Mergers can be like romantic comedies —first comes competition, tension, and hilarity, then the sweet finale when the two kids finally realize their error and match up.
Retail unions may not hold so much hilarity, though some rival mergers are sweeter than others. How hostile a takeover is depends on a lot of things, like struggles in leadership and amongst investors.
But mergers tend to give newly created companies new fortes and new efficiencies. For example, the $9 billion merger between Albertsons and Safeway grocery stores, once final, will create a supermarket powerhouse on the west coast, and Signet Jewlers’ $9 million acquisition of the Zale Corporation jewelry chain will expand its stable of brands, possibly helping to solve many of Zale’s financial woes.
A great majority (96%) of retail CFOs believe that fierce competition in the retail sector will mean as many or more mergers and acquisitions this year as last, according to a recent survey by consulting firm BDO USA LLP. Below we have played cupid with four rival companies that could possibly benefit from a little match making. Will these retail competitors ever get together?
Home Depot and Lowe’s
Lowe’s is no stranger to the acquisition song and dance, attempting to merge with Canadian home improvement retailer Rona’s in an effort to boost its operations north of the border. Rona’s repeatedly rejected takeover attempts, resulting in no deal and leaving Lowe’s to compete in Canada on its own strength.
A Home Depot/Lowe’s merger could strengthen both of the companies’ North American presence and enable them to compete more aggressively. These two are the first and second largest home improvement chains in U.S., and a merger could help them compete against retailers like Sears (whose home improvement area is among its few strong suits), Wal-Mart Stores, Inc., and various hardware, lumber, and specialty retailers. Observers have speculated that each company could attempt an acquisition of Lumber Liquidators, which could increase market strength. But maybe the two should find strength in each other. Together, they’d be a $125 billion company that would have great bargaining power with suppliers. It’s fair to note that the decreased competition might not sit so well with consumers though.
Men’s Wearhouse and Jos. A. Bank
Anyone following the drama of the many Men’s Wearhouse takeover bids Jos. A. Bank has recieved of late might have forgotten that it was Jos. A. Bank that tried to take over Men’s Wearhouse just last October. After these many rejections, the two are now officially in talks, though some observers say it’s just a way for Jos. A. Bank to call a bluff. For most observers, analysts, and observers, a deal makes sense for both apparel companies. Men have plenty of places to go for clothes these days, and a merger would enable to the companies to better compete. Still, in part because each has a large tuxedo rental business, there are potential anti-trust issues to resolve. This one is likely to happen though, sooner or later. UPDATE: Just after press time, this one did happen.
Best Buy and Radio Shack
Speculation about a merger between these two electronics retailers was rife in 2010. But that was when Radio Shack was seeing a rise in sales, thanks to the high demand (and higher prices) of smartphones back then. Both retailers’ fortunes have changed for many of the same reasons, but Best Buy has the muscle to potentially power through the declines in demand and need for spiffed-up retail operations, online and in store. Even up until 2012, Radio Shack’s smaller stores were viewed as promising prospects for Best Buy—a way to mix up its brick-and-mortar approach and separate itself from the big box it was in. Now, though, Radio Shack and Best Buy are both closing stores, and it’s unclear whether Best Buy could take on its smaller rival’s expenses. In any case, it may be too late for either of them.
Fast Retailing and J Crew
Fast Retailing and J. Crew aren’t exactly rivals — the Tokyo-based apparel company owns several brands, including Uniqlo, Theory, and J Brand. Although Uniqlo and J. Crew appeal to some of the same shoppers, Uniqlo is a newcomer with more of a fast-fashion approach and a basics focus. What J. Crew could do is fit nicely into Fast Retailing’s stable of brands, giving it a wider range in style and pricing. In fact, should Fast Retailing acquire J. Crew, it would go far in furthering the company’s stated ambitions to become the world’s largest clothing retailer.
J. Crew, meanwhile, has options, but is eager to make a change. The New York-based clothing retailer is said to be mulling an IPO for either this year or next, and is reportedly in talks with Fast Retailing regarding a takeover. Unless Fast Retailing mucks around with J. Crew’s successful retail strategies, either option probably doesn’t make much difference to J. Crew’s investors or its customers. What the Tokyo-based company may do is greatly expand the popular American brand overseas, possibly giving it the kind of iconic presence abroad now enjoyed by Gap. However, Fast Retailing is said to be balking at J. Crew’s $5 billion ask.
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