Shopping Centers Today is the news magazine of the International Council of Shopping Centers (ICSC)
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There was a clear dip in activity in the third quarter, as companies and consumers in Europe felt the full impact of financial problems in the euro zone. Ascena Retail Group, owner of Mau- rices, Justice and Dress Barn, is among those stronger operators considered likely to make an acquisition or two in the near term. Ascena declined to discuss specifics, but the company is reportedly exploring the possibility of targeting the likes of Lane Bryant, Talbots and others. After a 2011 holiday season that beat expectations, Ascena posted record sales and earnings for its fiscal second quarter (ended January 28). Meanwhile, David Jaffe, Ascena's president and CEO, is spending a bit more time contemplating strategic moves — including M&A; — now that some executive-level personnel changes are in place at the company. "We now have strong executive teams in place at all three brands," he said. "Acquisitions, if we are fortunate enough to find one, are always hard, but we are in a pretty good place in terms of our ability to fo- cus on this, and we have the right play- ers to make it happen." Ascena has made such deals happen before. Founded as Dress Barn in 1962, the Suffern, N.Y.–based company ac- quired Maurices (now about 800 stores) in 2005. Much to Wall Street's surprise, the company spent $412.7 million in November 2009 to acquire the then- troubled Tween Brands and its 905 Justice stores. In the weeks before the Wall Street collapse, Tween Brands had started the process of cutting its over- head in half and converting its premium- price Limited Too stores to the lower- price Justice banner, Jaffe says. And yet analysts failed to appreciate the wisdom of Tween Brands' shift to this leaner, value-focused approach, he says, and they took a dim view of the company's debt load and dismal holiday-season per- formance. "That is why [Tween Brands'] stock got hit, and that is why we were able to come in and merge with them," Jaffe said. "We had a very strong balance sheet, and that is what they needed. So it worked out great for both of us." As a holding company, Ascena is now focusing hard on back-end effi- ciencies that will make its brands more competitive. "What we are doing now is developing more and more of what we call shared services," said Jaffe. "Think about all of the stuff that is not customer-facing. Why have those things distracting the brands, so to speak, when we can do them faster, better and smarter internally?" But if Ascena's story illustrates the po- tential benefits of M&A; for retail chains, it is nonetheless a relatively rare phe- nomenon of late, says Marc S. Cooper, head of the retail and apparel practice at Peter J. Solomon Co. "There have been very few retailers who have gone out and bought other, lower-growth retailers with the idea that [the acquirer] would be better operators and enjoy savings and synergies," he said. "There aren't that many Ascenas out there." The debt markets were tough from July 2011 until the end of last year, says Cooper, but this alone does not explain why M&A; activity has not been more robust. After all, successful retailers and private equity firms alike have been sit- ting on lots of cash, and both have had strong incentives to grow. One possible explanation for the conservatism is unease about the economic future. In- deed, this is clearly part of the reason M&A; activity has been sluggish in