Mixed bag for Dutch retail market

The troubles experienced by several large Dutch retailers have been well-documented in recent months. These include, most notably, the collapse of three retailers in just one week at the end of last year: department store chain Vroom and Dreesmann (V&D), owned by Sun European Capital; DA, a Dutch drugstore; and Macintosh, a shoe retailer that also supplied homeware to department stores.

These bankruptcies follow on from the woes of Mexx, the Dutch fashion brand owned by The Gores Group that collapsed in December 2014.

This raft of failures – which has seen the loss of between 5,000 and 10,000 jobs –  has seen many fingers pointed at private equity owners. As reports surfaced in early 2015 that V&D was facing liquidity woes, Sun was understood to have requested several "rent holidays" from its landlords in order to keep the company running, and more importantly secure jobs.

It would appear Sun employed its best efforts to keep the retailer alive, having taken on the €40m debt that was used to facilitate its 2010 buyout and subsequently injecting €200m into the business.

Beyond blaming private equity, one could look to the wider Dutch economy to partly explain the failure of these retailers. The Netherlands suffered a sharp fall in economic output in 2009, and despite signs of recovery from 2010 onwards, GDP fell back into decline in 2012 and 2013. The renewed weakening of the economy saw a decline in private consumption alongside fixed investment, which was only further exasperated by the downturn of the housing market.

Bright spot
Given the challenging economic backdrop it is refreshing to hear of at least one Dutch private-equity-backed retailer moving from strength to strength. 3i-owned non-food discount retailer Action has seen sales growth of 32% and EBITDA growth of 36% from 2014 to 2015.

According to 3i partner and head of consumer Robert Van Goethem, there are two key drivers behind these positive results. The first is continued pan-European expansion, with Action opening 144 new stores over the past 12 months, the bulk of which in France, Germany and Belgium.

By widening Action's geographical footprint, 3i has smartly diluted its exposure to the Dutch retail market. However, Van Goethem is upbeat towards the Dutch consumer market, believing sentiment to be largely positive. For him, the retailers that have struggled have been those that have failed to adapt to changes: "In the new world, consumers are more value orientated, so the pricey mid-market is having a tough time because the value of brands has diminished. Now consumers want the right price so brands have become less important."

According to Van Goethem, Action has been at the forefront of changing consumer behaviour in the Netherlands: "The company's growth is linked to customers knowing they can buy things at better value."

Taking stock
But beyond picking up on increased demand for value, Van Goethem believes there is a second reason behind Action's success: "Action offers a large assortment of goods. Only 35% of stock is fixed and in store all year. The other 65% is seasonal, for example products related to Christmas, back to school, Easter, spring or gardening."

For Van Goethem, this relentless stock rotation is one of the biggest drivers of Action's success: "People know there will be something new, which creates a treasure hunt. Customers come in regularly looking for new stock."

In today's environment, consumers need the wow factor. They've become more discriminating and a lot pickier" – Robert Van Goethem, 3i

Given consumer assets make up 75% of 3i's private equity portfolio in the Benelux region (although it should also be noted 3i only has four holdings in Benelux), it is unsurprising the listed buyout house is keen to continue investing in this space. "We're constantly looking for consumer deals, not just in the Netherlands but throughout Europe," says Van Goethem. "We look at deals everyday but we're highly selective; the key is to find a differentiating concept. In today's environment, consumers need the wow factor. They've become more discriminating and a lot pickier."

Alongside Action's good fortunes, another piece of positive news regarding private-equity-backed Dutch retailers has since surfaced. In mid-February, V&D was rescued from bankruptcy thanks to successful negotiations between one of the stores' landlords – IEF Capital – and its lenders. The deal resulted in a €24m discount in rent, a €30m cash injection from Sun and a further €30m loan from its lenders. The new package should enable the retailer to pay wages, rent and suppliers for the next two years.

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