Expanding Your Business Through Retail Acquisition
You’ve built your retail business through hard work and great customer service, and business is booming. Now your mind has turned to all the possibilities for expansion and you’re wondering if acquisition is the best option for growth.
Acquisition has proven to be a viable expansion strategy for a variety of businesses, with retailers frequently choosing this route. In 2013, the M&A market was larger for consumer and retail than it was even for internet and software companies.
And while most acquisitions we hear about are the multibillion-dollar deals that grab headlines — like Coach’s acquisition of rival handbag retailer Kate Spade for $2.4 billion earlier this year — that doesn’t mean they're the exclusive domain of enterprise retailers. Small and midsize retail businesses should also consider acquisition as a lucrative and rapid path to expansion.
Whether this is the right strategy for your particular business ultimately depends on comparing it against the potential benefits of expanding your business organically. Organic growth can happen in a variety of ways, including seeking out investors, opening secondary (or more) locations, or even franchising additional locations.
Many retail businesses gravitate towards organic expansion based on the amount of control it gives them over the expansion process from start to finish. Acquisition, on the other hand, can mean less control over some aspects, but offers the benefits of quicker progress and thus more immediate revenue potential.
Consider Market and Location
The options for expanding your retail business through acquisition can vary depending on the type of business and its location. If you’re running a successful retail outlet, but are in a somewhat saturated market, acquiring a local business may not be your best option. Saturation often means you’ll have to spend more on marketing and other efforts to make your business stand out and combat a lack of customer growth. Instead, you may want to consider buying a retail business for sale in a different location.
Ultimately, you must weigh the option of a new location against the potential benefits of staying in an area where you'll benefit from your knowledge of the market and its consumers, thus being better prepared to craft competitive strategies.
Retailers can see potential value in either scenario, but historically have shown a preference for local expansion. RSR’s benchmark study, "Retail Growth Strategies in 2015," found that 75 percent of retail businesses value expansion of physical store locations in existing geographies as a high-value growth strategy, while 66 percent value adding physical stores in new locations.
Synergy is the Key
No matter the location you choose, it’s important to ensure that the business you’re acquiring is a good fit that will augment your current retail offerings. Ultimately, synergy between your original business and the one you’re buying will be paramount to a successful expansion.
It’s important to remember that retail business synergies can come in many forms. It’s not just about having complementary goods. Synergy can also mean acquiring a business that has a stronger distribution channel than your own. For example, a small-town clothing and jewelry boutique that’s experiencing major growth in online orders could benefit from acquiring a specialty boutique mail order company to help it better serve those customers and thus grow its nonlocal business.
Doing Your Due Diligence
Once you’ve ensured that you’ve found a good fit synergistically, the next step is to properly vet any potential acquisitions to make sure they will help you achieve growth that's sustainable for the long term. This is where the rubber meets the road, and will require due diligence in looking at financials and other important records and information.
You’ll also need to account for any acquisition costs associated with transitioning the business you’re buying to your ownership and getting it up and running. You may need to retain professional legal or accounting services to assist you with the vetting once you’ve narrowed your acquisition options.
The expansion phase is exciting for any business owner. But it can be particularly rewarding — both personally and financially — in the retail space. When the right retail companies merge, the whole can truly be greater than the sum of its parts. And while your retail acquisition may not make anyone a multibillionaire, as Mark Cuban has predicted would be the case with the rumored purchase of Abercrombie & Fitch by American Eagle, it can still lead to extremely healthy growth and profits for your business.
Bruce Hakutizwi is the U.S. and international business manager for us.businessesforsale.com, the world's largest marketplace of businesses for sale.