Expect to see some bargain basement deals done over the coming months as the strong retailers and distributors move from generating profits during the recession to using their strong balance sheets and increasingly available capital to purchase the weak.
This week we saw the parent of Karstadt Department Stores in Germany fail. They looked to government to save them, then we watched them become an acquisition target for Metro. But who else is ripe for consolidation?
A couple of weeks ago we looked at what was happening internationally in retail land and at the performance of four major international retailers. Amongst then was Germany’s Metro.
In the last decade Metro has done a great job of building a strong domestic retail business to fund international expansion. Led by Chairman, Dr Eckhard Cordes, Metro went into the recession strong, with a balanced portfolio of good retail brands across several channels. In marked contrast, Karstadt, the department store arm of travel-to-retail conglomerate Arcandor, has struggled for two decades to make money, even though its flagship retail store KaDeWe in Berlin (think Harrods) is arguably the most prestigious store in Germany.
When I was heading up sales and marketing for Royal Doulton in Western Europe, I used to call on Karstadt’s head office, a modern, eco-friendly building even back then. This impressive head office masked a mish-mash of brands and products sold through a confused network of tired stores with poor inventory management. Yes, my reflections are a decade out of date, but from this week’s announcement it would appear that little has changed.
So why does Metro, a direct competitor in the vast German market, with its Kaufhof department store brand believe it can make a go of Kartsadt?
Well, firstly Metro doesn’t want all the Karstadt stores. Kartsadt, a little like Woolworths in the UK, suffered from ever changing strategies over a long period of time. The result is a network of stores of differing sizes in differing locations that don’t focus on delivering a common shopper experience to core shoppers.
Metro wants to buy some stores and combine them with its own Kaufhof network, brands, warehousing, inventory systems and buying office. This will provide huge back office synergies, a more focused delivery of the shopper experience and the ability to drop the poor performing stores that are either the wrong size or in the wrong place – or both.
To fund this acquisition Metro will leverage its own strong balance sheet and seek capital from investment banks and a partner, reportedly Italian entrepreneur Maurizio Borletti. Borletti is a third generation retailer and cut his teeth heading up Christofle, the French tableware and crystal business. He understands brands and luxury retailing.
Nice interlude, but what does it mean to us in Australia and New Zealand?
Well, we still have several weaker retailers that are being passed convincingly by stronger competitors. JB HiFi announced a whopping increase in profit and sales this week and, led by CEO Richard Uechtritz, his team has continued its phenomenally successful journey.
In a similar space Clive Peeters continues to struggle and its almost 50 store network would nicely augment JB’s network. We’ll wait to see what transpires here, but I’d be interested to hear from anybody on their views of other potential marriages in either the retailer or distributor space.
There’s little doubt that the motor industry and leisure boat industry and are also ripe for consolidation.
In his role as CEO of CROSSMARK, Kevin Moore looks at the world of retailing from grocery to pharmacy, bottle shops to car dealers, corner store to department stores. In this insightful blog, Kevin covers retail news, ideas, companies and emerging opportunities in Australia, NZ, the US and Europe. His international career in sales and marketing has seen him responsible for business in over 40 countries, which has earned him grey hair and a wealth of expertise in international retailers and brands. CROSSMARK Asia Pacific is Australasia’s largest provider of retail marketing services, consulting to and servicing some of Australasia’s biggest retailers and manufacturers.
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James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
