There are well over 300,000 retail businesses in the UK of all shapes and sizes, selling every manner of product you can imagine, from textiles to furnishings to cosmetics. In 2024, this sector generated sales worth £517 billion, a rise of 1.4% from 2023.
If you’re keen to invest in this substantial sector – whether by acquiring a few small individual bolt-on businesses or a larger network of stores – there are several key factors to consider. After all, retail sales can be strongly influenced by several unpredictable factors, from economic troubles – such as the cost-of-living crisis – to geopolitical turmoil and, of course, global pandemics. As a result, even the biggest and most well-known brands can struggle and potentially even end up in administration.
That being said, don’t be too discouraged, as there is a wealth of opportunities available for investors which could result in burgeoning profits and consistent growth – provided you do your homework carefully and keep on top of the latest trends. Success in retail involves keeping your finger on the pulse at all times and ensuring you move with the times, embracing the latest innovations and pulling out all the stops to meet the demands of your unique customer base. In short, it can be challenging, but it can also be exciting, fulfilling and, hopefully, lucrative.
To help you get started in this exciting but potentially volatile sector, we’ve prepared this insider guide packed with tips and insights on how to make a retail acquisition.
Pros and cons of buying a retail business
First things first, let’s explore some of the most significant benefits and drawbacks of investing in the retail sector.
Advantages
There are several benefits to buying an established retail business.
For one thing, if you’ve been keen to enter the sector for a while now, it helps you fast-track your immersion in the retail world. Rather than taking the risk of starting a business from scratch, you can purchase one of the many established and profitable businesses there are available for sale up and down the UK. These businesses range from small but successful village stores in the picturesque Yorkshire Dales through to busy London grocery stores that are part of a well-known nationwide franchise.
With so many options to choose from, it should hopefully be relatively simple to enter the market on a firm footing and see where your company’s retail ambitions take you.
What’s more, by purchasing an existing retail business, you will instantly gain access to a range of other advantages – such as an experienced workforce who know how to sell the specific products the shop is offering, as well as an existing supply chain and customer base. Crucially, the store you are investing in will also, ideally, already have built up a significant positive reputation, inspiring loyalty among its consumers and giving you a solid base to build on with your future marketing efforts.
Disadvantages
Arguably the biggest potential downside of investing in an existing retail business is that, as already mentioned, this sector is particularly vulnerable to upheaval of various kinds – particularly economic (and, therefore, financial).
At the moment, despite the billions of pounds worth of sales generated last year, many UK retail businesses are experiencing difficulties, especially SMEs. This is due to a range of factors, from weaker customer spending to higher staff wages and changing shopping habits.
Consequently, while significant profits can undoubtedly be made in this sector, it requires particularly savvy investment, in-depth research on your chosen market segment, and rigorous due diligence to help you choose a business that can weather economic storms – as well as unforeseen global events.
Special considerations
Whether you’re already part of the retail sector or you’re brand new to the market, it’s crucial that you carefully research the business you’re thinking of buying. You will need to build up an in-depth knowledge base of the specific products the company sells, where they come from and how they are manufactured to enable you to market and sell them as effectively as possible.
You should also familiarise yourself with the supply chain in its entirety, as well as the financial landscape your acquisition target occupies. Contact the manufacturers of the products you would be selling to find out more about them and speak to the wholesalers in charge of distribution to work out a pricing structure.
You also need to carefully consider where your target is located, as the success – or lack thereof – of retail businesses tends to be strongly tied to their location, even if they have a robust ecommerce component.
You also need to eye up your competition, which will help you determine whether the market is oversubscribed in a particular area or if there is a gap you could possibly exploit with a strategic acquisition.
The importance of rigorous research and preparation can’t be overstated when it comes to investing in a retail business in the UK, whether you’re interested in buying a pet store or a grocery business.
How to buy a retail business
Once you have done your research, if you are still eager to invest in the retail sector, it’s time to find the ideal target. Here’s how to go about it.
1. Kickstart the M&A process
By this point, you probably have a clear idea of the kind of retail business you want to invest in – from its product speciality to its size, turnover, and location. Having a clear acquisition profile like this can work wonders for helping you weed out less suitable candidates and find the specific ‘targets’ that would work best for your company.
Of course, even if you know exactly what you’re looking for, it can still be tricky to find the right fit. That’s why you might want to hire a business broker to aid in your search. Business brokers have access to an extensive network of contacts spanning diverse industries, so they’re well-placed to help you find the best retail targets for your acquisition.
Once you’ve come up with a few potential candidates, it’s time to narrow it down still further by carefully considering their financial, operational and geographical attributes as well as the proposed price the seller is asking. If you’re concerned about a target’s asking price you could ask your business broker to carry out a valuation on your behalf to deduce whether the price reflects the business’s true market value.
Eventually, you should be able to pinpoint a target – or targets – that tick all the right boxes and represent a viable investment prospect.
2. Negotiating the deal
The next step of the acquisition process is to negotiate the heads of terms agreement, which will outline various key aspects of the proposed deal. This can be a critical part of the acquisition journey, even if nothing is legally binding as of yet.
Ideally, you and the seller will be able to work out the framework of the sale and agree on different vital points, such as the deal timeline, a payment structure, warranties and indemnities and more.
Deals can be made or broken during this phase of the M&A process, depending on how transparent and flexible – or not – both parties can be, so it’s important to proceed with care and always ensure effective communication.
Here, again, a business broker can be of great assistance, mediating between you and the seller and helping to streamline and optimise the process.
3. Due diligence is crucial
As you can probably tell by now, due diligence is critical when it comes to buying a retail business. After all, the sector itself is subject to upheaval, so you want to make sure the business you’re buying is robust, well-established and financially healthy, capable of making it through any difficult economic periods to come.
Make sure you pore over all the company paperwork, from its formation documents to its regulatory certification, employee and supplier contracts, and information on its physical premises.
This is the time when any potential undisclosed issues may come to light, such as bad debts or a pending legal case, so it’s important not to rush this stage of the proceedings to ensure you make the right decision.
Once you’re satisfied that everything seems above board and that the business you’re considering offers a potentially profitable and robust investment proposition, then it’s time for your legal teams to prepare the final contracts and complete the deal!
How a business broker can help
As we’ve already described, a business broker can be of invaluable assistance at various points of your retail acquisition. Not only that, but they can manage the entire M&A process from start to finish, freeing up your time, energy and resources to concentrate on laying the groundwork for your new business.
Whether you’re brand-new to the world of M&A or a seasoned veteran, having an experienced business broker by your side can make all the difference.
Here at Harris Acquire, we have years of experience in successfully uniting buyers and sellers across a broad spectrum of sectors. Our priority is to help you achieve a streamlined and stress-free acquisition with minimal fuss. What’s more, we are currently offering an exclusive Acquisition Finder pilot which includes a 30-day money-back guarantee, so you can begin your retail acquisition with total peace of mind.
To find out more about our services – and how we can help you in particular – do reach out by calling 01926 757100, filling out our online form, or sending an email to Hello@harrisacquire.com. We look forward to hearing from you!
