Joining forces is a prevailing trend amongst Canadian retailers who are desperate to prevent further losses
Amazon's attempt to diversify by entering different retail segments is sending shivers down the spine of retailers in Canada. Most recently, the tech giant acquired Whole Foods, adding grocers to the list of those who will be more likely affected by its growing presence in the sector.
David Jagielski from the Motley Fool Canada said mergers and acquisitions could be one of the few ways that retailers can save themselves from Amazon's bite.
For instance, food retailer Metro acquired Jean Coutu Group and its pharmaceutical stores. This joining of forces to create a stronger brand seems to be the current trend for these major retailers, Jagielski said. In 2014, Loblaw snapped up Shoppers Drug Mart for more than $12 billion. A year earlier, Empire acquired Safeway and its stores for roughly $6 billion.
However, looking at how Metro and Jean Coutu performed recently, the two might not have a better choice but to merge. In its most recent quarterly report, Metro saw a measly 1% growth in sales. The latter, on the other hand, saw a 3% growth in top line but a 7% slip in its net profit.
"As retailers fail to grow sales organically, pressure may mount from shareholders to take on acquisitions with the aim of growing a company’s top and bottom lines. With many retailers struggling, it’s no more a question of if we’ll see another bankruptcy or acquisition, but rather which company will be next," Jagielski said.
And with big names like Sears Canada and Toys "R" Us waving their white flags, Jagielski said the ability to weather the waves Amazon is bringing is a top priority for Canadian retailers.
For more of Wealth Professional's latest industry news, click here.
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David Jagielski from the Motley Fool Canada said mergers and acquisitions could be one of the few ways that retailers can save themselves from Amazon's bite.
For instance, food retailer Metro acquired Jean Coutu Group and its pharmaceutical stores. This joining of forces to create a stronger brand seems to be the current trend for these major retailers, Jagielski said. In 2014, Loblaw snapped up Shoppers Drug Mart for more than $12 billion. A year earlier, Empire acquired Safeway and its stores for roughly $6 billion.
However, looking at how Metro and Jean Coutu performed recently, the two might not have a better choice but to merge. In its most recent quarterly report, Metro saw a measly 1% growth in sales. The latter, on the other hand, saw a 3% growth in top line but a 7% slip in its net profit.
"As retailers fail to grow sales organically, pressure may mount from shareholders to take on acquisitions with the aim of growing a company’s top and bottom lines. With many retailers struggling, it’s no more a question of if we’ll see another bankruptcy or acquisition, but rather which company will be next," Jagielski said.
And with big names like Sears Canada and Toys "R" Us waving their white flags, Jagielski said the ability to weather the waves Amazon is bringing is a top priority for Canadian retailers.
For more of Wealth Professional's latest industry news, click here.
Related stories:
REITs under pressure as Amazon dwarfs retailers
Besieged retail space could drag down Canadian REITs
