Off-price retailer acquired with eye to expansion
Private-equity firm Warburg Pincus has agreed to acquire Gabriel Brothers (Gabe's) from Alvarez & Marsal Capital.
The terms of the transaction were not disclosed.
Gabe's, formerly known as Gabriel Brother's, operates 106 stores under the Gabe's and Rugged Wearhouse banners across 11 states in the Mid-Atlantic and Southeast. The company, which sells leading apparel, footwear, accessories, and home brands at a discount, was founded in 1961 by the Gabriel family and is headquartered in Morgantown, West Virginia.
"Gabe's is a leading retailer with a strong and growing customer base,” said Annette Rodriguez, managing director, Warburg Pincus. “As consumer preference continues to shift from traditional department stores to off-price retailers, we see a compelling market opportunity to grow the business through new store openings and expansion into new regions.”
Warburg Pincus is a leading global private equity firm focused on growth investing. Current and former investments in the retail and consumer goods sectors include Glansaol, Neiman Marcus, Poundland, REISS, Wanse, Biba Apparels, Kalyan Jewellers, Kidswant, and Intime Department Store Group, among others.
The CFO’s Expanded Role in Profitably Managing the Retail Transformation
With the retail environment undergoing the most complex changes in our generation, the sustainability of the current retail economic model is in question.
Historically, retail CFO’s, as the principal financial oficers, were primarily responsible for more traditional finance, treasury, regulatory, information delivery and related functions.
In recent years, however, the CFO role has evolved and expanded to become more strategic, given that two significant forces are converging on traditional retailers at a time of modest top-line growth, increasingly less productive real estate and the complexities of e-commerce:
•Significant market share has been lost by traditional brick-and-mortar retailers to the off-price sector, Amazon and other pure-play e-commerce companies over the past five years.
•Customers are demanding the ability to interact with retailers in whichever way and channel they would like. The rapid growth of retailers’ e-commerce channel is largely coming at the expense of their fleets of physical stores versus being incremental new sales.
The result has been significant growth in, and strain on, capital and operating budgets to fund the creation of so-called “seamless” omnichannel and related digital capabilities. There has also been de-leveraging of retail infrastructure costs (stores, labor and related costs) as a result of the cannibalizing of the physical store channel’s sales by e-commerce.
KEY PARTNER: As a result of these issues, the retail CFO is emerging as the key strategic partner to the CEO and executive team. The CFO brings a deeply practical, objective and analytical perspective and often brings a healthy dose of skepticism, which is needed to evaluate important decisions and potential investments to protect the current asset base and maintain profitable growth.
Lastly, these decisions and related investments need to be prioritized and the right criteria applied to create rigorous business cases with compelling metrics so there is less risk of failure and greater likelihood of achieving viable ROI from the applicable investments. A CFO’s broad company-wide perspective is a crucial requirement to oversee and challenge these investment decisions during these complex times in retail.
Examples of significant decisions outside of the finance function where the CFO is best equipped to advise the CEO and executive team include:
• With the rapid changes and reduction in the life-cycle of newer digital technologies, related investments will need to be depreciated over a shorter life than traditional investments with more traditional amortization periods.
•The “newness” of many digital technologies introduces higher risk that the applicable investments may not be the most effective or relevant for a particular retailer and may need to be quickly replaced and written off.
•With the rate of e-commerce growing faster than stores, retailers are finding it difficult to determine how much of the additional sales are incremental versus cannibalization of physical store sales.
•Develop plans and prioritize as to how to re-design and re-size the store fleet as some stores become less productive and in some cases no longer viable. Use lower-performing stores in alternative ways such as fulfillment centers to ship from store. The implications on inventory investment by store are significant and CFOs can be very helpful in objectively assessing alternatives.
•Business cases regarding investments in e-commerce fulfillment centers, creation of omni-channel capabilities, decisions regarding free shipping and flexible fulfillment alternatives, as well as decisions regarding maintenance capital spending in stores.
•Establishing appropriate financial and business controls and check points to minimize risk of cost over-runs that would negatively impact ROI on the applicable investment.
•Spending on differentiation projects that allow retailers to innovate and create a more experiential customer experience as a defense to cannibalization from e-commerce companies.
Traditional brick-and-mortar retailers are under ongoing pressure to maintain earnings, show growth trajectories and how they will transform their businesses to better address the “Amazon factor.” Financial analysts provide retailers with limited flexibility if there is any hint of sales, margin and earnings pressure, despite the significant patience and time that they give to e-commerce retailers.