Retail M&A KPI's: Shop Profitability and Location

What are the key factors you were considering while looking at Limoni?

When I look at the asset, the main point you need to be careful with is the shop profit of each door. You need to analyse what is the global EBITDA of the company and then go into the details. When we’re talking details, it means let’s go door by door, and let’s check how much the doors are performing, how good these doors are, and what is the situation? Shop profits door-by-door, global EBITDA, the quality of the network. You need to look at whether it’s a new network, if it’s an old network, if it’s a well-positioned network, or if it’s a network that needs to be transformed or renovated.

How would you look at that just? By vision in terms of the quality of the stores?

You need to go and check store-by-store. I did that job when LVMH asked me to look into the Limoni organisation and make a statement whether it would be something interesting for LVMH to buy. Firstly, there was a duplication of many stores. A lot of the stores they have were in duplication to the network Sephora already had. This was the same for Douglas Italy as they already had a network of 140 stores. When they bought Limoni La Gardenia, they found themselves with 140 stores of Limoni La Gardenia next door to their existing physical network. So there was a cannibalisation of stores that were next door within the Douglas company which didn’t make any sense. This is another problem because you need to rationalise, you need to reduce fixed costs, it doesn’t make sense to be competing inside of your own house. That’s why Douglas find themselves, in some cases, in shopping malls where they have three performing stores. One Douglas, one Limoni, and one La Gardenia. What is the sense of this? They have to close stores and transform everything. This is the point you need to watch when you make an acquisition.

Then you need to see what the differentiation is. You’re making an acquisition because you want to bring added value to your company. What was really the differentiator that Limoni La Gardenia was bringing to Douglas in Italy? They bought market share in Italy at a very strong price, but they didn’t buy any innovation because they got rid of the Limoni La Gardenia brand, and now they have rebranded all stores to Douglas. This makes sense from my point of view but what was the winning factors that they brought home from this acquisition? They just brought home a number of stores.

Yes, stores and leases.

Leases and a lot of fixed costs. A lot of personnel that they need to take care of. They need to train, they need to change the culture, etc. It’s a very complicated exercise. It’s not an exercise that you make in one, two, or even three years. Sometimes it can take a long time to absorb, restructure and integrate. Coming back to your original question, the main points to watch out is EBITDA, per-shop profit, and quality of the locations. These are the three points that you really need to be very careful and very analytical with.