In response to Amazon’s complete revolution of the retail industry, many companies with traditionally brick and mortar operations are racing to catch up online. Many are acquiring smaller online startups in an effort to to just that, but is it enough? Tige Savage reports at Revolution:
Many top retail and consumer products companies are now facing the moment when their leadership is at peril as consumer behaviors permanently shift away from store-based buying and faceless packaged goods to online-oriented consumption and authentic brands.
The megadeals everyone was talking about in 2016 were of legacy consumer businesses acquiring digital companies to offset these negative macro trends through innovation. Two well-reported examples were Unilever acquiring Dollar Shave Club and Walmart acquiring Jet.com. Both Dollar Shave Club and Jet.com are next generation ecommerce companies that could in theory help catapult Unilever and Walmart into the next era of retail. But is acquiring an online businesses enough when you’re competing against Amazon?
Less than six months later, the impact of these acquisitions became evident in last week’s two major business stories. Warren Buffet, the great trend-spotter and investor, has made his assessment and is voting with his checkbook.
First, Buffett believes that Walmart’s Jet acquisition is too little, too late, too desperate. Buffett dumped his shares of Walmart in fear that the huge retailer has not shifted quickly enough to capture evolving consumer demand, witnessing Amazon’s consistent outflanking of Walmart through online best practices.
The retailer should have been more aggressive over time by embracing many thoughtful acquisition of relevant smaller startups, rather than making just one bet on Jet.com. An ongoing strategy of consistent startup acquisitions would have positioned Walmart to be in a far better position today. Former Walmart CEO, Mike Duke acknowledged in 2012 that the company’s greatest modern misstep was not consistently investing more in ecommerce. Now they are paying the price.
Second, Buffet was said to be providing financing for Kraft Heinz’s $143 billion acquisition offer for Unilever, which was announced on Friday and ultimately withdrawn over the weekend. Unilever has consistently acquired venture capital-backed startup brands, such as Dollar Shave Club and Seventh Generation, to make its products more appealing to modern consumers. Unilever’s acquisition premium is a partly a nod to the wisdom and consistency of this acquisition strategy.
Walmart and Unilever are not alone. Many traditionally-offline retailers continue to report signs that retail stores are underperforming while seeing offsetting benefits of ecommerce expansion. In January, Target reported in-store sales in November and December declined by 3% while online sales climbed by more than 30% and they aren’t the only ones. As a result of these reports, retail stores are announcing store closings, stopping construction on new locations, and rethinking the balance and investment in online and offline.
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