Perspectives

Retail M&A: Buying a path to omnichannel

It’s no secret that retailers are scrambling to develop future-ready businesses and operating models that fit consumers’ expectations for a seamless shopping experience across all physical and digital touchpoints.

For many, the road to internal capability development has proven to be arduous, with daunting challenges that puzzle even the largest retailers, including:

  • Laying out a long-range plan with a clear road map
  • Identifying the most important capabilities to develop
  • Freeing up resources to fund development of the identified capabilities
  • Attracting the right talent to create those capabilities
  • Getting to appropriate scale
  • Integrating new capabilities into existing operations

Meanwhile, the consumer, the competitive context and the technology environment are evolving rapidly, resulting in the perpetual whiplash that leaves many retail executives feeling as though a path to omnichannel is impossible to forge.

The journey from concept to scaled, meaningful operations requires a pace, a focus and a way of thinking with which many retailers struggle. These dynamics can result in vulnerability, as single-minded competitors that approach old retail challenges from different angles fight for share in the market. Even unprofitable challengers can be disruptive by giving consumers a taste of what might be possible, raising expectations for all. As a result, many retailers, recognizing the complexity of building differentiated capabilities quickly, have looked to acquisitions to ramp up omnichannel capabilities and allow them to be competitive in today’s pressurized retail market.

Profiling recent omnichannel acquisitions

Such analysis begs the question: for what objectives and under what circumstances should retailers pursue acquisitions for the sake of omnichannel development? To answer that question, EY-Parthenon analyzed 61 deals completed by the top 100 U.S. retailers in the past five years that warrant classification as an omnichannel-enhancing deal. More specifically, we looked at deals initiated by the top 100 retailers (as defined by 2017 U.S. revenue) that met the following criteria:

  • A store-based retailer acquiring an operating ecommerce company
  • An ecommerce-centric company buying a store-based retailer
  • A retailer (store or ecommerce-centric) acquiring a company whose primary functional capability would enhance the acquirer's omnichannel operations, which can include anything from marketing technologies, to logistics capabilities, to advanced analytics.

These deals ranged from small tuck-in deals up to Amazon’s acquisition of Whole Foods Market in 2017 and Walmart's acquisition of Jet.com. In each case, the deals fulfill some combination of the following strategic objectives initially surveyed:

  • Expanded offering
  • Customer experience transformation / enhancement
  • Technology / intellectual property procurement
  • Talent acquisition
EY - Consumer products and retail statistics

Of the 60 deals we analyzed, 75% fulfill more than one of the deal criteria. Many notable deals simultaneously expand e-commerce share and strengthen omnichannel presence through improvements to customer experience, technology or talent.

For example, Signet’s acquisition of James Allen enhanced Signet’s e-commerce offering, a key executive and shareholder priority. But James Allen also offered Signet access to novel 360-degree diamond imaging technology and online visualization that could contribute to the sophistication of Signet’s platform more broadly. Likewise, Target’s acquisition of Ship’t builds a presence in grocery while advancing last-mile delivery capabilities. Other examples include PetSmart’s acquisition of Pet360, which hosts an online platform for veterinary health information and care advice. Pet360 does not necessarily represent share gain, but does broaden the “community” of PetSmart’s customers — thus strengthening the omnichannel customer experience with relevant intellectual property. Overall, the deals we believe are most poised for success are those that fulfill more than one strategic objective, and specifically for those deals undertaken for share gain, that the target can enhance the omnichannel offering beyond mere portfolio expansion.

EY - The seven steps to pursuing omnichannel in retail

Conclusion

Given the rate of change in retail and the migration to consumer behavior that rewards superior omnichannel execution, we have little doubt that the pace of acquisition of these kinds of companies will continue for some time. Retail leaders will be those that are prepared, pick the right assets and successfully handle the integration of new channels, capabilities and talents.

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Appendix

Below is a list of 60 deals that were analyzed by EY-Parthenon consumer teams. These deals have been initiated by top 100 US retailers (as defined by 2017 US revenue) in the past five years that warrant classification as an omni-channel-enhancing deal. The deals fulfill some combination of the following strategic objectives initially surveyed:

  • Expanded offering
  • Customer experience transformation/enhancement
  • Technology/intellectual property procurement
  • Talent acquisition
EY - Appendix

Authors

Joshua Chernoff
Managing Director
EY-Parthenon
Ernst & Young LLP

Chehab Wahby
Managing Director
EY-Parthenon GmbH