Consumer Sector Comment – September 2016

A store within a store, a concept far from new, however one that has made headlines recently. Last month, the world’s second largest retailer Tesco, announced its store-in-store partnership with UK health food chain Holland & Barrett, subsidiary of US vitamins and nutritional supplements manufacturer NBTY which is owned by The Carlyle Group. The move came just four months after the supermarket conglomerate closed its own loss-making health food business Nutricentre, and is another clear step in the strategy to improve the performance of its core business.

The store-in-store concept has a history of impressive successes. It was over a decade ago when JC Penny first teamed up with high-end European cosmetics retailer Sephora in an effort to attract young female customers and leave its seemingly “frumpy” image behind. The department store chain opened a number of Sephora stores in-store which as of 2016, now extends to over 500 JC Penny’s across the US. Despite attracting very different customers, the partnership was, and still is today, extremely successful and has encouraged both companies to continually expand their footprint.

The concept doesn’t just apply to bricks and mortar. Online only retailers have previously used the concept to test their brands within a store setting, allowing consumers to interact with their products before purchasing.

In February this year, US department store operator Macy’s, who has had a number of store-in-store agreements with retailers in recent years, announced its partnership with e-commerce website Etsy, who specialises in homemade items and crafts. The partnership lets the newly listed Etsy reach a broader clientele, helping to incentivise its sellers.

Also, back in 2012, US online retailer Bonobos partnered with upscale fashion retailer Nordstrom, in order to transform its online only model into speciality shops. Bonobos also launched similar stores within 11 locations of department store chain, Belk.

The latest group of companies which have been introducing the store-in-store model is the supermarkets. Over the past 2 years the UK’s ‘big four’ chains have announced numerous partnerships. Aside from the aforementioned partnership of Tesco and Holland & Barrett, these have included:

  • July 2016 – Morrisons and parcel delivery service Doddle
  • May 2016 – Morrisons and shoe repairs company Timpsons
  • October 2015 – Tesco and clothing retailer Arcadia
  • May 2015 – Sainsburys and catalogue retailer Argos
  • March 2015 – Asda and French sports giant Decathlon
  • October 2014 – Sainsburys and photographic retailer Jessops

It’s clear that the supermarkets are trying to make better use of their bigger stores and reinvent themselves in the face of continuing competition from German discounters Aldi and Lidl, who continue to dominate the market – even threatening the likes of Carrefour in France and Walmart in the US. Sainsbury’s is the first of the bunch to take the store-in-store concept one step further by actually acquiring Argos. The supermarket originally opened a number of Argos concessions back in 2015 and the partnership has obviously been a successful one. Are we about to see a few more partnerships and pairings turn into acquisitions?

 

Selected UK consumer deals

US cinema chain, AMC Entertainment, owned by China’s wealthiest man, Wang Jianlin, announced that it will purchase cinema brand ODEON & UCI Cinema Group, for €1.1bn, from current owners Terra Firma; the biggest deal in the UK post Brexit. The ODEON deal will result in AMC becoming the world’s biggest cinema operator, adding 244 cinemas in the UK and Europe to their portfolio.

CRUISE.co.uk (“cruise”), the specialist online travel agent serving the UK ocean cruise market, will be acquired by pan-European private equity firm Bridgepoint Development Capital from Risk Capital Partners, in a transaction totalling €60m. Cruise was originally part of Carnival Corporation from which it spun out in 2007.

Recently merged holiday park operator Parkdean Resorts, operator of 72 parks nationwide, acquired Vauxhall Holiday Park in Great Yarmouth, marking an exit for the Biss family who have owned the park since 1964. The single park operation provides holidays and short breaks for in excess of 80,000 holiday makers each year.

In yet another football club acquisition, West Bromwich Albion was brought by Guochuan Lai — the second acquisition of a top-flight team by Chinese investors this year and the fourth side from England’s Midlands region now in Chinese hands; Wolverhampton Wanderers (acquired by Fosun International); Birmingham City (acquired by Paul Suen), and Aston Villa (acquired by Tony Xia).

US food company Amplify Snack Brands, most well-known for its SkinnyPop popcorn brand, acquired leading crisp company Tyrrells, in a €360m deal. The move will allow Tyrrells to grow its footprint in North America, with a clear focus on becoming a “global brand”.