2020 forced many retailers to look hard at their physical store footprint and rethink e-commerce. 2021 could be the year many specialty retailers like Gamestop and Lululemon take a look at something else: being acquired.
These specialty retailers are in the middle of the spectrum of retailers. They aren't chains like Krogers and CVS that sell essentials and have boomed during the pandemic. But they also aren't facing the severe hardships of brands like JC Penney or Macy's, which suffer from undifferentiated brand identity and a lack of clear focus.
"All the guys in the middle are going to go through the holiday, try to collect as much cash as possible, but then I'm sure there's conversations around one of two things," said Lee Peterson, an executive vice president at WD Partners.
On one hand, retailers and brands could consider selling to a private equity player, likely a good play for investors but riskier for its long-term reputation, Peterson said. On the other, they could "circle the wagons a little bit and merge with other like-minded companies," he said.
"There are so many retailers and brands that are just hanging on by a thread and hoping that time will be on their side," said Carol Spieckerman, a retail analyst and consultant.
Retailers with a strong private label selection or that offer services that rivals don't will be particularly attractive targets, Spieckerman said. Chains like Macy's, which have their own private labels but rely heavily on branded merchandise, are unlikely to draw M&A interest, she said.
"Are you buying a viable brand, or are you buying a place with a brand that has brands?" she said. "You could argue that Macy's still somewhat enjoys its own brand identity, but increasingly, it's not particularly differentiated."
Retailers with recognizable brands but a string of poor recent results due to the pandemic are likely to make the best targets in 2021, said Bahige El-Rayes, a partner at Kearney's consumer and retail practice. "If everything is devalued anyway, you're not going to go for something that is distressed," he said.
Business Insider asked retail analysts and experts which retailers and brands they think might be ripe for deals in 2021. Here are 9 companies they pointed to: