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Corporate Partner, Andrew Apfelberg, Featured in Beauty, Fashion & Consumer Goods Roundtable

September 18, 2023Article
Los Angeles Times B2B Publishing

Corporate Partner and Co-Chair of the Branded Consumer Products Group, Andrew Apfelberg, shared his expertise on latest developments and trends in the business of beauty, fashion, and consumer goods with Los Angeles Times in their Beauty, Fashion & Consumer Goods Roundtable. Below are excerpts from the L.A. Times B2B Publishing feature:

Q: What are the pros and cons of being based in Los Angeles or Southern California in 2023?

Let me start out by saying that the pros outweigh the cons. Some of the negatives include higher costs for employees and real estate as well as increased health and safety regulations as compared to companies located elsewhere. Being in a big city, there is also more competition, especially when first starting out and trying to find distribution and retail opportunities. Some of the positives, though, are the more open and accepting attitudes, willingness to try new things, and diverse tastes to accompany diverse backgrounds and lifestyles. Los Angeles attracts creative people who are willing to take risks. There is also the “Hollywood” factor that can be a huge opportunity to build brand awareness and loyalty.

Q: What are some of the biggest mistakes that consumer goods companies made during the pandemic?

The biggest mistake made was getting so immersed in the day-to-day operations that companies lost focus on their current business plan and future goals, thus failing to take steps to best position themselves for the years to come. This was necessary during peak COVID times; survival was all that mattered. However, we are now on the tail end of that, and the changes it brought to what, how and where items are consumed are here to stay. I strongly recommend companies work “on the business” instead of “in the business” and convene a team of trusted advisors to provide their perspectives and guidance. Start the discussion with a description of where you want to be in three to five years so the target is clear. Then utilize all of the brainpower in the room to determine the optimal way or ways to get there.

Q: How has social media changed the promotional landscape for the beauty and fashion world over the last decade?

Influencer and social media marketing will be the leading edge of product promotion for the next handful of years. Consumers want a curated experience; especially from someone that they feel they can trust and admire. Whether or not it is, this feels more “authentic” than historical advertising. It also feels more “personal” in that the customer will only follow an influencer that resonates with them. Social media posts are powerful in that they can always be located (even ones from the past) with just a few clicks of a button and are attractive visually (and sometimes audibly, too). Combining this multi-sensory consumption of content with the “expertise” of the influencer creates an impactful and memorable impression on the consumer that can be (and often is) shared with friends and family, thereby creating a second endorsement for the product.

Q: What do investors look for in a health, beauty or consumer goods company these days?

There is no question that the market for financing and acquisitions has tightened or slowed. This makes obtaining growth capital or achieving a liquidity event for a business more difficult than in the past. To be able to achieve that, companies need to have products with an almost cult-like following, an experienced management team, a clearly articulated growth strategy and identifiable, concrete steps to achieve their business plan. There is a noticeable “flight to quality” when deals get evaluated. Companies need to do whatever it takes to put themselves into that category. We are seeing an increase in transactions for less than 50% of a company so that the founders/early investors can have a “second bite at the apple” in a few years when multiples and other deal terms are more seller-favorable. Transactions are also much more highly structured or complex than in the past. It is critical to understand the “real life” impact of all of this and “stress test” it under varying potential economic and operational future circumstances.

Q: What advice would you offer to an early‐stage beauty, fashion or consumer goods company seeking growth capital in 2023?

The best advice I can give is to think about where you want to end up and work backward from there. If your endgame is to sell one day, consider what potential purchasers want/don’t want and design your company accordingly. For instance, if they highly value ownership of IP, then it probably makes sense to pay more along the way and document things more formally to achieve this. If your valuation will be based on EBITDA (earnings before interest, taxes, depreciation and amortization), then you may want to run your business to maximize that instead of just growing revenue. If your endgame is to hand the company down to your kids or employees one day, give some thought to what those folks will need to know in order to carry on your legacy. Start training them now and include them in decision-making. Let them know your vision for the future and that you believe in them as the ones to implement it. Then, and only then, decide how much and what type of growth capital you want and the non-financial characteristics your investor should bring to the table. Make sure that the capital will enhance your chances of ending up in your desired place and negotiate the terms accordingly.

Q: What are consumers demanding from their products today that maybe they were not as concerned with in the past?

We need to be realistic that our world has changed. We work from home, we don’t eat out as much and it takes a special set of circumstances for us to go out to crowded environments. This means that what we want is different. We more highly value comfort, health and something that looks good on Zoom. We want products that work with our less formal dress/look. It also means that how we want to get it is different. Going to a mall or brick-and-mortar store is less desirable than e-commerce. However, we still want to see how the product looks on us in particular and be able to inspect and interact with it as if it were truly in our hands. While we want it “now,” we are used to hearing about delays due to supply chain and staffing challenges. The beauty, fashion and consumer goods sectors have started adapting to this but will need to do so even more in the future.

Q: What advice would you offer to a mature beauty, fashion or consumer goods brand looking to go through a sale or merger in 2023?

To prepare for a business exit within the next 12-18 months, it’s essential to do the following: review your insurance policies (e.g. general liability, directors and officers, product liability) with a broker to address potential post-deal liabilities; secure ownership of your formulas and intellectual property, such as trademarks; if not using an automated service, work with an accountant to manage sales tax collection and reporting; ensure all employee paperwork, including offer letters and arbitration agreements, is in order, and classify contractors correctly; update your privacy policy and terms of use to comply with California’s regulations; and verify that you have all necessary permits and consult with regulatory counsel if needed. Addressing these areas in advance will streamline the sale process and mitigate potential issues.

*This roundtable was originally published in the Los Angeles Times and can be accessed here.

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