Benefits Abound When Brick-and-Mortar Retailers Acquire E-tailers

Earlier this month, DSW announced plans to acquire Ebuys Inc., an off-price footwear and accessories e-tailer. This news follows last month’s reports that Hudson’s Bay (the owner of Saks Fifth Avenue and other department store chains) was acquiring Gilt Groupe.

These recent acquisition announcements reflect traditional retailers’ increasing appetite for a greater share of the online sales pie which, according to non-adjusted estimates released by the U.S. Department of Commerce E-commerce, totaled $341.7 billion in 2015—a 14.6 percent increase over 2014’s $298.3 billion. They also represent the mindset of some traditional brick-and-mortar retailers, who have adopted the mantra “if you can’t beat them, why not acquire them?”

My colleague Ted Vaughan spoke to this in a recent NBC News article, “Boxed In: Big Retailers Search for Their Spot in Shopping’s Future,” saying “One of the things we’ve seen with retailers is when they first started getting into the online business, they were creating their own platforms. [Now] you acquire it rather than building it yourself.”

When using an acquisition strategy to create e-commerce capabilities versus building from scratch, brick-and-mortar retailers stand to reap a number of benefits, including:
  • Enhanced digital marketing capabilities: For example, Hudson’s Bay’s acquisition of Gilt is set to give the organization more of a mobile marketing edge, since it can learn from Gilt, a recognized mobile leader that has been a step ahead of traditional retailers. One of Gilt’s sophisticated mobile marketing tactics is developing personalized daily sale notifications for customers.  According to Luxury Daily, “While a lot of marketers track user behavior, Gilt is taking this strategy one step further by creating a profile for each user over time and then matching the single best sale each day for that user. This avoids having all of the messages based simply on which brands a user has looked at in the past.”
  • Expanded customer reach: Some retailers are better positioned to attract a newer and younger audience through the acquisition of e-commerce sites that cater to the ever-elusive Millennial. Greater access to this demographic was Nordstrom’s goal in purchasing private sale website HauteLook in 2011, and in 2014, Trunk Club, an online style service for men. Nordstrom Direct President Jamie Nordstrom told WWD, “We may have done a good job over the years with the Baby Boomer generation, but we have also got to figure out how to be relevant to the Millennial customer, and HauteLook has built a business on figuring that out. They talk to customers who are rabid fashion fans on a daily basis. Our ability to get Nordstrom into that conversation has driven some meaningful results.”
  • Broader omnichannel presence: Our tenth annual Retail Compass Survey of CMOs found that more than half of the retail CMOs surveyed (60 percent) are familiar with the concept of an enhanced omnichannel approach, and a little more than a third (37 percent) of those respondents report adjusting their marketing strategy to provide customers with a cohesive experience across channels. It is possible that, as retailers obtain a better understanding of omnichannel and the benefits associated with a robust presence across multiple channels, they will aim to grow their omnichannel footprint through the acquisition of e-tailers. DSW’s purchase of Ebuys Inc. has been reported to be a component of the footwear company’s  omnichannel strategy, which has been credited with helping to buffer the slipping sales and profits the company experienced in Q3. Company CEO Roger Rawlins said, “The acquisition of Ebuys represents a unique opportunity to add a business to the DSW portfolio that will strategically scale our off-price sourcing capabilities, expand our presence into digital marketplaces and create opportunities to serve international customers online.”
The saying, “if you build it, they will come,” can often be true. But for retailers, how fast you move makes the difference between a boom or a bust year, and an acquisition-based strategy might be the speedier, more effective approach for traditional brick-and-mortar retailers that want to maintain their competitive edge.

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