Consumer-driven brands have struggled to keep up with sales. Even though the retail economy has grown 13% in the last quarter, most of that is due to the vast growth in e-commerce and digital media consumption. Meanwhile, brick and mortar giants and consumer brands that have traditionally focused on in-person shopping experiences are mainly looking to consolidate in order to reduce overhead and retain customers. One of the latest discussions includes merging luxury fashion brands Neiman Marcus and Saks, facilitated by private equity firm KKR, which would make the new department store second only to Nordstrom in assets.
According Thompson Reuters, however, merger attempts by retailers have not been going well. Many investors are struggling to negotiate a good deal, and retail companies are unable to provide a plan to increase value. So far mergers are down almost 10% this year, even though many attempts have been made. Office Depot is still hoping to consolidate with Staples, although the Federal Trade Commission already denied that deal in 1997. Big Lots failed to sell its majority stake, and Sunbeam coffee pots maker Jarden Corp says it has not been able to find a suitable acquisition opportunity although it frequently searches for one.
Some successes may prove fruitful for KKR and other private equity firms. Barnes and Noble is currently up for auction, and BJ’s wholesale recently completed a successful sale. KKR also has experience in retail acquisitions after buying Toys R Us and Dollar General several years ago. An acquisition deal is very appealing to Saks as well, as company profits are down almost 40% from last year. Neiman Marcus, however, seems reluctant to acquire the company, although it has been a topic of possibility for several years. Both brands have actually seen a steady increase in sales, however, a sign that luxury retail shopping habits are not currently affected by the economic downturn.