FINANCE

Private Equity’s Role in Driving Retail’s Growth

Retail isn’t going anywhere anytime soon. This past March, retail sales surged at the fastest rate since 2017. Riding this wave of good fortune, private equity firms have continued to invest in retail brands and, as a result, have helped them thrive in the evolving retail landscape we are experiencing today.

One of the main reasons private companies are investing in retail is because they view it as another growth vehicle with a substantial return on investment. These firms have the resources and experience to enable new and digitally-native retailers to progress more quickly than they would on their own. Likewise, national retail chains interested in expanding their footprint or innovating their brand can benefit from partnerships with private equity firms.

When investing in a retail brand, a private equity firm provides leadership, management, and structure that many young, undercapitalized companies may not possess. This consists of implementing systems and processes to streamline operations and create a more efficient workflow or overhauling an existing retail strategy altogether. These firms can also seamlessly bring in a retail strategist and highly-experienced C-suite talent with the know-how to scale and develop the business with quick decision-making.

For direct-to-consumer and digitally-native brands, private equity firms can help provide the necessary liquidity and capital to expand their presence through brick-and-mortar locations. Whether it be a pop-up, a freestanding store, or a space in a shopping center, growing the physical footprint of these retailers is critical to creating more brand awareness. Private equity firms also offer proven, successful methodology that is necessary for these brands to tighten up their supply chain, expand their workforce, refine payroll operations, and ultimately help them grab market share.

In addition, private equity firms help retailers access costly but key data that is specific to the brand’s retail sector or demographic. Brands who allow data to drive their physical retail strategy continue to be successful and better serve their customers. Executives at retail brands that hope to gain access to this information should consider an investment from a private equity firm.

Success with private equity investment
Critical to reaching success through private equity investment is finding a firm that not only understands your brand, but the business you are in. Experience in the sector is key. Norwest Equity Partners, an active investor in the health and fitness sectors, allowed The Edge Fitness Clubs to grow from a local Connecticut health club to an active fitness chain in nine states after only a few short years of investment. Norwest Equity Partners previously invested in powerhouse Life Time Athletic when the brand was in its infancy and now the luxury health club has successfully expanded its luxury offerings nationwide. The firm has also supported other wellness-oriented retailers such as Movati Athletic, a Canadian health club, and the Institute for Integrative Nutrition, an online nutrition school — making it the perfect firm to support The Edge Fitness Clubs’ growth.

Another example is MPK Equity Partners’ investment in Urban Air Adventure Park, an indoor amusement park. Urban Air was experiencing exponential growth through a franchise business model but wanted to allocate more capital and resources to expanding its internal team to take the company to the next level. Its goal was to not only take its franchise model across the country but better identify itself as an amusement park, as opposed to just a trampoline park which is how the company started.  With MPK Equity Partners’ investment, Urban Air hired Jay Thomas, a former executive at Six Flags Great Adventure, as chief commercial officer. Thomas has helped give Urban Air the credibility to position itself as a leading indoor amusement park with a wide variety of activities available, all while continuing its massive growth.

How to choose the best private equity partner
In today’s competitive retail environment, figuring out what sets you apart is essential. What do you want to be known for in the market? Whether it’s service, price, or convenience, or a combination of the three, focus on how you can do it better than anyone else in your space. Once you’ve mastered your differentiator and developed a strong foundation, consider a private equity firm that excels at working with brands of the same caliber. Understand how they’ve helped propel similar brands in the marketplace and what they can do for you. The Edge Fitness Clubs ultimately chose Norwest Equity Partners over other qualified firms due to their experience in the fitness sector.

There are also perks to working with private equity firms who represent a diversified portfolio of retailers. For example, a private equity firm that invests in entertainment, fitness, and consumer services can provide a broad and fresh perspective. It can bring new ideas and themes that maybe hadn’t been considered before to the table, helping the retailer realize economies of scale. If your retail strategy has gone stagnant, you might want to consider working with a more diversified firm.

Despite what you may have heard, private equity investment can do a lot of good for retailers. Retail has been and will continue to be an important driver of the American economy. As market dynamics shift, private equity firms will provide stability to brick-and-mortar retailers and level set competition from e-commerce. Overall, retailers of all sizes can benefit from private equity investment. The key is finding the right private equity partner who understands your goals and is invested in helping your brand flourish.

Brandon Anapol is senior VP of brokerage services, and Scott Benson is VP of brokerage services at Metro Commercial, a retail brokerage firm providing regional, national, and international tenant representation to 140 individual and expanding retailers. Metro also specializes in project leasing and landlord representation, investment sales, property management, and development services.

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d.parker says:
May-24-2019 08:45 am

I would be interested in the type of data that is mentioned below referenced by the article private equity firms help retailers access costly but key data that is specific to the brand’s retail sector or demographic. Brands who allow data to drive their physical retail strategy continue to be successful and better serve their customers.

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