Post‐acquisition performance of apparel retailers: Is bigger necessarily better?

The merger and acquisition activities of the past two decades have brought about dramatic structural and strategic changes in the retail industry. Retail experts envision this consolidation as a necessary survival tactic for retail formats, especially the department store format, adding that the surviving chains will be bigger and better. Intuitively, such a progression is logical, but is bigger necessarily better? A sample of 89 apparel retailers who had acquired another firm between 1973 and 1992 was examined to determine if, as experts suggest, retail firms do indeed perform better after acquisition. The average pre‐acquisition ROE, ROS and ROA was compared to the average post‐acquisition returns with a sign rank test to determine the number of firms exhibiting +/− change and tested to determine if the trends exhibited were significant. Results indicate that 51 apparel retailers in the sample did indeed experience greater ROS post‐acquisition and 53 experienced greater ROA. However, 55 of the 89 firms experienced lower ROE after an acquisition. Strategies for determining appropriate means for retail growth are briefly discussed.