Reviewing Retail in 2017, Part 1: Mergers, Acquisitions and Investments

2017 was a more eventful year in retail than many probably expected. This week and next, we will review the year, and consider what its developments tell us about the state of the sector and the strategies retailers are adopting to win (or maybe just survive). In this week’s note, we look at mergers, acquisitions and investments; next week, we will review collaborations.

Mergers, Acquisitions and Investments

Legacy retailers invest in Internet brands: Walmart bought a string of Internet-focused apparel brands and retailers this year: ShoeBuy in January, Moosejaw in February, ModCloth in March and Bonobos in June. In May, Target invested an unconfirmed $75 million in direct-to-consumer mattress brand Casper, according to technology news website Recode, and Target started selling Casper products in its stores. Grocery retailer Albertsons acquired meal-kit firm Plated for an undisclosed sum in September.

  • Key takeaway: Long-standing retailers are not simply seeking to accelerate their e-commerce revenues; they have recognized that consumers are turning to distinctive, specialized brands that resonate with their lifestyles, and have acquired some of these brands as a result.

Healthcare retailers seek new opportunities: In September, Walgreens Boots Alliance finally acquired just under half of Rite Aid’s store network, following a protracted effort to buy the chain outright. Walgreens stated that the acquisition would boost Rite Aid’s provision of integrated frontline care. Then, in December, CVS Health announced plans to acquire health-services provider Aetna, promising a “uniquely integrated, community-based healthcare experience.”

  • Key takeaway: Prompted by an aging society and consumer demand for value-for-money health services, healthcare retailers appear to have spotted opportunities to strengthen their presence in services.

Online to offline: In November, Alibaba Group announced that it was buying a major (though not majority) stake in Chinese hypermarket group Sun Art Retail for $2.9 billion. Alibaba announced a new strategic alliance with Sun Art’s major shareholders—Auchan Retail, a France-based international retail group, and Taiwanese conglomerate Ruentex—to explore new retail opportunities. And, of course, we cannot discuss online-to-offline moves without mentioning the AmazonWhole Foods Market deal that closed in late August.

  • Key takeaway: These two acquisitions confirm that grocery stands apart from nonfood categories in terms of online versus offline retailing. Even the biggest players in e-commerce appear to have acknowledged that cracking the grocery market in the foreseeable future requires ownership of a substantial brick-and-mortar network.

Online luxury: In June, Chinese e-commerce giant invested $397 million in luxury marketplace Farfetch. At the same time, the firms signed a strategic partnership agreement designed to help grow Farfetch in China. In September, private equity firm Apax Partners acquired a majority stake in luxury retailer for a reported, though unconfirmed, figure of $1 billion. operates some physical stores in the UK, but 95% of its revenues are generated online, and 80% of those online sales are made outside the UK, according to industry news site The Business of Fashion.

  • Key takeaway: Online multibrand portals are a growth area in the still-immature luxury e-commerce market. LVMH launched its own multibrand site, 24 Sèvres, this year and Tmall launched its Luxury Pavilion site, providing further evidence of the segment’s growth. We see such portals catering to consumer demand for a compelling mix of authenticity and trusted brands, a strong service proposition and wide choice. A number of high-end department stores, boutiques and monobrand websites will need to invest in strong service offerings in order to compete effectively with these multibrand portals.

Other notable M&A activity in the year included Walgreens planned acquisition of a 40% stake in Chinese pharmacy chain, GuoDa, announced in December and, in the UK, Tesco’s purchase of wholesaler Booker, announced in January.

The dog that didn’t bark: Finally, we note the absence of any significant acquisitions by hard-hit department store retailers this year. Against a background of store closures and declining sales, no US department store chains sought to follow Walmart and Target by buying or investing in brands that could increase their relevance, drive traffic or even just convince investors that they are on the front foot rather than in retreat. We did, however, see some notable collaborations, such as between Kohl’s and Amazon and between Hudson’s Bay Company and WeWork—and we will discuss some of those in next week’s note.

Other pieces you may find interesting include: Deep Dive: Active M&A in the Beauty Space Fuels Future GrowthLuxottica (BIT: LUX) Global Empire: M&A HistoryAmazon’s Bid to Acquire Whole Foods Gains FTC Approval

Connect with us on social media:

Subscribe to our YouTube channel