In the past few years, trading conditions have been harsh for the retailing landscape, and 2020 certainly added extra pressure for most. The impact of Covid-19 has left many consumers with fewer reasons to shop and even fewer ways of doing so. With the onset of the global pandemic, many retailers were struggling to reach their customers. For some, it was due to a lack of e-commerce capability, logistics infrastructure or newly irrelevant products and services. Those that continued to trade
ade throughout the lockdowns faced additional costs for keeping staff and customers safe and had to adapt to comply with government restrictions. These extra challenges caught many businesses flat-footed. While potentially fatal for many, Covid-19 has also been a creator of opportunity, shining a light on businesses with strong digital DNA and e-commerce capability. If companies could invest in working capital, they were able to capture market opportunities and acquire customers faster than ever before. The impact of Covid-19 has left investors scurrying to businesses that have captured the accelerated structural shift to online. Revenue growth and amplified customer acquisition, coupled with data and technological DNA have formed scalable business models and compelling investor propositions. This has led to recent valuations skyrocketing due to both revenue growth and trading multiple expansion to benefactors including Kogan, Redbubble and Temple & Webster. The increased pricing attractiveness has incentivised many able retailers to pursue ASX listings rather than private market transactions. Businesses such as MyDeal and Vinomofo have strong e-commerce characteristics and are rumoured to be considering a listing in the first half of FY21. So too does Adore Beauty, which saw a successful listing late last year. While pureplay e-commerce companies have gained significant traction, several traditional and omnichannel retailers have also been beneficiaries of Covid-19 structural tailwinds. These include working-from-home investments and panic buying, as well as those that benefited from rent relief and the government’s JobKeeper program as stores reopened for trade. Mergers and acquisitions (M&A) activity in the broader retail sector has remained cautious, given the level of government stimulus in the market. Most investors are seeking to understand what level of growth is due to government intervention and potential changes in consumer behaviour post-pandemic. Insolvency-driven M&A has been minimal, given the level of banking and government support measures in place, including a temporary director’s duty relief on trading while insolvent. Most of the insolvency-driven transactions in the market since the onset of Covid-19-19 were most likely destined to occur anyway. Insolvency-driven M&A activity is expected to increase significantly in 2021 once retailers have a clear view on the success, or otherwise, of Christmas trading and as government stimulus packages fall away. For businesses thriving in the current environment, now is the time to get the house in order and investor-ready to seek strategic capital or listing. The ability to demonstrate sustained market demand, growth and the predictability in revenue will go a long way to successfully navigating investor scrutiny. These are, in part, driven by the existing technology stack and an ability to reach new customers through the accumulation of historic transaction and customer-level data. This level of information will enable most investors to see through the noise of the current environment. For businesses considering next steps and what their post-pandemic normal will look like, a few strategies include: Bringing e-commerce capability forward as it’s unlikely the online customer will be leaving any time soon, if at allInvesting in technology or services to capture relevant data to help better understand your customerRevisiting the business’ customer value proposition and its relevance in the current environment Businesses looking at IPO opportunities in the near term should seek advice from their legal and accounting advisers to ensure financials are audited and compliant with accounting standards. Otherwise, there can be delays in the stock market listing process which can lead to missing that all-important IPO window of opportunity. This was originally published in the 2021 Australian Retail Outlook, sponsored by KPMG. To download the report, click here.