Have acquisitions by venture capitalists ruined our high street? Venture capital or private equity is increasingly in the news. In the retail market alone: venture capitalists are said to have been partly behind the current problems at V&D, the Hema formula has been eroded and the now bankrupt DA drugstores was also run by private equity. Is private equity the evil genius behind the barrenness of our high streets? And can a born retailer like Ronald Kahn owner of the fashion companies Cool Cat, America Today, MS Mode and Sapph now turn V&D into a success story?
Online shopping is here to stay
You don’t have to be a big thinker to realize that there are many more causes than shareholder structure that have drastically changed the Dutch retail landscape. The mere fact that you and I now do 17% of our shopping online obviously has an impact on the number of physical meters of store floor.
Private equity driving growth at successful companies Bol.com and Action
And private equity is also partly responsible for great success stories. It stood at the cradle of Wehkamp, which was transformed from a traditional mail-order company into a state-of-the-art online retailer, and Bol.com also became big under a private equity shareholder before merging with Albert Heijn in 2012.
Many private equity parties roll out their standard approach to retailers: there is a lot of focus on financial restructuring and growth must come from rolling out to new markets. This approach works well for healthy companies with a future-proof store formula.
An absolute success story of this approach is Action, the discount retailer that experienced tremendous growth after its acquisition by venture capitalist 3i, first in the Netherlands but then also in Germany, Belgium and France. The British investor stepped in as a shareholder in 2011. Action then had just under 300 stores. What followed was a period of impetuous growth. The counter now stands at over 650 stores, 144 of which were opened in 2015 alone. And yes, the store formula is distinctive with a focus on smart sourcing and distribution. This makes the assortment surprising and inexpensive for the customer. And because apparently not only Dutch consumers like “inexpensive” after all, growth has also been achieved particularly in the countries surrounding us: an ideal private equity case.
When more needs to be done, however, as with V&D or Hema, the standard approach does not work. Here, vision and entrepreneurship are needed to make the necessary change in the formula and strategic positioning. A short-term and strong financial focus then certainly does not help.
Do private equity parties only have their own financial gain in mind? Yes indeed: that is also their role; after all, they need to realize returns for their investors. But is this bad? No, actually not. If there is a good retail formula, a takeover of the company by private equity can be an extra impulse for accelerated growth.
Venture capital if you can, a real retailer if you must
But the wise lesson from at V&D is that when strategic change is necessary, entrepreneurship and retail knowledge are indispensable. What is needed is a shareholder-private equity or not-who appoints the right management and then enables that management to roll out its strategy. In this regard, a seasoned retailer like Ronald Kahn offers a last real opportunity for V&D. Even though we as consumers buy 17% online, 83% of our purchases are ultimately in stores. If there is anyone who understands how to entice this consumer to come to his store it is Ronald Kahn. The pessimists preaching the demise of V&D will not be proved right.
What about private equity? Venture capital has brought Action to a lot of high streets and will undoubtedly help other successful retailers accelerate their growth. If things get really tough, there are always real retailers to fill the premises on our high street with contemporary formulas that entice us to buy.
By: Maarten Vijverberg