1OYEAR GENERAL INDUSTRY REPORT - Whitehorn Capital Inc.
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GENERAL
INDUSTRY REPORT
1O YEAR
ANNIVERSARY
Q2 2020
Case Study
The Shopify Surge
150 per cent - the increase in Shopify’s stock price this year as at June 30. Shopify’s increasing e-commerce dominance is fueled by its ability to provide
small and medium sized businesses worldwide with a user-friendly and cost-effective e-commerce platform.
E-commerce Solution
Ottawa based Shopify offers an avenue to build an e-commerce presence through a simple, four step process:
Start Sell Market Manage
•Branding (logo, company •Online store •Content marketing & search •Orders
name) •Point of sale engine optimization (SEO) •Inventory fulfillment
•Online presence (web •Existing websites / blogs •Marketing campaigns (email, •Payments
hosting, pictures, web •Social media, online Facebook ads, Google •Shipping
address) marketplaces Shopping etc.)
•What to sell (own products or •Shopify Ping – messaging
browse from a list of products app to interact with customers
for drop shipping) •Automate campaigns
•Marketing insights
In the past, laying down the foundations of an e-commerce store was not easy. With Shopify, merchants can offer their products and services online at an
affordable cost.
Shopify’s History
Before being a platform to build e-commerce stores, the original Shopify was a store known as Snowdevil. It was founded in 2004 to sell third party
snowboards online. After getting increasingly frustrated at the lack of available software in the early 2000s to launch their e-commerce snowboard shop,
the founders took matters into their own hands and launched Snowdevil via a Shopify barebone platform.
The initial response to Shopify itself was far more overwhelming than for the Snowdevil e-commerce store. The founders decided to shelf Snowdevil and
focus on assisting other merchants pursuing e-commerce instead. Shopify was officially launched in 2006.
Since then, Shopify has grown rapidly. We highlight several key milestones along the way in the timeline below:
Shopify is Shopify powers 140,000 Stores and US Shopify generates over
founded. 15,000 active stores. $3.7 billion in retail sales. US $1 billion in revenue.
2009 2012 2015 May 2020
2006 2011 2014 2018
Shopify’s retailers net Shopify grows to power Shopify goes public Shopify briefly overtakes
US $100 million in sales. 40,000 stores; retailers sell with a US $1.3 billion RBC as largest company
US $740 million in sales. valuation. in Canada by market cap.
Business Model
Shopify generates revenue in two ways:
A. Subscription model
Customers can choose between three subscription plans: Basic Shopify, Shopify and Advanced Shopify.
Basic Shopify Shopify Advanced Shopify
Description Basic features recommended for Additional features included, Advanced features for businesses
entrepreneurs starting new businesses recommended for growing businesses seeking to scale
Monthly pricing US $29 US $79 US $299
Shopify also offers Shopify Plus, a subscription plan tailored to larger businesses with higher volume sales. Think of Shopify Plus as the enterprise grade
solution for e-commerce. The pricing of Shopify Plus varies by customer.
Q2 2020 General Industry Report 2Case Study
B. Merchant Solutions B. For customers of Shopify merchants
In addition to varying features, each subscription plan charges varying •Buy now, pay later option: Allows consumers to pay for products
payment processing fees. These consist of transaction fees, referral fees, •purchased in installments.
credit card rates and point of sale (POS) fees. As seen below, Shopify’s •Shopify POS: Customers have access to what merchants have available
merchant solutions revenue has seen an uptick along with the increase in •in-store via the website.
sales processed. •Local pickup: Enable merchants to offer customers curbside pickup
Shopify Merchant Solutions Revenue by Quarter services.
350 •Gift cards: Allows merchants to sell gift cards to their own e-commerce
•stores.
Merchant Solutions Revenue ($ mil)
300
250 Business owners appreciate the company taking the initiative to introduce
industry leading services to their e-commerce stores. They also witness the
200
impact of these offerings to the continued growth of their businesses over
150 time. This has enabled Shopify to build an entire e-commerce ecosystem that
its loyal customer base increasingly relies on.
100
50
The chart below demonstrates the rapid adaptation of Shopify as businesses
0 seek to increase their e-commerce presence.
Q2 2014
Q3 2014
Q4 2014
Q1 2015
Q2 2015
Q3 2015
Q4 2015
Q1 2016
Q2 2016
Q3 2016
Q4 2016
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q1 2018
Q2 2018
Q3 2018
Q4 2018
Q1 2019
Q2 2019
Q3 2019
Q4 2019
Q1 2020
Gross Merchandise Volume (Us$ bil)
Shopify has successfully built a sustainable Software as a Service (SaaS) Number of Merchants and Gross Merchandise Volume in $ Billions
1,200,000 $70
Number of Merchants
business model on subscription fees and revenue growth based on customer 1,000,000
$60
1,000,000
transaction volume. 820,000
$50
800,000
609,000 $40
$61.1
Anticipating Customer Needs 600,000
375,000 $30
400,000 243,000 $41.1 $20
Shopify’s competitive advantage is its ability to anticipate what customers 145,800 $26.1
200,000 $15.4 $10
want and respond swiftly which has enabled the company to distinguish $3.8 $7.6
0 $0
itself from its competitors. Management understands the importance of being 2014 2015 2016 2017 2018 2019
proactive to address customer needs for business sustainability and growth.
“We view Shopify Plus as a partnership. We felt the relationship
was the strongest it would be out of any player that we could have
chosen. We understood that the platform is continually going to get
better. At the end of the day, performance and everything aside, we Q2 2020 Key Highlights
feel like we’re in this together.”
• The federal government announced on June 16 that the Canada
Emergency Response Benefit (CERB) will be extended by eight weeks
Andy Lee, Senior Director – Digital Product Management, Staples
to a total of 24 weeks.
Canada.
• Alimentation Couche-Tard dropped its US $5.6 billion acquisition for
fuel retailer Caltex Australia Ltd due to COVID-19. It plans to re-engage
In 2020 alone, Shopify introduced additional features and services to once there is more clarity on the global economic outlook.
make it even more convenient for its merchants. Some of the offerings are • In mid-June, UK based Cineworld cancels $2.15B acquisition of
highlighted below: Cineplex Ltd., pointing to a deterioration in Cineplex’s business.
A. For Shopify merchants • Canadian inflation was -0.2% in April month over month, the first time
since the 2009 recession that it went negative.
•Shopify Balance: Business accounts, similar to what traditional banks
• Canada and the US extended border closures to July 21 at least.
•offer but with no monthly fees and no minimum balances.
• On June 24, credit rating agency downgraded Canada’s AAA credit
•Shopify Card: Physical and virtual cards for merchants to buy inventory,
rating to AA+. The agency expects Canada’s Debt to GDP ratio to
•track spending or conduct ATM withdrawals.
increase from 88 per cent in 2019 to 115 per cent in 2020 due to
•Shopify Capital: Offering cash advances between $200k and $500k in
COVID-19 measures introduced.
•Canada and US$200k and US$1M in the US; $1B allocated to date.
•Collect tips: Merchants can collect tips from consumers online.
•Shopify POS: Offering merchants contactless payment hardware in
•physical retail locations post-COVID.
Q2 2020 General Industry Report 3Canadian Retail
What’s Next For Canadian Retail
The Canadian retail sector was battered and Locations Closing Late 2019-2020 Q1 (Pre Pandemic)
beaten coming into 2020. The effects of online 200
175 600+
shopping, high household debt and reduced
consumer spending had the sector contracting by 150 147
an estimated 1,000 retail locations and this was
119119
# of Stores
before pandemic related issues.
100 88
76 76 73 73
The COVID-19 pandemic has brought a series 65 65 60
of additional challenges: many retailers endured 44 44
50 40
forced closure, reduced operating hours, restricted 24 24
34 29
customer capacity all while covering rent payments, 10 8
2 2
severance and increased cleaning costs. 0Forever 21 Pier 1 Papyrus Bench Bose Things Bentley Lowe’s Bouclair Zellers Ten Stokes
Canada Imports & Carlton Canada Canada Engraved & Thousand
Canada Cards Rona Villages
Total Locations Closing Locations
The sector is in the midst of the largest change since general stores made way for department stores. Despite record grocery sales, retail sales in Canada
plunged nearly 33 per cent in March and April 2020 – and March did not have a full month of forced pandemic closures. Overall, Canadians spent just
$47 billion at retailers in March and 34.7$ billion in April. April was the worst sales in one month since 2009. Statistics Canada expects May and June’s
numbers to rebound. Preliminary May numbers suggest a 19.1 per cent increase according to TD Economics.
Not all sectors are being punished. While many retailers deemed non-essential are on their heels and taking historic losses – the “essential services”
retailers that remain open are managing through over 20 per cent increases in sales in March and drops back to normal levels in April. Food & beverage
and general merchandise (non-food grocery and drug store items) experienced near record positive numbers in March. Motor vehicle and parts sales
dropped 44 per cent in April and fuel sales dropped 32 per cent. Clothing was down over 50 per cent in March and a further 70 per cent per cent in April.
Summary Retail Sales: April vs February 2020
30
20
10 22%
0 -13%
-70% -44% -51% -67% -32%
-10
Sector Sales
-20
-30
-40
-50
-60
-70
-80 Clothing Motor Vehicle Furniture Hobby, Book Gas Stations Food & General
Stores and Parts and Home and Music Beverage Merchandise
Dealers Furnishings Stores
But the Sector is Hanging On
The general economic data is catastrophic. It now appears likely that the Canadian economy will retreat by about 20 per cent (annualized) in the Q2-2020
and the national unemployment rate spiked to just under 14 per cent in April, compared to eight per cent in March and about triple the 12-month average of
5.7 per cent.
Industry experts suspect nearly all “non-essential” retailers have sustained significant losses over the last couple of months and are expected to continue to
manage puny profits for many months to come. Authorities are slowly easing restrictions across the economy and many provinces have cautiously reopened
retail establishments but at reduced capacity and with increased costs for cleaning and staffing. All retailers will need to adapt to survive. Since mid-March,
many firms have been forced to cut their employee base, close locations and some using bankruptcy protection to hold off their creditors. Experts believe
these formal announcements are the “tip of the iceberg” and most major retailers are currently planning “restructuring” of some kind.
Q2 2020 General Industry Report 4Canadian Retail
Retail Store Closures Since the Pandemic What’s Next for Retailers
250
What has been an unprecedented few months are likely to
205 continue through the summer and into the Christmas season for
200 many Canadian retailers. The next chapter for Canadian retail
looks to have red ink, lots of work for insolvency professionals
# of Stores
150 and changes like we have not witnessed. The sector has
weathered many a storm over the past few decades and
100 ultimately it will survive this one as well. While these times
72
will pose many challenges, they will also present enormous
50 38 48
31 opportunities.
13 21
7 5 5
0
Leons/ Brick Victoria Secert Nando’s Canada Henry’s Camera Army & Navy
Canada Store
Total Locations Closing Locations
“Some retailers will hold off filing for bankruptcy until physical stores are permitted to open so that clearance sales can commence”
— Henry Louis, the Editor-in-Chief of Insolvency Insider
What Can a Retailer do to Survive and Thrive?
1. Get Online 2. Make Changes to Improve Efficiency 3. Consolidation
Online platforms have been important for Retail business have limited resources, now more than The sector is dominated by a handful
many years, but they are no longer ancillary. ever. They need to have good people, excellent systems of conglomerates. Many of these
All retailers need an efficient online platform and a measurement and review process in place that groups hold grocery and “essential
that is consistent with their brand and physical provide instant reviews and feedback to the management retail” at their core. While portions of
shopping experience to remain engaged with of the business. Are sales associates dealing directly with their business are undoubtedly hurting,
customers. If your online experience is second customers (online and in the store)? Are customers visiting it would appear their core businesses
rated, customers are likely to try elsewhere. your site buying product? How does the inventory look – are thriving. When certain sectors of an
Hence, the recent stock market success of what is selling for a profit? Any “boat anchors”? Sometimes industry thrive while others stagnate or
Shopify. Its e-commerce platform and channels the answers to these questions are not always easy but now decline – the door for M&A opens wide.
are critical to retail success today and is no is the time to embrace change and implement innovative
longer a secondary sales strategy. systems and management tools to optimize the business.
It is near certain the current period of change will be followed by significant M&A activity. The large players in the sector have cash and strong businesses.
They will seek to bolster their market share and add businesses they see as good value with positive long-term prospects.
In The End - Are You a Buyer or Seller?
Times of uncertainty and reduced profits are rarely the right time to sell your business. However,
sometimes the best time to sell is when the owners are ready. If you are not embracing the current
challenges, let’s have a call. We can give you an unbiased opinion on your prospects in the
market.
On the other hand, perhaps you see opportunity at every turn and do not have the capital or
the resources to act on them all. Let’s have a call. We can support you to ensure the next big
opportunity is not missed.
We wish you and your business the best during this remarkable transition period. We are here
to help now or whenever you need support with a transaction or just managing through some
financing, projections, banking or other challenges.
Q2 2020 General Industry Report 5North American
Mergers & Acquisitions
Whitehorn has been actively tracking M&A activities in various sectors. The majority of transactions tracked in Q2 involved acquiring companies
seeking to diversify product and service offerings, as well as looking to expand geographically.
Sector Date Acquirer Acquirer Location Target Target Location
Health Care Supplies April 2020 Micron Waste Tech Inc. Vancouver, BC COVID Technologies Inc. Vancouver, BC
$3 million acquisition of surgical appliance and personal protective equipment manufacturer to further diversify
business.
Accommodation May 2020 BC government Victoria, BC Comfort Inn & Suites Victoria, BC
$18.5 million acquisition of 440 rooms at hotels, motels and other facilities located in Victoria to provide more
affordable housing and accommodation for homeless people.
Industrial Services May 2020 Thermogenics Boilers Inc. Aurora, ON Yowns Boiler Service Inc. Jacksonville, FL
Acquisition of full service boiler and industrial process burner company providing sales, service, installation and repairs
for boilers, pressure vessels, piping systems and industrial combustion applications.
Cleaning Supplies May 2020 Softlab9 Software Solutions Inc. Vancouver, BC Cleango Greengo Inc. Calgary, AB
(CNSX:SOFT)
$3.8 million acquisition of long lasting disinfectant technology developer and manufacturer that is eco-friendly and
biodegradable.
Industrial Services June 2020 Brandt Industries Ltd. Regina, SK GeoShack Canada Co. Concord, ON
Acquisition of GPS, lasers, survey equipment sales and services provider serving the construction, survey, engineering
and agricultural industries to increase product line and presence in Ontario and Quebec.
Mobility June 2020 National Seating & Mobility Inc. Nashville, TN Active Mobility Products Ltd. Kelowna, BC
Acquisition of mobility and accessibility solutions manufacturer and wholesaler to strengthen presence in British
Columbia.
Packaging Services June 2020 Fulcrum Capital Partners Inc. Vancouver, BC Belvika Trade & Packaging Ltd. Mississauga, ON
Acquisition of outsourced packaging services provider primarily serving the confectionery and snack foods end
markets.
Logistics June 2020 Aevitas Inc. Ayr, ON Fast Lane Freight Services Inc. Winnipeg, MB
Acquisition of open deck carrier and freight logistics provider operating across North America by environmental
services company.
Publications June 2020 NextHome Vaughan, ON Homes Publishing Group Stouffville, ON
Acquisition of real estate media provider to strengthen market position via digital and content offerings.
Waste Solutions June 2020 GFL Environmental Inc. Vaughan, ON Portfolio of US based waste US
(TSX:GFL) disposal assets
US $835 million acquisition of a portfolio of integrated solid waste collection, transfer, recycling and disposal assets
across 10 states to expand its US footprint.
Q2 2020 General Industry Report 6Whitehorn Merchant Capital is an independent, Western Canadian financial advisory firm
that provides business owners and management teams with crisis advisory services, capital
raising, acquisition, and sale of business transaction solutions.
Our Services
Whatever milestone transaction you are considering, Whitehorn’s leaders can guide you through the
process. We have the network in your industry and the experience to implement a tailored, effective
strategy for you and your business.
Crisis Advisory Services:
Whitehorn can help you and your business with cash flow budgeting, stakeholder communication and negotiations, financing
alternatives, recovery plan development and more. Contact us today if you have any questions or wish to discuss your
situation more.
Financing Sale of Business Acquisitions Management Buyout
The Whitehorn Advantage
Transaction Management Industry Focused Network
Whitehorn’s senior professionals will lead your transaction Whitehorn knows the buyers and investors in your industry.
from initiation to closing. We will support you and your We know which strategic and financial parties are active in
transaction so you can ensure your business performs the market today, the transactions they’ve done, what they
through closing, which is critical to obtaining an industry want, and what they’re willing to do.
leading valuation.
Marketing and Presentation Maximizing Value
Whitehorn creates comprehensive, industry leading Maximizing your value maximizes our value. By presenting
marketing materials which help buyers and investors your business in the best way possible, to the most motivated
understand your business, your competitive advantages, buyers and investors, we will add significant value to your
growth potential, and unique value proposition. transaction.
Contact Whitehorn today for expert advice on accessing capital, Whitehorn Merchant Capital Inc.
Suite 270, 333 - 24 Avenue SW
planning for business growth, and addressing business succession. Calgar y, Alber ta T2S 3E6
We look forward to helping you reach the achievement of your goals. 403-718-9860 | www.whitehorncapital.com
Q2 2020 General Industry Report 7You can also read
