In Apparel, There's a Whole Lot of Shake-up Going On
Next month we'll publish our annual Top 50 Report, ranking the most profitable apparel companies that are publicly traded on the U.S. stock exchange.
I think I say this every year, but I don't think I've ever witnessed so much M&A activity in the industry. Looking only at the top 10 (no spoilers here), we find No. 1 actively seeking big acquisitions to drive growth, that No 2. acquired No. 16, No. 3 acquired a former Top 50 company, No. 6 was purchased by No. 7 and No. 10 acquired an Australian company and a European company. And there's plenty more of that among the other 40 firms.
M&A activity is not confined to the Top 50, nor to public firms, of course. Walmart, the world's largest retailer with $485.9 billion in sales, got even bigger, continuing an acquisition spree that in just the past year included Jet.com for $3 billion and, via Jet.com, Shoebuy for $70 million and online women's fashion retailer ModCloth. It also acquired apparel brand Moosejaw, which it purchased for $51 million. (Incidentally, were we to include Walmart in our rankings, it would have snagged the No. 39 spot, with a 2.81 percent profit margin.)
Then there's privately held outdoor goods retailer Bass Pro Shops, which acquired competitor Cabela's in April for $5.5 billion.
As organic growth is slowing, companies are relying on acquisitions to expand their businesses, and 2016 was a very active year for M&A activity. KPMG reports that 83 percent of companies participating in its most recent Pulse survey completed at least one acquisition in the past year, while 65 percent completed multiple acquisitions. In 2017, that activity looks to rise further, with 84 percent of companies expecting to initiate a deal, and almost 75 percent planning for multiples. KPMG's report notes that middle-market deals are expected to dominate this year, with 78 percent reporting that their deals would be worth less than $500 million.
Playing out against this backdrop of the big getting bigger — and contributing to it — are a multitude of other trends: mall traffic is down, online shopping is up, Millennials want less stuff and more experiences, customers want better customer service and more personalization and the types of engagement that are enabled when "omnichannel" is done right. Not all companies have been able to survive these and other changes. This year saw its fair share of bankruptcies, including Sports Authority, Eastern Mountain Sports, Gander Mountain and Gordman's.
On one hand, it's not necessarily encouraging to see the continued gobble-up of companies, and it's certainly discouraging to witness others shutter their doors permanently. Yet mergers and acquisitions, when successful, do offer the joint companies an array of benefits. Costs can be leveraged over a greater number of divisions, raw materials can be purchased for less, and each party to the new company can share its strengths with the others, where it makes sense to do so. Combined companies open up new categories of product to each other, and new global markets. They may have access to an entirely different group of factories, with different skill sets, from which to source. The list goes on.
Depending on your point of view, looking at all of this M&A activity can be a real downer. It's easy to wonder, as the big get bigger and fewer companies remain, if we will eventually live in a world with far less choice, with power confined to the hands of a few. It's not completely ludicrous to think that one day your only shopping options, for everything, might be Walmart and Amazon.
I might be more concerned about this if I hadn't just also completed our May Innovators issue. That exercise was an important reminder that the creative spark has not been extinguished, and that it continues to birth new ideas and new companies that will not only provide alternatives to the mainstays, but also will challenge the biggest companies to stay relevant, to innovate, to produce with care and to provide customers with exceptional experiences. And they are. The companies on the Top 50 rankings did not get there by sitting still.
And then, maybe one day, those fresh-faced start-ups will be acquired for millions of dollars to become part of a much larger brand portfolio.
But, trust me, there will be a new crop of innovators nipping at their heels.
Jordan Speer is editor in chief of Apparel. She can be reached at [email protected].