream deal marked something of a departure from Thrasio’s typical approach. It provides the aggregator with a pathway into the traditional B2B wholesale and retail space.

OPI’s Heike Dieckmann recently spoke to IdeaStream’s CEO Tony DeCarlo to find out what each entity is seeking from their coming together and what both can bring to the party.

OPI: Before we get into the strategy side of your acquisition by Thrasio, please tell me a bit about IdeaStream.

Tony DeCarlo: Sure. IdeaStream was created in 2002 by me and Dan Perella. We had previously both worked for office products manufacturers in our sector.

Our business was founded on what we call the principles of category management. We believe that the panning for gold starts with capturing and analysing daily transactional point-of-sale information from our customers – retailers, OP resellers, superstores and wholesalers, for example – to identify opportunities to grow.

Units sold per store per week, seasonal buys – it’s all essential for planning demand, spotting trends, optimising the supply chain and simply making sure our merchants and the buyers we work with have the right amount of inventory in the right locations at the right time. Only it’s not simple at all, but very complex.

OPI: But you’re not a manufacturer, are you?

TD: That’s correct. I would describe us as a consumer products company which leverages third party resources for certain functions. So we don’t manufacture ourselves, but we own substantial intellectual property – patents, trademarks, etc – around the products we market. And the items we sell are exclusive to us.

Some people regard us as a sourcing company, but I believe that’s too limiting. Anybody can think of a product and look for a manufacturer somewhere around the globe to make it for them. We do more. We identify category opportunities, invest in the design and development of the products, and vet them all

OPI: Vaultz is an IdeaStream brand that springs to mind and which I remember from Paperworld many years ago.

TD: Yes, Vaultz is our flagship brand and the first one we launched in 2004. We have two other IdeaStream brands. One is called Snap-N-Store and the other Find It. Broadly speaking, these ranges comprise filing, organisational and storage products.

OPI: Where is your geographic focus and what’s your route to market?

TD: The majority of our business is in North America right now. If you look at the top 20 retailers there, we are selling to 17 of them, plus we go to the B2B business supplies reseller community, predominantly via the two OP wholesalers. And, of course, Amazon is a sizeable part of our operation.

OPI: When you say “right now”, I’m guessing your outlook has broadened with the Thrasio deal, so let’s talk about your acquirer a bit more. My understanding of Thrasio is that it buys Amazon FBA businesses, adds expertise and resources, in the process growing volume. It’s a simplistic description, I realise, but am I in the right ballpark at least?

TD: That’s pretty spot-on as a nutshell description and it’s definitely how the company started out. Thrasio has raised significant capital since its creation in 2018 – the latest round in 2021 amounted to $1 billion – and has built a portfolio of more than 200 brands and thousands of products. Its valuation is somewhere between $5 and $10 billion and most of this volume sits on Amazon.

What this operator has effectively done through this huge range of acquisitions is build a next-generation consumer goods company. By buying these brands, it’s added quality products to its portfolio. But these entities already had established viability, a determined product market fit and a built customer base. The next step was to grow them.

Thrasio – and that includes us now – defines its mission as “reimagining how the world’s most-loved products become accessible to everyone”. It means our really successful items and brands need to be available to consumers wherever they shop. Amazon may appeal to 20% of the global consumer products market, but the remaining 80% still represent a huge opportunity.

That’s where IdeaStream comes in. Our business prior to the acquisition was 80% wholesale and retail, with 20% Amazon, so we have a lot of expertise to offer in what you might call the more traditional channels of distribution, including business supplies.

OPI: So the idea is not just to increase the portfolio or the presence of IdeaStream products, but also that of all these other brands Thrasio owns – and no doubt will continue to buy.

TD: Precisely. It’s multifold. Of course we want to grow the legacy brands of IdeaStream in all channels. Amazon is one of these channels for us. We actually thought ourselves to be competent on the digital marketing side of our brands but, compared to Thrasio, we’re neophytes.

There’s immediate potential for Thrasio to take the success we’ve had on Amazon, broaden it and more aggressively grow this portion of the business. And that’s happening very effectively already. It’s to do with access to resources around the globe we may otherwise not have been able to reach, supply chain solutions, scale in negotiations and so on – it’s a long list.

The second opportunity is to leverage the IdeaStream infrastructure as a platform to launch these successful Amazon-only brands into traditional channels. This is really where the IdeaStream acquisition was unusual for Thrasio in that our whole team has joined theirs.

Thirdly – and you’ve already alluded to it – Thrasio will continue to strategically identify brands and companies that can be acquired and are truly accretive in nature.

Amazon may appeal to 20% of the global consumer products market, but the remaining 80% still represent a huge opportunity

IdeaStream’s organisational products

OPI: Where do you see the best expansion opportunities specifically for IdeaStream?

TD: Right now, we’re negotiating the distribution of certain categories in the EU, Australia and New Zealand. Thrasio has also recently acquired a major business in India, so that’s another market we’ll be looking at, both in terms of selling as well as a production and sourcing opportunity.

But the real focus will be on delivering as a platform to help Thrasio build an omnichannel presence for our entire portfolio of brands.

OPI: Back to the US, Thrasio is based in Boston, Massachusetts, while you’re in Cleveland, Ohio. How will that evolve?

TD: Certainly for the time being, we will continue to operate out of our offices in Cleveland and we’ll be the competency centre for the offline channel for our parent.

OPI: What’s been the feedback from this offline channel to the new influx of Thrasio brands? It’s obviously early days still.

TD: Our core customers have been very receptive to the idea of us bringing them brands that are really successful in the world of Amazon, but don’t yet have a home in traditional retail or wholesale. We are talking about brands with hundreds of thousands of five-star reviews and which are leaders in massive categories.

The end consumer has already voted on these products in the digital world, but we’re now talking to our customers, urging them to put them on their shelves – wherever those shelves are. I think there’s a huge appetite for these successful items to have a presence outside the Amazon platform.

OPI: Are the brands you are talking about competitive to the dominant manufacturers in our space – I’m sure you know which ones I’m referring to?

TD: Some are, others aren’t. Of course you have some brands on the shelves of Walmart and Target and in the warehouses of Essendant and S.P. Richards which own the category in the traditional channel, but amazingly have become a distant second or third on Amazon. They are working hard to improve that standing.

But we are also working hard to ensure Amazon-only brands find their way to the end user via all channels.

OPI: What’s your ambition specifically from an IdeaStream perspective?

TD: Scale. And Thrasio brings this at a level we simply couldn’t achieve on our own. We live in some pretty challenging economic times and in a drastically changing marketplace – scale is crucially important in all aspects of our business, from access to production partners, to management of the supply chain, and then just overall marketing power.

We offer a platform for delivering successful Amazon products back into traditional channels and Thrasio gives us access to resources to just be bigger, stronger and better.

OPI: How autonomous do you expect to be under the Thrasio umbrella?

TD: As I said, our business is different from Thrasio’s typical acquisition target because of the channels we serve and the expertise we bring in that context, so autonomy isn’t the goal.

I thought we were good at Amazon, but Thrasio is great. We have seen first-hand the power of Thrasio in the world of digital marketing and sales. It’s comparing a black belt with an orange belt. But, by the same token, we consider ourselves to be very competent at serving traditional retail and wholesale – that’s why it’s such a good partnership.

Tony DeCarlo

Our core customers have been very receptive to the idea of us bringing them brands that are really successful in the world of Amazon, but don’t yet have a home in traditional retail or wholesale

OPI: No conversation at this point is complete without mentioning COVID. Thrasio launched about 18 months before the pandemic hit, clearly spotting a silver bullet as an Amazon aggregator. It’s surely turned into a golden opportunity over the past three years.

TD: There’s no doubt Thrasio was way ahead of the curve. To have the foresight to create a business like that was already pretty incredible. To then have the world change in a way that aligns it more strongly with its direction is amazing.

The global pandemic has been an incredible tragedy in both personal and business terms. It’s likely many companies won’t weather the storm, not least because of the severity of the supply chain challenges we’re seeing right now. We are extremely lucky to have the leverage that comes with being part of the Thrasio stable.

OPI: While the Amazon opportunity has undoubtedly been great – and continues to be so – we also often see anxiety about putting all eggs into the Amazon basket. It’s come back to haunt many operators, so spreading your distribution out sounds like a solid plan.

TD: We were not exempt from that angst, I can tell you. Amazon is influential and of vital importance to so many sellers. It means the decisions this player makes echo throughout commerce. We certainly had our own challenges with this in 2019 when Amazon changed revenue thresholds for Vendor Central sellers. It was painful, but we came out the other side with significantly better margins and a rapidly growing business.

Amazon is one of the great wealth creators of our time. The potential for sellers and for companies like Thrasio is enormous, and we think it will continue to grow.

All that said, you’re absolutely right – diversification is just smart business and Thrasio’s interest in IdeaStream came at a perfect time.

OPI: How did it actually happen?

TD: It’s an interesting story. We received a solicitation postcard in September 2020, asking “Are you interested in selling your Amazon FBA business?” My business partner, Dan Perella, put the card on my desk and said: “Hey, check this out. Is this something we should look into?” I didn’t even know what an Amazon aggregator was back then.

I did a bit of research and responded to the postcard with a phone call to the VP of Acquisitions, a gentleman called Ken Kubec, who happened to be from my hometown of Cleveland and a graduate of one of the local high schools.

We had a good conversation, but I said we were not for sale. However, I was interested in the model and Thrasio was interested in us because the team had seen the success of some of our brands on Amazon and wanted to learn more.

So we signed an NDA and started to openly share information about our businesses. But at the time Thrasio wasn’t focused on brands with a sizeable wholesale or traditional retail component – our stronghold – and we parted ways.

We reconnected in February 2021 and Ken shared with me that discussions within Thrasio were starting to focus on the importance of omnichannel distribution. The initial idea was to sell two of our brands – not our company. But as we got into the due diligence, it became evident that maybe, as valuable as our brands were, perhaps there was even more value in our infrastructure, knowledge and relationships because we served channels and customers Thrasio did not. We came to the mutual conclusion an acquisition of the entire company – IdeaStream team and all – was more interesting than a brand sale.

So this relationship that started via a postcard on 15 September 2020 went full circle on 10 September 2021 when we signed the deal.

OPI: How do you think a player like Thrasio will shake up the business supplies sector?

TD: These aggregators or, perhaps better put, consumer products companies could offer a viable opportunity for some of the smaller manufacturers. They allow operators like us to compete at a different level because of scale. Their sole focus is to build brands and they do it very well.

I believe there could be some potential for entrepreneurs who have been slugging away at it for a long time – they can put themselves in a better position to weather the storm of change that we’re all experiencing. It could also be a good exit strategy.

We all know Amazon has changed how the world shops forever and it will continue to do so. As such, it’s certainly challenging the traditional business model, but it’s by no means replacing it.

And I would definitely say operators need to constantly challenge themselves to become significantly better today than they were yesterday. We have to embrace this evolving landscape, pay close attention to how companies succeed on Amazon and make changes in our businesses that allow us to participate.

Founded: 2018

Headquarters:

Boston (MA), US

Co-founder & CEO:

Carlos Cashman Staff: 1,000+ Sales: $1 billion+ Brands bought: 200+

Geographic

coverage: US, UK, Germany, China, Japan, India

Operators need to constantly challenge themselves to become significantly better today than they were yesterday