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What to Watch Out for in Retail Divestitures

As the trends around consumer preference and personalization continue to dominate the landscape, retailers today are reframing long-term strategies to better serve the modern consumer and market. In this effort, many retailers are acquiring new brands or divesting areas of their business to both balance their product mix and focus strategic efforts but also position themselves for sustainable success.

Towards the end of 2018 and the first months of 2019, many retailers have made major announcements demonstrating this trend. VF Corporation is in the process of spinning off its jeanswear business into a separate brand, Kontoor Brands, Inc. Gap recently acquired the Janie and Jack line of upscale children’s clothing from Gymboree and announced their plans to make Old Navy a separate brand. Retail companies are using divestitures to create a balanced growth strategy, capitalize on their existing strengths, and to set the future for shareholder value but this strategy doesn’t come without its own share of risks.

Talent and Transitional Service Agreements

To create two new successful organizations, it’s critical to determine the best approach for leveraging talent. HR should be brought in early to assess the impact on employees and build the excitement and momentum around the new enterprise. Decisions will need to be made about which company gets which top employees.

Navigating the talent divorce also means working to keep people from leaving before the deal is complete. Following the close of a deal, transitional service agreements (TSAs) remain active and will continue to impact ongoing operations. TSAs also provide the opportunity to enact replacements and reforms where needed. Managing costs and resources thoughtfully is required to ensure a smooth transition.

Assessing the Technology Landscape

When making a divestiture, it’s important to consider how the transaction will impact your technological and digital assets. For some companies, divestitures occur as a direct effort to redeploy investment into new technologies and capabilities. Adding additional technological resources takes time to implement and could require expanding the data center’s footprint. Ensuring continuity of business operations requires a company to plan for a scalable operating platform that maintains daily operations while controlling data integrity and providing the right financial incentives.

Supply Chain

Planning for a future network can be difficult due to the uncertainties that come with the change. Restructuring within the supply chain after a divestiture can help sharpen a company’s focus while also creating potential challenges. A fast, predictable supply chain can differentiate a company from its competitors, making it critical that post-transaction supply chain executives realize the promised operational efficiencies. Short-term improvements may have to be made while developing a longer-term strategy to capitalize on the disruption and to continue maximizing efficiency. Consider how your company’s arrangements with customers and vendors might change as a result of a divestiture and how to prevent increasing cost with a reduced economy of scale.

Creating value through divestitures, mergers, and acquisitions is not a given and requires significant planning and execution. Forming a specific 90-day plan can aid with minimizing the complexity of the divestiture and ensure that your business is taking advantage of every opportunity the transition presents. Start by evaluating your current situation and defining the vision for each new company. Take advantage of your partners with the relevant experience to help you make the transition. By taking the time to assess your talent, digital resources, and supply chain operations, your company can make sure that the result provides the fuel needed to drive innovation and growth into the business.

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Coauthor and contributions by Sabrina Zirkle

Tags: Consumer Products Trends, Network Design and Inventory Optimization, Organizational Health, Specialty Retail