Consumer Markets – Retail

Q4 2023: Mergers and Acquisitions Trend Report

Industry Overview

• Outlook for the U.S. Retail Industry is positive and consumer spending has increased. Main tailwinds for this growth include high per capita disposable income, a high consumer confidence index, and general population growth. Additionally, demand for retail-goods is relatively inelastic in most sub sectors, resisting fluctuations during recession.
• Key players within the Retail industry are Walmart, Amazon, Costco, Schwarz Group, and Kroger, though market concentration and barriers to entry remain low.

Key Industry Trends

• COVID-19 disruptions caused retailers to change supply chain strategies. Firms have been searching for ways to boost economic resilience by consolidating industrial activities closer to home, expanding current networks of
  suppliers, utilizing the Internet of Things to track container movements, and hiring their own cargo ships.
• COVID-19 also observed a greater transition towards Ecommerce in the retail space, while brick-and-mortar stores suffered during the quarantine period.
• The general rise in per capita income in the past few years has led consumer spending to rise, specifically for premium, high-end goods.
• Competition to thrive in a growingly technological world has led to very high competition amongst competing brands, even across differing subsectors in the retail space.

Recent M&A Transactions

Historical Performance

• Retailers have contended with volatile spending habitsand inflationary pressures over the past six years. Tocombat these challenges, businesses have gravitatedtoward omnichannel strategies, product and servicediversification and investments in automation.
• Aggregate industry revenue grew at a CAGR of 3.9%from 2018–2023, fueled by rising consumer confidencedue to falling inflation and interest rates.

Future Industry Growth

• Over the coming years, retailers will increasingly targetyounger consumers with innovative technologies.Brands will employ AI for inventory management andextended reality to build upon the omnichannelexperience.
• Rising consumer confidence, facilitated by fallinginflation and interest rates, will drive retail spending inthe next few years. Spending on high-margin productsand big-ticket items will sustain profit.