Where is the family business model most under threat - retail

 (photo: pixabay)

(photo: pixabay)

This week, Juan Roig the owner of the Spanish supermarket chain Mercadona announced his family business will spend billions to revive its flagging fortunes. Nordstrom, a family-owned US fashion speciality retailer, continues to struggle to find a new ownership structure to propel it forward as sales decline.

El Corte Inglés, LL Bean, Lotte Shopping, H&M Hennes & Mauritz, and Gap - all great retail-based family businesses, but all have struggled in recent years. There are more family businesses in the retail and consumer products sector than any other. What effects the above big brands in terms of sales and profits are likely to be felt at all levels. The sector really matters to the health of the family business ecosystem.

OK, not all family businesses in the retail sector are feeling the heat. Perennially successful groups like Inditex, owner of fashion retailer Zara, and German supermarket chain Aldi continue to power ahead. And Walmart, the world’s biggest business in terms of revenues, remains very competitive. But even these companies are not without their concerns. Of course, most will have more than one concern, but perhaps their biggest can best be summed up in one word - Amazon.

It has been argued the e-commerce phenomenon known as Amazon is currently the most disruptive force in the global economy today - and is likely to remain so for some time. It has aggressively spun the retail sector around many times and continues to do so. Amazon, which started less than 25 years ago as an online bookseller, is now the biggest online retailer in the world in terms of revenues, which are fast approaching $200 billion.

When Amazon says it plans to move into a sector the established companies in that sector become very nervous. Supermaket chains are likely to be very worried about Amazon's foray into the sector with its Amazon Go initiative. And just this week there has been some speculation Amazon will move into the online travel business. That is no doubt making the likes on Expedia and Booking to be looking behind their backs a little bit more than they have in the past.

But where does this leave family-run retail-based businesses? Will the relentless onslaught of Amazon and its Chinese equivalent Alibaba ultimately lead to their capitulation? Business is business and some will go to the wall relatively quickly. Many will manage long-term decline, before eventually selling up and ending the family legacy.

Companies like H&M, Inditex, Mercadona, and Gap have deep enough pockets to throw money at innovative ideas around distribution, warehousing, and online consumer platforms in order to better compete. And, indeed, Roig’s big investment announcement for Mercadona this week is all about this.

Companies with strong brands, but are bogged down with declining revenues might look at private equity to provide a lifeline. A cash injection and a fresh management perspective could help in the business’s revival. But private equity might not provide the answers to the woes of some of these businesses. Alignment of interests is often difficult in such deals.

But without a big commitment to ditch the old economy bits of their businesses and innovate, many family firms in the sector won’t be around in 10 years time - and many won’t even have that much time. That could have far-reaching implications for the health of many family businesses.