Ashley Stewart sale highlights the power of brand resonance, customer interaction in Retail M&A

July 25, 2016

In today’s retail environment, it is rare to find a brand with a flourishing business platform. It is rarer still to encounter a strong brand, with a loyal and growing customer base that has cracked the brick-and-mortar/mobile/social code. And yet Ashley Stewart, a leading global lifestyle brand for plus-size women’s fashion, seems to be standing out in that sea of sameness.

Baird recently advised Ashley Stewart on its sale to a prominent private equity firm. We sat down with Maria Watts, a senior member of Baird’s Global Consumer Investment Banking team, to discuss what makes Ashley Stewart’s business so unique and how the investor appetite for the business illustrates broader dynamics in the retail environment.

What made the Ashley Stewart transaction unique? Why is it one that people in the retail space should take note of?

Many brands are struggling to define their reason to exist – they’re having trouble connecting with their customers, and many are being displaced by the likes of Amazon or others because they're not offering a differentiated product, service or experience.

Ashley Stewart is really unique because the business is a rare combination of brick-and-mortar stores and ecommerce. Many retailers are struggling to strike a balance between brick-and-mortar and ecommerce. Ashley Stewart is one of the few brands that has tapped that code. In their business, ecommerce is a complement to and amplification of the experience in their brick-and-mortar locations. The brand is relevant to the customer whenever and wherever she wants to shop, and even when she isn’t shopping, in an authentic way.  Social Commerce is how management refers to their strategy.

What is it about the balance of Ashley Stewart’s business that intrigued potential buyers?

First, the Ashley Stewart team has built an incredible understanding of their customer. She is extremely social. She's extremely vocal. She's a visual person. She uses social media to share with her friends. She likes to shop in stores but also enjoys shopping online. Their team then successfully applied that knowledge and said, "Let's figure out a way to connect with her in a unique way that creates another touch point."   They have become a technology leader by choosing those technologies, and only those technologies, that are important to their customer.

They’ve approached the customer relationship in a different way – they’re not looking at it by channels.

What this management team has done, which is very interesting, is said, "Let's take a holistic team approach to managing the business and focusing on the customer." Everybody's talking, everybody's sharing, and it's 100% about what is best for the customer – not about domain.  What has resulted is an innovative approach to management, governance and corporate structure.

They're also unique because they are using their ecommerce capabilities and social media platforms to amplify the experience in the store. They’ve cracked the code in terms of the best way to interact and grow a business in a changing retail landscape. The events portion of their business has further amplified consumer emotional loyalty.  And they’ve gotten it right. Over a third of the business is direct-to-consumer through their website. That is a pretty high-water mark in the space in terms of success with reaching, connecting and transacting with customers, both in stores and online.

Additionally, there's something called a net promoter score, or NPS, that’s a common industry tool to calibrate brand strength. We worked with a major consulting firm to assess Ashley Stewart’s brand power, and we discovered the NPS was off the charts – shockingly high.

Having recently completed this transaction, what do you think it illustrates about the current retail environment?

Retail has become a “sea of sameness.” There's not a lot of brand loyalty, particularly in women’s apparel. Customers are often focused on price, trends or convenience. As the NPS revealed, customers seek out the Ashley Stewart brand. It drives traffic, it's authentic, and it's not easily replicated. This is significant given today’s competitive dynamics.

Some retailers are doing a really nice job of connecting with their neighborhood, community and using events to create customer “stickiness,” but from an apparel standpoint, there aren't a lot. It's a tricky environment. There's difficulty with price promotions. Amazon is becoming a bigger presence in the fashion industry, and people aren't sure what these changes will do to the apparel category. Is it going to be the same as what Amazon has done to hard goods? Time will tell. There's a lot of uncertainty.

What would you say about retailers who want to be seen as having a unique business model in this sea of sameness? What is critical for them to focus on?

I think there's going to be a lot of consolidation in retail in the coming years. Retailers are facing declining mall traffic, consumers’ changing spending habits and more. There’s also an increasing expectation to provide customers with an experience when they visit. People come into the store not just to make a purchase, but for all sorts of reasons.

Maybe it's inspiration. Maybe it's a connection to store associates who create a comfortable environment to try new things. Maybe it's the newest or latest item that can't be found elsewhere, or a highly curated offering that's really unique and interesting. In today’s market, retailers need to offer more than just four walls and some product to be successful.

Might we see a day when department stores are no longer around if these trends persist?

I don't think department stores are going to die, but they're definitely going to need to refocus and change some of their strategies, which has already begun. They're focused on productivity and refreshing existing stores so they’re better able to compete.

Department stores are trying to combat these difficulties in a couple of ways. Some allow brands to bring in their own representatives and use merchandising techniques to create little pop-up shops within the store – boutiques with big brands within the broader department store. More and more department stores are offering services to try to lure customers. For example, blow dry bars and makeup bars have are popping up in department stores to try to generate traffic and excitement – you can’t get your hair and makeup done on Amazon.

Are there other major trends in play that could impact retail for years to come?

More and more consumers, particularly younger shoppers, are trying to buy products online. That's a very different feel. People who are using mobile devices to shop are generally making purchases in a spontaneous way. They’re also searching for products differently or looking for a streamlined experience. The mobile experience doesn't really allow brands and retailers to get across what makes them different in the same way as a brick-and-mortar store.

There's just not an ability to put that much content on a mobile screen. I think the ecommerce experience is going to continue to evolve. However, it costs money to be able to make all of the different channels speak to one another, make the people in an organization speak to one another, be consistent in inventory, and pricing, and brand messaging across all these different mediums. I think it will become an even more complex operating situation for companies.

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