As the end of the Government’s Coronavirus Job Retention Scheme rapidly approaches, retailers who have so far managed to keep their heads above water will have some tough decisions to make. A number of major retailers have already announced job losses, and unfortunately, the furlough cliff edge means there are probably more to come.
While the furlough scheme has certainly provided some welcome relief for struggling brands, for many others it has simply kicked the can down the road. With consumer spending falling sharply during lockdown – and the AlixPartners Consumer Priority Tracker Survey indicating that two-thirds of UK consumers remain concerned about their financial health following COVID – a flurry of retail restructuring seems very likely from October.
Although retail conditions are undoubtedly tough, the outlook is not all bleak, and there remains potential for brand consolidators to make the most of likely restructuring through the acquisition and preservation of well-known, well-loved brands. But what form is this consolidation likely to take?
Traditional brand consolidation
With retail restructuring looming, there will be an opportunity for brand consolidators with experience to move in and shore up the balance sheet of troubled brands. Over recent years, the likes of Sports Direct, Edinburgh Woollen Mill, and the Foschini Group have all been on the acquisition trail, and the coming wave of restructuring is likely to see these established brand consolidators build on the platform they have already created with the acquisition of new brands.
However, it is also possible that we will see new brand consolidators emerge from the high street that can utilize already established online platforms to effectively "drop in" newly acquired brands alongside core lines.
This model of retail consolidation is already well established in the UK and imminent restructuring is likely to stimulate more of this activity. However, it is also possible that we will see the emergence of new investors that will look at retail restructuring as a means to create new platform businesses with significant synergies available from sourcing and supply chain all the way through to head office and technology.
Putting the band back together
Up until now, the trend in UK retail has been fragmentation, with brands increasing outsourcing everything from manufacturing to logistics. However, with restructuring on the horizon, we could see more businesses looking to ‘put the band back together.’
There is precedent for this in the US, where real estate investors like the Simon Property Group have been buying up and vertically integrating retail brands. By taking back control of the various pieces of the retail jigsaw – ranging from property to manufacturing – these investors ultimately gain much tighter control of their supply bases.
So far, this has not happened in the UK. However, given the pricing and relative stability of schemes like the Trafford Centre and Westfield, there is the potential for the owners and bondholders of these businesses to defend their position by buying up retail brands, or even creating new brands themselves.
Buying smart to maximize synergies
While retail restructuring can undoubtedly provide significant opportunities for investors, the lesson from consolidators in the past is to maximize the synergy benefits that these sorts of deals can present. For consolidation to work, businesses need to buy brands smartly.
AlixPartners has a history of working with both consolidators and private equity, helping to buy effectively and extract as many synergies as possible from a transaction. While there are undoubtedly challenges ahead, for some, restructuring can also present a range of opportunities.