Retail

Retailers are adapting to meet consumers’ demand for more value, better service and greater convenience. For private equity investors, the sector’s attractions include strong brands, relatively predictable cash flows, the ability to roll out formats and improve operational efficiencies, and the opportunity to increase value significantly by improving performance.

Retail sales are shifting from town centres to the online marketplace. Successful players need a clear multi-channel proposition and a strategy that meets challenges such as efficient product delivery and the return of unwanted goods.

Private equity investments in retailing include the CVC-led consortium’s acquisition of Debenhams in December 2003, one of the largest public-to-private transactions in the United Kingdom, and 3i’s acquisition of Agent Provocateur, the luxury brand lingerie retailer which has successfully grown its business across 14 countries, including the United States, Europe and the Middle East, and added a range of fragrances and shoes to its existing product ranges. Agent Provocateur demonstrates the case for investment in strong brands or differentiated concepts with clear customer propositions that can be rolled out geographically and by product-range.

Another example is the luxury shoemaker, Jimmy Choo, which was acquired by Phoenix Equity Partners and Robert Bensoussan (the former Chief Executive of Christian Lacroix and Managing Director of Gianfranco Ferre) for approximately £20 million in 2001. Within three years the company opened 26 new stores and introduced both handbag and small leather goods collections. It was sold for over £100 million in 2004 to Lion Capital, which specialises in consumer-based investing.

Investments in multi-channel retail in the United Kingdom include Boden, the clothing brand that sells directly via catalogues and over the internet, which was previously backed by Piper Private Equity and is now rolling out a retail business. Another is TM Lewin, the catalogue, store and online shirt business that has successfully extended its original shirt proposition to a broader range of Menswear and Womenswear and is expected to expand geographically in late 2009.

Larger transactions include the Swedish Gant business that 3i and L Capital acquired in 2003 for €105 million and realised for €241 million in 2006. During the period of investment by the two firms, profits increased by over 80% and the business successfully launched a women’s wear line, strengthened its licensing business, entered 13 new markets and opened 30 new stores.