In a previous post, we tackled the state of the housewares industry which sparked some thoughts on challenges in the marketplace and potential sources for future growth.
I stated the current market, while challenging, presented many unique opportunities for growth. As the housewares industry continues to be impacted by retail consolidation and online growth, we will continue to see companies forced out of a comfort zone.
There are many companies that have one or two key skills that have translated into success in the industry, but very few have the complete package. Some have great supply chain capabilities, some have great marketing and sales resources, some have incredible product development processes, and some have great brands and product offerings.
This sets the stage for an environment ripe for mergers and acquisitions, joint ventures, licensing and even distribution agreements. Companies must look to leverage strengths to create new revenue streams while working to firm up weaknesses and minimize risk from outside competitors. Companies that can successfully accomplish this over the next several years will firmly position themselves ahead of the curve.
Mergers and acquisitions
M&A offers companies quick opportunities for growth in a number of areas. Companies can use M&A for expansion of market share by acquiring competitors or use it to gain entry into new areas of targeted expansion. In today’s hyper-charged marketplace, M&A can actually offer companies a more cost-effective way to capture their business goals and objectives quickly versus building new from the ground up resources.
Beyond market share, M&A can also assist companies with assets and resources that may be limiting their ability to grow. As discussed previously, often, few companies have a total package of strength-driving resources. M&A can offer companies the ability to acquire assets in very specific areas that help round out capabilities thus creating additional infrastructure strength.
JVs offer a more palatable option for companies that need resources, often cash, without relinquishing control. JVs work best when two companies, more evenly matched, can blend with different strengths but similar goals. An example might be when a company with a great product but limitations in sales and marketing connects with another company with solid resources in sales and marketing. Both companies may not want to relinquish control, so they pool funds and start another company, bringing together the best parts from both entities. Joint ventures can also be a great catalyst for a longer term M&A opportunity.
Licensing can be an incredibly strong way to leverage the power of a brand in the marketplace while minimizing upfront financial risk. Licensing can come in the form of celebrity licensing, brand licensing for new categories, sports licensing, and many others. Licensing offers a relatively low barrier of entry as the costs associated are buried in the “cost of goods” and are not required to be paid off until the product hits the market and begins selling. This allows companies to maximize significant brand awareness and marketing efforts allowing for immediate sales gratification versus longer-term brand building strategies that can take significant amounts of time and funding while also requiring upfront marketing costs that may not be proven or successful.
Distribution and sales agreement
As discussed earlier, often companies have one or two proficiencies but often not the whole package. Perhaps a company has a great product and brand but can’t gain entry to the marketplace without significant investments in sales, marketing, and distribution costs. In this case, it’s as simple as one company selling the other company products at an attractive margin and the secondary company takes control of the marketplace strategy. Involvement levels can vary but both companies end up winning with sales, revenue, and market share growth by leveraging the strongest attributes.
In today’s ever-changing marketplace, all options must be placed on the table and while these are just a few, they are some of the most common and most versatile options. No matter which option is best, I believe housewares companies today must consider them all.
In my next post, I will begin to dissect each of these opportunities and dig a bit deeper into the pros and cons of each. I will cover what companies can do to minimize risk and maximize reward in each for future success.
S. Darrin Johnston is a C Suite Management Executive in the housewares industry.