Over the last two years, many household names in the fashion retail industry have disappeared from the Canadian market. In the wake of the ecommerce boom, many stores have raised the white flag and closed their doors. Although ecommerce is a major factor that has made it more challenging for brick and mortar stores to survive, there are other factors. Potential acquirers may have a few reservations before rushing to rescue some of these brands. For one thing, fashion is a fickle creature. To quote a line from a famous fashion guru, “In Fashion, one day you’re in, and the next you’re out.” Acquiring a struggling retailer can be risky business. Marketing and design are major drivers of the fashion industry, and investors would have to be willing to spend more in order to reinvigorate a declining label. Making cost saving strategies ineffective.
A few more wrinkles are cramping the style of fashion M&A. Major global brands are putting pressure on medium to small business by offering competitive prices that are more affordable to the average consumer. Not to mention that with the wave of stores going out of business, malls are more reluctant to allow their tenants out of their store leases, making restructuring more difficult and costly. The numbers don’t lie; “five of the 20 companies involved in the biggest private equity apparel deals of the last decade have been restructured or gone bankrupt”.
The current market conditions have proven that organic growth in the fashion retail sector is no longer a safe bet. But, when one door closes, another opens. Acquisitions are still the best way to prosper, and the trend is shifting to what’s being termed as “Omni Deals”. These involve reconfiguring supply chains, acquisition of ecommerce providers, internet platforms or other technologies that allow consumers to bring the in-store shopping experience home. It also involves “bolt on” acquisitions, pop-up shops, and stores within stores. This strategy appeals to millennials and more tech savvy consumers, and has the added value of providing massive cost saving opportunities. Acquirers can now save on the traditional expenses of real estate and personnel associated keeping the lights on. Online platforms can also provide analytics and consumer data that in-store shopping could never deliver. Private equity investors can thereby snap up opportunities with reduced risk, while catering to the ever evolving consumer preferences.
The author would like to thank Maha Mansour, Summer Student, for her assistance in preparing this legal update.
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