At the end of July, one of the companies in our space, Reflexis, was acquired by a publicly traded tech behemoth, Zebra Technologies, for $575 million. Given the size of the deal and the fact that a sizable number of our customers were using Reflexis before switching to Retail Zipline, many people have asked us for our opinion on the deal.
First, we are happy for the Reflexis team on a great exit. Building a successful technology company is incredibly difficult so we applaud their success. We also love to see M&A activity in the retail space, especially during Covid-19. The acquisition validates the fact that the retail industry remains incredibly viable. 2020 has been a challenging year for retailers as they navigate a changing landscape. It’s clear that while the industry is transforming, it's not going anywhere.
In fact, we’re seeing strong, agile companies able to successfully drive revenue with an omni-channel presence. Hy-Vee’s SVP and Chief Digital Officer, Jessica Ringena, noted in a Total Retail podcast interview this week that Covid-19 accelerated Hy-Vee customers’ adoption of online grocery shopping by years. We’re also seeing retailers re-evaluate the role and layout of physical stores as they look to do more BOPIS and contactless pickup. So while things are changing, brick-and-mortar retail is here to stay.
Second, the acquisition shows there is tremendous value in technology that helps retail workers be more efficient. As retailers look to drive revenue and execute promotions, they need to be able to communicate clearly and effectively with store teams. Software that can help them execute well is critical for success.
Finally, we think this acquisition presents a great opportunity for Zipline to welcome new customers that know they will be better served by a company that focuses on retail software and is totally focused on their success. The customers who have switched from Reflexis to Zipline rave about our platform’s usability and our blown away by our customer support/service and innovation. If Reflexis customers were feeling these weaknesses before the acquisition, they’re certainly not going to improve now.
The fact is that many of Reflexis’s customers began working with the company when they were smaller and more agile. Now, their partner is a giant, publicly traded hardware and software company that has many stakeholders to answer to, not just customers. It’s also well documented that acquisitions create challenges for the customers of acquired companies. Here are just a few.
Over the next six months the acquiring management team will be focused on getting this acquisition through government regulation, both in the US as well as Europe. Until they have legal change of control, the organizations can’t work together without government approval. This will mean that executives won’t be focused on innovation or customer needs for the better part of 2021.
Integration isn’t easy. Bringing together two companies with different cultures and philosophies is incredibly challenging. Integrating products is also difficult. While the two teams find ways to work together, support might suffer and customers might long for the days when they were working with a smaller company.
If you asked technology leaders today about the most innovative companies in the world, you likely wouldn’t recognize many of the names. Once companies reach a certain size, it becomes harder to stay agile and innovate because they’re mired in process and bureaucracy. While some large companies, like Microsoft, are able to navigate these pitfalls, the vast majority can’t. As a result, innovation is usually associated with smaller, more nimble companies. Both Reflexis and Zebra left ‘nimble’ years ago and customers rarely praise the user experience or the pace of change. The sad truth is that bringing together two older companies will only compound how hard the software and hardware is to use, not make it easier.
Research and Development:
Large companies don’t spend nearly the amount of money that smaller companies spend on research and development. Retail Zipline, for example, spends more money on R&D than marketing, which is common for technology start-ups looking to build the best product possible. Per its financial report, Zebra spends 10% on R&D, which pales in comparison to what Reflexis was likely spending but is certainly common for companies of its size. Customers need to determine whether it’s enough to fuel the innovation they would like to see in their vendors.
Employee retention and satisfaction is difficult after an acquisition. According to Chron, “Approximately 30 percent of workers are deemed redundant after a business is purchased when both companies are in the same industry.” Employee churn and internal politics can de-focus a company after an acquisition and customers often suffer as their support teams struggle to find their place in the company and worry about the viability of their roles. Others that loved the environment of a smaller company will not want to work for a multi-billion dollar tech company. High turnover takes a toll on company morale and culture, which affects support, product and other departments.
If you’re a Reflexis customer and wondering whether the time is right to check out other solutions, we invite you to a no-pressure demo to see how Zipline solves communication and store execution challenges for companies like LUSH, BevMo!, Fjallraven and more. Sign up here.