Averting the Retail Apocalypse with Transformative M&A

Those attuned to American economic and business trends are well aware of the so called “retail apocalypse”. In recent years, one major retail chain after another falls prey to evolving markets, leading to bankruptcy filings and the shutting down of brick and mortar storefronts.

Prominent retail brands such as Sears, Payless, Sports Authority, and Toys ‘R’ Us have all succumb to mounting economic pressure, while countless others declare bankruptcy and announce storefront closures. A recent study conducted by Coresight Research predicts that retailers in the United States will close roughly 12,000 stores by the end of the year. US retail chains have already announced over 8,500 closures, a number significantly higher than the 5,844 closures in 2018.

Most recently, Forever 21, once one of the world’s leading clothing retailers, filed for Chapter 11 bankruptcy protection and announced a plan to close as many as 350 stores globally.

Forever 21 is not the first “fast fashion” brand to succumb to market pressures, as similar chains such as Wet Seal, Charlotte Russe and Claire’s have folded just the same.

These once flourishing retail giants have all sputtered and failed to adjust to rising market competition, shifting customer preferences, advancing technology, and internet commerce. Simply put, these companies unsuccessfully restructured their operations as foot traffic decreased and the market evolved.

However, this does not mean the retail industry is dying. Rather, commerce is simply taking on a different form.

Amazon is a prime example – pun intended – of this transformation in consumerism.

Amazon’s success as a retailer and market disruptor is indisputable. With a progressive mindset Amazon not only continues to develop innovative consumer technology such as the Echo and Fire TV, but it is also changing the way people consume and purchase products.

Through Amazon Prime, customers are now able to purchase nearly anything for a competitive price and receive it on their doorsteps within hours. Through this type of unbeatable convenience, Amazon quickly earned its spot as the world’s largest e-retailer, transforming the market and consumer expectations along with it.

This type of market evolution, spurred by the emergence of e-commerce and advanced technology, is creating a do or die environment for classic retailers. In order to stay alive, these organizations must disrupt themselves or be disrupted.

Mergers and acquisitions (M&A) has been a strategy many retailers have taken in order to remain competitive and successful during this great disruption.

M&A is facing an evolution of its own. Once predominantly looked at as a way for organizations to grow market scale and generate cost synergies, M&A is now being utilized as a means to transform operational capabilities, enter new markets and expand consumer offerings.

The ability to engage in transformative M&A has proven vital for many retailers and will continue to be an important strategy and their ecosystem becomes increasingly competitive and ever-changing.

Take for example Walmart, who has been devouring online retailers and consumer technology for years in order to transform their operations and remain highly competitive.

In 2011, Walmart acquired Kosmix to enhance social and mobile commerce. Kosmix’s innovative platform filters and organizes content on social media networks and uses data to deliver highly personalized insights and advertisements to users. This allows Walmart to utilize social media to drive sales and consumer engagement.

Kosmix also formed the basis of @WalmartLabs, the company’s new research division. Utilizing Kosmix’s entrepreneurial talent, the Lab will be used to develop cutting-edge consumer intelligence and technology.

In 2012, Walmart expanded its digital content offerings by acquiring Vudu, a media technology company specializing in content delivery. This purchase added movie streaming and download services to Walmart’s long-list of new capabilities.

In a string of acquisitions, Walmart also acquired popular online-centric brands like Bonobos, Modcloth and Art.com in order to break into new markets, focusing heavily on well-off Millennials.

Most recently, Walmart strategically acquired Parcel, a delivery startup to double down on its next-day and same-day delivery services, which is becoming vital in today’s competitive e-commerce marketplace.

These are only a few of the strategic acquisitions that have enabled Walmart to keep pace with rapidly shifting market pressures and with competitors like Amazon. Walmart’s revenue continues to grow steadily and last year it reached its goal of a 40 percent increase in online sales growth.

Another retailer successfully employing this growth by acquisition strategy is Target.

In 2017 Target acquired Shipt, a company that delivers same-day groceries, for $550 million. Shipt’s technology platform allows Target to adopt to new customer preferences of speedy at-home delivery while competing with companies like Amazon, Instacart, and Walmart.

Target has also recently made a series of “acquihires” within the technology space to improve and accelerate their mobile and online shopping experience. For example, Target acquired Powered Analytics which uses mobile technology, location data and machining learning to connect Target’s app to in-store customers, aiding the shopping process while making product and sale suggestions.

Last year, while similar large retailers failed, Target reported unprecedented store traffic and a digital sales growth of 36 percent.

Walmart and Target are great examples of the vital role transformative M&A plays in the future viability and success of retailers. While M&A has long been a corporate strategy, it seems more important than ever as technology rapidly advances and consumer expectations evolve.

Due to this constant disruption, an organization’s ability to acquire modern innovations and technology will directly correlate with their ability to thrive and remain competitive.

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