You don’t need to focus on Retail at a search firm with a strong Private Equity pedigree to know that Retail has been out of fashion for Private Equity investors for a while. Uncertainty about the economic outlook, business rate revaluations, a volatile pound and higher employment costs have plagued the high street, and deterred private equity funds from involvement in Retail deals. The start of 2017, however, has shown some renewed interest in the sector and our research has highlighted some areas of interest and enthusiasm where Private Equity investors continue to focus:-
Roll-outs: Internationalisation of successful formats to new geographies which has the twin benefit of reducing reliance on a single market whilst also offering very attractive growth prospects
Niche: private equity investors have been energised by the likes of AO.com to consider retailers with very clear target markets, which are underserved by traditional and general retailers. Areas that seem to have a renewed focus from those we have spoken to recently include all things pet related, health and wellness, value, plus size clothing
Innovation: this is not just about digitisation and the focus moving away from high street to online. Other examples include: using ‘big data’ and sophisticated CRM functions to improve customer loyalty and lower the cost of customer acquisition; physical stores to complement online businesses (even Amazon has recently opened its first physical store); introducing new concepts (e.g. Farfetch which operates as a digital e-commerce platform for independent fashion boutiques); convergence of retail and media (e.g. Net a Porter launched its own social network ‘The Net Set’, in addition to its print and online magazines); turning physical stores into destinations through offering additional services including restaurants and beauty salons; and ultimately having a point of difference in a homogenised market
Diversified distribution and customer mix: with risk elevated, there is an increasing preference for multi-format offerings and retailers with a mix of channels to the customer (physical, online, wholesale, travel retail, franchise) are an attractive prospect. Equally, investors are looking to retailers with the ability to cater for different target markets with entry level products at lower prices as well as higher-end, higher margin products to mitigate the risk
There are still some exciting opportunities in the market and although it isn’t as active as it has been historically, there were some high profile and encouraging sales last year (e.g. Reiss to Warburg Pincus, Kurt Geiger to Cinven, Ideal Shopping to Blackstone) and 2017 looks to continue that trend with retailers such as The Body Shop, NBTY and Agent Provocateur generating interest within the private equity world.