There are different reasons why startups succeed and fail. Many startups get acquired and begin to enhance the value of the acquiring firm. A couple of years ago, the footwear and accessories retailer DSW announced it was acquiring Ebuys for $62.5 million to enhance its eCommerce capabilities. On Tuesday, the retailer announced it was shuttering the Ebuys business. An article in Wall Street Journal highlighted
DSW tried to make the investment work by installing new leadership at the business last year. But in November, the company wrote down the value of Ebuys on its balance sheet by $52.7 million after taking a loss on the business because of huge markdowns to clear inventory.
After being unable to find a buyer for Ebuys, DSW said it expects to complete a liquidation process within the next few months. The company will book one-time charges related to the exit.
Other retailers have tried and failed in their push to acquire eCommerce startups. A bloomberg report explains “Nordstrom Inc. was forced last year to take a $197 million write-down on Trunk Club, an e-commerce business it bought back in 2014 that lets customers order a box of clothes curated by a stylist. In April, Canadian department-store giant Hudson’s Bay Co. took a C$116 million write-down related to sales weakness in the division that includes Gilt, the online flash-sale site it had acquired a little more than a year earlier.”
Summary:
- DSW is taking a $52.7 million write-down on the value of its Ebuys unit assets after revising its long-term expectations for the off-price shoe e-tailer based on its performance over the last 18 months, according to a company press release.
- The footwear retailer announced the acquisition of the online sales site in February 2016 and several analysts warned then that it could impede DSW’s own sales.
- DSW wrote down the value of Ebuys on its balance sheet by $52.7 million after taking a loss on the business because of huge markdowns to clear inventory.