M&A in retail has been saved
M&A in retail
Leveraging retail M&A for growth
Current macroeconomic trends are creating an environment prime for M&A in retail as an accelerated path to transformation, as well as opportunities for retailers to shift from “survive” to “thrive.” To emerge as a leader, retailers must evaluate how M&A strategy to margin improvement fits into their value proposition and long-term strategic goals—and take action.
- The tale of two retailers
- Macroeconomic trends
- Strategic buy-side and sell-side
- Looking ahead
The tale of two retailers
COVID-19 created a tale of two types of apparel and discretionary retailers—leading retailers, poised to weather the storm, capitalize on technology investments, and take market share—and lagging retailers, whose fixed asset base and debt would ultimately prove detrimental.
Leading discretionary retailers were already investing significantly in innovation before COVID-19. Investment focused on products, services, and capabilities (e.g., enhanced digital presence), while also reevaluating existing assets (e.g., footprint rationalization). When it became clear that consumer purchasing was altered by the pandemic, these proactive players with agile delivery models and enhanced digital capabilities thrived. The retailers proved that they could move with speed and conviction to activate digital investments and put their downside scenario plans into action, ultimately positioning them to “weather the storm.”
On the other hand, lagging retailers who were surviving quarter to quarter—or who did not have the margin profile to invest proactively in innovation adequately—failed to rapidly address the accelerated change in consumer demands, leading to immediate diminishing profitability.1
M&A deals, which had already been in decline in the retail sector, fell to the wayside or were paused due to market uncertainty at the onset of the pandemic. As the economy rebounds and consumer sentiment begins to strengthen, the time is right for apparel and discretionary retailers to consider leveraging M&A for growth.
Macroeconomic trends driving buy-side and sell-side M&A in retail
Our analysis has identified three macro trends both buy-side and sell-side retailers can take advantage of through M&A and margin improvement strategies to accelerate growth and stay ahead of the competition.
Strategic buy-side and sell-side retail M&A considerations: A framework
Beyond macroeconomic trends, organizations must reflect internally and define how planned M&A in retail (including strategic partnerships) fits with their value proposition and long-term strategic goals.
In addition to “buy”/partner or “sell,” a third approach may be a more sustainable, attractive option for retailers: margin improvement. Expansion of margins can enable an organization to move from survival mode into a growth-oriented mindset with sustainable, competitive margins.
Our analysis outlines four primary considerations organizations should consider when assessing whether to buy, sell, or expand margins to optimize their portfolio.
As retailers emerge from the pandemic, the consumer has changed; there are new faces of competition, increased margin pressures from the third-party ecosystem, and the standard product playbook no longer contains the formula to win. Those who take the time to reflect on their differentiated strengths can take advantage of proactivity when making strategic retail M&A and/or transformation decisions. Those who take a wait-and-see approach will have those decisions made for them by their peers—and lose share along the way.
Most importantly, now is the time to act. The “safe” option of letting others go first in favor of a fast-follower strategy is not safe at all. Increasingly, nothing beats a move to just DO SOMETHING! to catalyze the future that works for you and what you want to achieve.8
1 Larry Hitchcock, Steve Maddox, and Adam Whiting, “A new formula for retail recovery and growth: The five paths to profitability,” Deloitte, 2020.
2 Christopher Rugaber, “Federal Reserve sees interest rates near zero, at least through 2023,” PBS News Hour, September 16, 2020; YCharts, “US 5-year CD rate,” accessed March 1, 2022.
3 Y Charts, US 5-Year CD Rate.
4 Ben Unglesbee, “Retail defaults to decline—but will still be high: Moody’s,” Retail Dive, April 8, 2021.
5 Charlsy Panzino and Chris Hudgins, “Retail market: Surprise sales jump in August; 4 new bankruptcies,” S&P Global Market Intelligence, September 20, 2021.
6 CapIQ data, top US public retailers with more than $1 billion in annual revenue.
7 US Census Bureau, E-Commerce Retail Sales as a Percent of Total Sales [ECOMPCTSA], retrieved from FRED, Federal Reserve Bank of St. Louis.
8 How Leaders Shape the Future by Overcoming Fatal Human Flaws. Page 138.