A few days after the momentous announcement of Ariston-Nord-West-Ring's agreement for the acquisition of the Garant Group, which was formally signed on April 30, the latter indicated that its business was likely to improve in the major countries where it operates, judging from some interesting recent data.
Market research statistics and sales reports from its affiliated shoe retailers indicate that sales in the first quarter of this year were stable in France, but grew by 12.7 percent in Germany, by 13.1 percent in Switzerland, by 13.4 percent in Austria, by 9.6 percent in Belgium and by 5.7 percent in the Netherlands.
The improved spring-summer business depleted the retailers' inventories and augmented their cash resources, auguring well for future orders, but the apparent market recovery has not yet been fully reflected in Garant's centralized settlements. Between the start of the year and the beginning of May, its centralized settlements were up by 4.6 percent from the corresponding period of 2009.
However, in the first three months of the year, Garant's centralized settlements increased overall by only 0.4 percent to €238.0 million during the quarter, with declines of 0.1 percent in the footwear sector and 0.7 percent in leathergoods offset by a 2.4 percent rise in the sporting goods sector. Net revenues and profits remained largely stable.
Settlements increased by 2.6 percent in Belgium, by 6.0 percent in France, by 6.9 percent in Switzerland, by 3.4 percent in Austria, by 2.7 percent in Eastern Europe and by 5.3 percent in Scandinavia, but they declined in two more important markets for the buying groups: down by 3.2 percent in the Netherlands and by 4.2 percent in Germany.
Garant cautioned that the outlook remains uncertain because of the general economic situation in various European countries. The number of retailers affiliated with Garant increased to 3,480 from 3,460 in the first three months of this year, mainly because 80 more dealers with 123 stores joined the group in France, offsetting some departures in other countries.
Meanwhile industry officials have generally expressed positive comments about ANWR's acquisition of Garant, considering that the resulting dominance of the footwear market will be compensated by better levels of service. It will form the biggest retail cooperative in Europe involved in both footwear and sporting goods, with more than 6,000 affiliated retailers all over the continent.
While Intersport International remains stronger in sporting goods, the combined group will play an important role in that market with a total of 1,579 sporting goods and bicycle dealers running a total of about 2,000 sporting goods stores and 554 bike shops. It will clearly have the European leadership in footwear, with a 40 percent share of the market in Germany and 4,230 retailers running 7,184 shoe shops in various countries (see the table on this page).
It is not yet clear when and how ANWR's acquisition of Garant will be completed. In an initial stage, ANWR is acquiring 69.93 percent of the ordinary shares and 84.3 percent of the Class A shares of Garant by taking over Erste Amplificator, the company formed by Garant's creditors to refinance Garant and take it out of its former insolvency. The price of the deal will be disclosed later on, when ANWR will launch a non-binding bid for the balance of the shares at the same price.
ANWR and Garant are going to set up a new common structure intended to improve processes, to generate synergies in operations between the two companies and to develop them all over Europe. ?Our retail members have understood that we are now reasoning in European terms,? said Günther Althaus, chairman of ANWR, at a press conference organized at Frankfurt Airport, halfway between the head offices of ANWR in Mainhausen and Garant in Düsseldorf. He indicated that there was strong backing inside the ranks of both cooperatives for a move that should turn the new united group ?from a German entity into a European one.?
While competing against each other, the two big German-based buying groups complement each other well geographically. Having lost many retail members in Germany and the confidence of several suppliers through its recent insolvency, Garant has become very international-oriented. It has a presence in 19 different European countries, with 70 percent of its centralized settlements of €741 million generated outside Germany last year. Instead, the bigger and financially stronger ANWR got 85 percent of its total business volume of €5,827 million last year in Germany, including the turnover of its own DZB bank and Aktivbank.
Accordingly, ANWR, which has developed excellent processes under Althaus' management, will centralize management information systems, financial services, personnel and other operations for both companies, seeking to improve them further for the benefit of the retail members and their suppliers. There will be cooperation between the two groups in the area of central settlements, considering also the fact that Garant doesn't have its own bank as is the case for ANWR.
On the other hand, Garant's office in Düsseldorf will act as the central platform for the group's development in foreign countries. Robert Natter, the general manager of Garant who has led the company out of its insolvency, will run all the foreign operations of the group together with Matthias Grevener, financial director of ANWR, and with another member of Garant's executive board, Frank Schuffelen.
The existing organizations of the two companies will in principle be merged in each country where they operate except in Germany, Belgium and the Netherlands, where both groups are relatively strong. The first moves will likely be made in Austria, Switzerland, France and the Nordic countries. Garant and ANWR are going to look at each market one by one, the idea being to become leader in each one of them. They will try to consolidate existing national operations while attempting to enter new markets such as Spain, Italy and the U.K., eventually through acquisition, in order to help independent retailers to better compete with the local chains and to develop a more balanced relationship with suppliers.
The enlarged ANWR group will make new attempts to take orders from suppliers on behalf of retailers from different countries ? something that Garant had trouble negotiating. This should be easier in the area of sporting goods, where the group has a weaker presence than Intersport through its Fair Play and Sport 2000 organizations, but the cooperation in this field will only start in 2011. In the footwear sector, European partnerships are envisaged with brands that are strong only in a specific country or region but have potential for a wider international presence. Fritz Terbuyken, who has launched many interesting new programs as chief buyer of ANWR, will take care of all the products and all the networks.
No anti-trust problems are expected for the new enlarged group in Germany, in spite of its indirect dominance of the national footwear market. This is because the German Cartel Office would only look at the net direct revenues of the two retail organizations, which are relatively low, and because of their cooperative nature. While the cooperative structure largely faded out at Garant after it went on the stock exchange in the late 1990s and through its subsequent insolvency, ANWR is still entirely owned by the 1,500-odd members of its ANWR Schuh cooperative. They will ultimately control the new combined group.
Managers of ANWR and Garant stressed at the conference that each of the retail networks that federate their members in Germany will retain and strengthen its own identity, depending on product range, company size etc. Garant will set up a separate company to take care of its German retail members. Its Garant Schuh + Mode, Rexor and Goldkrone offshoots will continue to conduct different programs and offer different services from those of Garant and those of ANWR Schuh or Quick Schuh, which belongs to ANWR. Members of the latter two groups may be invited to participate in the programs of Goldkrone, the cooperative of Garant for the leathergoods sector, which had 436 members with 755 stores in Germany and five other countries.
The retailers affiliated with Garant have generally taken the prospect of the cooperation with ANWR as a positive step because they will belong to a bigger group with improved services and stronger financial muscle. They were already used to a situation where the members did not have the same decision-making power as before since the company went on the stock exchange.
While some suppliers have voiced fears about the potential danger for their margins from the growing power of ANWR, company officials said they are largely supporting its takeover of Garant because of its financial strength and their access to a broader range of services. The purchasing conditions will not change, they said, but suppliers will benefit from new integrated processes that will be developed in the future, allowing them to better compete against verticalized retailers that sell only or mostly their own private labels.
The acquisition is being described by ANWR as a response to the growing concentration of the industry at the supply stage, which has taken place so far mainly in the sports sector, allowing independent retailers all over Europe to face up to major players such as Clarks, ECCO and Geox. This is true also at the national level in markets such as France and the U.K.
ANWR has been considering a takeover of Garant since its insolvency, showing interest especially for its international operations. Intersport had also expressed interest in Garant, but then decided to work together with Sabu, the other major German cooperative of shoe retailers. The discussions between ANWR and Garant have become more intense over the past few months and the final decision came after the release of Garant's relatively good financial results for 2009.
They showed a net profit of €2.0 million for Garant in 2009, compared with a loss of €4.1 million in the previous year. Net revenues declined to €54.6 million from €57.0 million in 2008, but the gross margin rose to 52.1 percent from 51.5 percent and operating results improved significantly. They reached €5.0 million before amortization and €3.5 million before interest and tax.
These figures don't include the results of the Pasito-Fricker. On March 16, prior to ANWR's acquisition, Garant Schuh sold this Swiss shoe retail chain to Görtz, with retroactive effect from Jan. 1, eliminating any direct ownership of stores for the group, which owned Salamander as well for a while. It will continue to handle Pasito's centralized settlements, however.
The decision to join forces followed the positive solution of a conflict with the holders of some preference shares of Garant, but company officials said that this had not been a stumbling block in the negotiations.