Retail sector opportunities for private equity in 2016

Thursday 17 December 2015

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Private equity funds could re-emerge as buyers in the Australian retail sector in 2016, with divestments and distressed asset opportunities possible, accordingly to EY’s Oceania Consumer Products & Retail Leader, Glenn Carmody.

Carmody’s comments follow the release of EY’s Global Consumer Products and Retail Capital Confidence Barometer, which confirms that cost reduction and operational efficiency remains the focus for most (50%) companies in the sector.

The Barometer is a biannual survey of more than 1,600 senior executives from large companies around the world, including Australia.  More than 239 were from Consumer Products and Retail sector.

Carmody says while globally M&A in the sector is expected to increase, with 66% of companies in the sector intending to make an acquisition in the next 12 months, local companies are facing the double challenge of low domestic economic growth and intensifying competition from global players.

“The general expectation is that discretionary incomes will be flat in the short to medium term, so as more consumers remain focused on achieving value from their purchases, it’s likely that private equity players will see opportunity in that end of the market,” he says.

Better use of data and a sharper customer focus required

Carmody says the low growth expectations for the local economy and the ongoing march of global brands into the Australian market means incumbent retailers need to raise the bar in meeting increasing customer expectations.

EY’s report shows globally consumer products and retail companies are looking to invest more in mature markets rather than emerging markets, a significant shift from 18 months ago.

“The combination of thin retail margins around the world and digital enablement has made Australia’s 22 million population more attractive than it has ever been in the past for global players,” he says.

“It also means the power base in the customer-retailer relationship has fundamentally shifted to customers, so retailers who do not genuinely have the customer at the heart of their strategy will find it increasingly difficult to survive. That applies to all retail formats, whether it is the in-store experience, online or click-and-collect.”

Carmody says while retailers have more sales and customer data than ever before, most are underutilising the information.

“Data is often scattered throughout an organisation and pulling it together in a coherent way is complex and difficult, but the potential impact on the bottom line is massive.

Carmody says organisations that have used their inventory, sales and customer data in this way are better able to understand their customers, what they are and are not likely to buy, why they shop with them, what is making them loyal and ultimately increase their spend.

“It is like going from a low resolution black and white picture, to high definition colour.”

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Notes to Editors

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