Photo: Walmart
Retailers finding answers in-house, through partnerships and acquisitions
Through a special arrangement, presented here for discussion is a summary of a current article from the Spieckerman Retail blog.
Amazon’s acquisition of Whole Foods, Walmart’s portfolio-building plays, J.C. Penney’s appliance ramp-up and a host of other forays — retailers are opting for diversification as their growth engine and departing from their cores as never before. The looming question now becomes “buy, build or bridge?” and new motives are driving retailers’ choices.
Why buy?
Remember the pre-digital days when a retailer would merge with another company (usually another retailer) and everyone would brace for the layoffs to follow? Now, acquisitions are a powerful tactic for winning the retail talent wars, and retention is all the rage. In this regard, Walmart stands out as a leading-edge example. Following the 2016 acquisition of Jet.com, CEO Marc Lore was added to Walmart’s executive team and the Jet team kept intact and unmoved (in Hoboken, NJ) rather than folded into Walmart HQ. Multiple brand acquisitions have followed this satellite operating model, with some acquired talent assuming leadership roles within Walmart’s corporate staff.
Why build?
Although it can seem as though retailers are abandoning self-created solutions in droves, new tech options are providing new reasons to take things in house. Open-source tools allow smaller retailers to keep up with the big guys and large retailers to craft their own concepts. Lack of scalability, prohibitive licensing fees and some inflexible external solutions are among the reasons retailers may take a pass on partnerships. One retailer tech exec said, “Our scrappy tools are more agile and targeted to specific needs.”
Why bridge?
The quest for agility has driven retailers to explore partnerships with third-party platforms. Companies like Curbside and Instacart augment retailers’ customer convenience arsenals, for example. Now, delivery companies are hot acquisition targets among retailers like Target, Walmart and, most recently, H-E-B, as bridge solutions become runways toward building or buying.
Striking the right balance of acquired assets, homegrown solutions and increasingly precarious partnerships will be a constant conundrum for retailers (and a moving target for suppliers). The need to employ all three will intensify as retailers seek next-gen talent, greater security and faster ramp-ups — all at the same time.
Discussion Questions
DISCUSSION QUESTIONS: What advice would you have for retailers that are attempting to balance internal system builds, partnerships and acquisitions? Do you see the three-pronged approach — buy, build, bridge — as the best overall solution?
Poll
BrainTrust
Phil Chang
Podcast Host, Retail Influencer, Fractional CMO
Cynthia Holcomb
Founder | CEO, Female Brain Ai & Prefeye - Preference Science Technologies Inc.
Given the service expectations of shoppers today and the complexities to deliver to these expectations, it’s unrealistic think that any retailer has all the expertise, systems or capabilities to deliver. Retailers need to keep an open mind to all three strategies – buy, build and bridge – in order to find the right solutions and importantly, deliver them in a timely fashion. With Walmart’s capabilities, they could develop anything they wanted given enough time — but time to market is a critical consideration, so buying or bridging is still important for even the largest, most capable retailers. That said, there is peril in buying/bridging — retailers need to be very careful about the partners they choose.
Retailers know themselves better than anyone else knows them. Each retailer needs to decide their true core competencies. Unless tech development is one of them, I suggest focusing on buy or bridge. Tech development can be added as a core competency over time but, until that happens, a retailer who tries to develop their own tech will simply trip over itself in the process.
Agreed!
The shortest distance to establishing competency in a heretofore untried business or function thereof, is by acquisition. Building one’s own in-house capability should be left to those who truly have invented a better mousetrap that has not yet seen the light of the marketplace. The concept applies to technology as well as to a business segment. You build your own if you have something very different and a lot of resources (money) to put into it. There are exceptions, as in any concept, but they are the minority.
Winning will increasingly require building an ecosystem which meets consumer expectations anytime and everywhere. Few retailers today have the all resources or talent to build the end-to-end solutions required. Smart acquisitions make sense when there is a need for speed and enough capital.
Increasingly, strategic partnerships become critical in building and bridging solutions. In today’s omnichannel world, efficiently solving for the last mile is essential. Distributors can be the retailer’s new best friend by collaborating to rapidly scale the logistics and infrastructure for the last mile. Distributors and some brands can also partner to enable drop shipments which beat Amazon’s speed and lower inventory costs.
In the future of retail there will not be one solution. There will be better solutions which enable the retailer to enhance relationships with their customers.
Acquisitions and mergers are nothing new however the author is correct that today they’re happening like never before. There are two reasons why.
The first is that often mergers or acquisitions are a wise strategic move that will take a company to the next step. The second reason, which happens too often, is a short-term solution to generate lots of cash and thrill the stockholders. There are too many businesses today buying companies they should not, and we will see in a few years many of them fail because they can’t run them properly.
How many businesses, rather than invest in themselves, purchase another company? Unfortunately, financial people know that the fastest way to grow today is to buy the competition. That said, when a company sees a strategic reason to purchase a company that can enhance their business because they provide technology or an add-on service to their business model that makes perfect sense. So my advice for any business is looking carefully at what you’re purchasing. If it’s a good long-term fit then, by all means, do it but if it’s just a short-term way of making the stockholders happy with no real long-term success prospects then consider investing that money in improving your existing business.
I think that having a three pronged approach allows retailers to remain agile. The most critical part of success in today’s retail environment is being able to recognize opportunities and being able to scale them quickly.
I think that anything that doesn’t fit as a core capability for a retailer needs to be a buy or a bridge. Building should only be reserved for core capabilities that are inherent to the retailer’s brand footprint.
It’s ALWAYS about the energy! As we’ve seen since time began, companies acquire other entities because they are unique, innovative, energetic and often flout tradition — and then destroy them within a year or two for the very same reasons. That is often done with hiring people too. They are often fired for the same reason they were hired.
The key to selecting which strategy to employ is asking which one would enhance (not merely retain) the energy behind what you are trying to do. I believe it is best to bridge. If you can’t find an entity who wants to bridge with you, build. If you can’t bridge or build leave everyone else alone. Chances are you’ll destroy who you buy.
The pace of retail has never been more accelerated. And the need to be nimble and quick is vital to shopper loyalty, retail relevance and survival. To remain responsive to the changing demands of retail, I’m a huge proponent of buying and bridging rather than building.
Acquisition, as demonstrated by recent moves by Walmart, Target, Albertsons and countless others, is definitely the shortest distance between two points. This doesn’t come without growing pains and integration woes but, when executed properly, the sum of the total creates a more compelling business case, competitive differentiation and increased shopper satisfaction.
Partnerships such as the most recent announced pilot between Aldi and Kohl’s are another way to build market momentum and increase consumer appeal. And as I described in a blog post for Drug Store News last year, strange bedfellows can create exciting new offerings for customers.
I agree with you re: strange bedfellows creating exciting new offerings, Dave, as long as they have separate bedrooms. Sometimes when you try to blend cultures you end up with an amorphous mess.
Thanks for the affirmation, Ian. I’m eager to see where retail partnerships go. As my father and mentor often said, “there are many ideas that no one has thought of yet.”
Great article, Carol! Over the years, we can all think of M&A activity in retail that caused major disruptions in the enterprises and in their markets — for no good reason. Allowing an acquisition to maintain all of the good things and the baseline reasons for being acquired is a good move. Forcing an acquired company to migrate banners, product lines, etc. most often causes internal strife and the expected incremental revenue gains are most often not realized.
I like Carol’s advice and I’d suggest that retailers look at some of the best examples in history and emulate. Pure and simple.
I’m not sure where “retention is all the rage” comes from. Did Walgreens Boots Alliance not reduce headcount? Will Albertsons keep all Rite Aid employees? Setting that aside, there is no “best overall solution” here. It all depends on current bench strength and the level of past investments in technology and staff. Any retailer facing this question would be wise to thoroughly explore all three options, do the math and follow the path that leads to quickest, not cheapest, results. Time is running out.
It will take an all-of-the-above strategy to be successful in the future. While retailers need to enhance and support internal system builds, the pace of change driving the retail industry will force them to have partnerships and make acquisitions in areas where they need to move more quickly or where they have little to no expertise or skills. The three-pronged approach is the only viable strategy to keep retailers at the pace of retail. This will require new management skills and decision making that will challenge retail executives.
Balancing internal systems, aka the politics of internal corporate cultures, is the key to any successful partnership or acquisition. We have all experienced the toxic effects of internal corporate fiefdoms, the person or groups who really control the execution and sentiment within an organization. Driven by fear of competition, saving face or simply the power position of controlling all aspects of the business relative to their control, is dicey for a partnership or acquisition if not addressed. C Suite execs really need to determine the mental health of their organization as a baseline before considering a buy, build or bridge solution. Otherwise, the message is a full assault on current employees. Resulting in a huge waste of both human and financial resources.
Around here, acqui-hiring is (was) a common theme where a tech company buys another tech company for the talent more than the product (the product is often taken out back and shot).
The acquired company may have a funding crunch and so an acqui-hire is better than death. Also, giving money back to investors is not a bad long-term move for founders who may want to try again but this is different — it’s not like being acquired by Google (with all it’s perks and demands). This scenario may have some great benefits: helping to save a company from being Amazoned while moving away from the traffic and cost of living in tech centers sounds like an idea that would resonate. In fact, that’s why acqui-sourcing is a business.
I think integrating the talent is where the opportunities are greatest — not so much buying the tech. This is a developing story that is worth a follow-up and I thought to include some of these blurts to add to the discussion. I don’t have any recent knowledge around the topic — the usual disclaimer.
Oh, I almost forgot – Silicon Valley is over so if you are a Midwest retailer, you might be able to leverage the angst!
“Technology” is no longer a sufficient word to describe recent partnerships and acquisitions. Current convergence suggests the question is increasingly becoming, “what kind of technology?”
Curbside helps Fortune 100 retailers improve in-store service levels like inventory and customer attention. Instacart adds home delivery capability. But delivery is but one category.
Walmart’s acquisition of Spatialand provides it with virtual reality development tools, with applications for both Walmart.com and the physical stores. The idea is to move the technology from gaming to consumer entertainment, aka “contextual commerce.”
Amazon’s acquisition of Ring gives it a leg up in home delivery. It not only adds merchandise, it augments Amazon Key, which lets a delivery person into your house after they present the credentials. Amazon long ago solved the last mile problem. Now it solves the last foot.