Top 10 Myths About Multichannel Retailing
The physical store remains the centerpiece of the purchase journey, according to a study by PwC. The report, "Demystifying the Online Shopper," addresses myths about multichannel retailing and offers some ideas to help retailers keep up with their customers. Here’s a recap:
- Social media will soon become an indispensable retail channel. Social media isn’t likely to become an important retail channel anytime soon. Currently, it’s a driver for more shopping across all channels, not just online.
- Stores will become mainly showrooms in the future. For most companies, the physical store remains central. But companies do need to determine how to best drive purchase activity across all of their channels. There still is a place for the store to be a showroom — as a supplement for online pure players, rather than a new model for brick-and-mortar retailers.
- The tablet will overtake the PC as the preferred online shopping device. Tablets and smartphones won’t catch up any time soon as these devices are used at the end of the purchase journey, particularly in-store, while shopping.
- As the world gets smaller, global consumers are becoming more similar. There is a wide range of local differences in consumer behavior, and retailers still need to cater to local trends.
- China is the future model for online retail. China’s multichannel and online model is unique to the culture. Also, shopping habits are dramatically different in China.
- Domestic retailers will always enjoy a ‘home field’ advantage over global retailers. Foreign retailers are making inroads into consumers’ lists of favorite multichannel retailers.
- Global online pure players will always enjoy a scale advantage over domestic online pure players. Many domestic online pure players are holding their own as they have better access to local market knowledge.
- Retailers are inherently better positioned than brands, as they are closest to the customer. Consumers are shopping directly from manufacturers, and many no longer distinguish between retailers and their favorite brands.
- Online retail is cannibalizing sales in other channels. Consumers are actually spending more with their favorite multichannel retailers, not just shifting some purchases to a different channel.
- Low price is the main driver of customer spend at favorite retailers. Customers value quality, innovative brands over price.
Is it just me, or does it seem like the past two months or so have seen an unusually high level of turnover at the top? It’s gotten so that you need a scorecard to keep up with all the comings and goings, as chief executives are forced out, jump ship, retire or move on.
This year’s changing of the guard is bittersweet because it includes the retirement of two veteran retailers, Steve Burd of Safeway and Maxine Clark of Build-A-Bear Workshop.
Burd is stepping down after 20 years at the helm of Safeway, where he carved a reputation as one of the supermarket industry’s most innovative CEOs. Under his leadership, Safeway became a recognized leader in health care with its cutting-edge wellness and insurance programs.
As for Clark, she is leaving the company she founded in 1997 (after having already put in 20-plus years in retail). She withdrew a big chunk of savings from her retirement account to get Build-a-Bear Workshop off the ground, growing it from a single location to a global enterprise. Often imitated, but never duplicated, Build-A-Bear Workshop pushed the envelope of experiential retailing.
At presstime, a successor had yet to be named for either Burd or Clark. Both are going on to pursue their long-standing interests: Burd in health care, and Clark in public education. I wish them well.
Safeway and Build-A-Bear Workshop are by no means the only retail companies searching for a new chief executive. The hunt is also on at Recreational Equipment (REI), where CEO Sally Jewell is waiting to be confirmed by the Senate as the nation’s Interior Secretary.
Another retailer in search of a CEO is Toys "R" Us, which said in February that Gerald Storch would step down as chief executive. He will remain in his role as chairman.
Also looking: Ulta Beauty. Its CEO took the reins of Michaels Stores.
But while some retailers are looking for new leadership, a number of companies have already brought on new CEO talent. Here’s a quick recap (all appointments are effective in the year 2013):
- Cache: Jay Margolis, Feb. 5. Most recently, president and CEO of Limited Brands’ Apparel Group (Express and Limited Stores);
- Gymboree Corp.: Mark Breitbard, Jan. 14. Most recently, president of Gap North America;
- Lane Bryant: Linda Heasley, Feb. 18. Most recently, president and CEO of The Limited;
- Michaels Stores: Chuck Rubin, Feb. 14. Most recently, president and CEO of Ulta Beauty;
- PetSmart: David K. Lenhardt, June 14. Most recently, president and COO of PetSmart;
- RadioShack: Joe Magnacca, Feb. 11. Most recently, executive VP and president of Daily Living Products and Solutions for Walgreen Co.;
- Supervalu: Sam K. Duncan, Feb. 4. Most recently, chairman, CEO and president of OfficeMax; and
- Wet Seal: John D. Goodman, Jan. 7. Most recently, executive VP, chief apparel and home officer of Sears Holdings.
Finally, let’s not forget Sears Holdings. In February, the chain’s fourth CEO in seven years, Lou D’Ambrosio, stepped down due to a family health matter. Sears didn’t do much searching: Chairman Eddie Lampert, majority owner of the company, named himself CEO.
The Retail M&A Market: Trends for 2013
Mergers and acquisitions transaction activity in the U.S. retail sector jumped 39% in 2012 for deals greater than $50 million, while total deal value more than doubled. These gains point to an industry undergoing major changes, one that is attracting considerable interest from a wide range of players.
In 2012, retail companies sought acquisitions to drive growth and adapt to consumer trends. Many players focused on strengthening their e-commerce and distribution capabilities to expand access to alternative business models. Cross-border M&A flourished, increasing more than 50% in volume and more than 100% in value from 2011. Private equity firms played a major role, accounting for approximately 30% of 2012 deal volume.
These trends should continue in 2013. Corporate balance sheets remain strong. Private equity "dry powder" — or funds available for investment — stands at more than $1 trillion. And low interest rate financing provides further leverage. Putting this cash to work is a priority given the mandate to efficiently deploy capital to secure growth and financial returns. Cross-border and e-commerce transactions are likely to remain at the forefront for corporate investors. Restaurants and specialty apparel retailers are particularly suitable for private equity buyouts.
The challenge lies in identifying quality deals that offer both a strategic fit and an attractive investment return potential. After all, M&A is just a tactic to achieve a business objective quicker or with more value added than other organic options — whether through adjacent brands, geographic expansion, new customer segments or other capabilities.
Also, you must follow a rigorous due diligence process that supports informed decision-making regarding a target’s fit with your company’s strategy, as well as in determining appropriate deal terms. The following imperatives should be at the forefront of the planning process:
• Establish a team captain who has the ability to coordinate with all functional teams. Getting everyone on board as to the key focus areas will minimize potential headaches later on.
• Focus diligence on the key value drivers of base business. Make sure you adequately assess the risks and opportunities. Areas that merit attention include store key performance indicators, store expansion plans, e-commerce operating model, cash versus GAAP lease costs, inventory costing and gift/loyalty card programs.
• Utilize a fact-based synergy assessment process. Too often, companies incorporate synergies into their bid strategy, which are based more on benchmarks than on a fact-based assessment. Companies typically underestimate the costs to achieve their goals, as well as the time frame. Even in competitively sensitive transactions, third parties can be used to assess purchasing synergies, customer margins and other key assumptions.
• Don’t overlook the deal terms beyond the headline price. Sometimes, common deal terms including closing purchase price mechanisms, excluded liabilities, indemnifications and Transaction Services Agreements are overlooked before signing a deal, but they can significantly influence the total cash outflow and success of the transaction. Private equity sellers are particularly savvy at negotiating these terms with equal importance to the bid price itself.
• Prepare for the integration process during diligence. Key focus areas include elements of the strategy and operating model and change management plans. Is there a cultural fit? Do you have the right integration team leaders identified and appropriate time committed? What costs will be incurred such as retention/severance payments or site closure costs? Is the integration plan aligned with the assumptions in the valuation model?
The year ahead will likely see a continued high volume of retail M&A, which will present competitive challenges. But this environment also represents an opportunity to utilize M&A to strengthen your growth strategy. The key is to take a disciplined approach. The success of the transaction will be determined by your ability to execute both the base business plan and the synergistic opportunities — and it begins with a rigorous M&A process focused on buying the right business on the right terms.
Leanne Sardiga is a partner and the Deals practice leader for PwC’s US retail & consumer practice. Click here for the Q4 R&C M&A report.