According to internal estimates, there are at least 20 family clothing and footwear retailers in Chile with sales of approximately US$10 million and US$150 million. The business model of these companies consists of one or more own brands, local design, import from Asia and distribution – mainly – in stores.
The fixed cost structure of these companies consumes an important part of their contribution margin. The industry has faced several “waves” of structural changes, as they had to migrate from a local production-based business model to an import-based business model. They then had to adapt their distribution from a wholesale channel to one based on leased or own stores.
Many of these companies successfully faced these first two “waves”. Now, they are adapting to the rapid emergence of the online channel. The difference between this “wave” from the previous ones is that it has been amplified with “shocks” such as social crisis and coronavirus. Cases of insolvency reorganization of companies in the sector over the past 12 months account for the depth of the financial impact of this situation. The path of merger (where two companies with different owners join in the same company), well analyzed and executed, can lead to cost reductions at the administrative and logistical level, as well as improve bargaining power with store landlords, which could eventually contribute to improving the financial position of one of these companies.
This path is not simple, in addition to agreeing a relative valuation between the companies that merge (to determine the percentages of ownership that each owner corresponds to each owner in the merged entity), implies converging organizational cultures and being willing to design harmonious mechanisms that allow to share decisions, risks and benefits among the owners of these companies. However, the above may be better to have 30% of something that generates 10 than 100% of something that generates almost 0.
The content poured into this opinion column is the sole responsibility of its author, and does not necessarily reflect the editorial line or position of El Mostrador.
