Overall, retailers are as confident — or more confident — than CP companies in terms of sector growth and performance. These surprising results have us wondering whether retailers are effectively keeping an eye on the longer-term road ahead or are more focused on surviving in the present.
This isn’t to say that they aren’t worried. Like their CP peers, 69% of retail executives agree that in five years, it will be more difficult to sustain profitable growth in the sector than it is today. These executives acknowledge their focus on cost cutting comes at the expense of delivering growth, and in general, as a whole, they believe they need to be bolder in the actions they take. As they look for new opportunities to cut costs, raise capital and optimize performance, more than half (53%) plan on outsourcing or divesting some of their current operations, with half of those (49%) seeking to divest back-office functions. Our recent article, Three rules for retailers to break and make, discusses how retailers can use partnerships to adapt to the future consumer now.
Encouragingly, a larger percentage of retailers versus CP executives understand that they need to make significant changes to their business operations (68% versus 59%), cost structure (63% versus 59%) and capabilities (61% versus 59%) if they are to survive and thrive in the future.
M&A remains an important lever for growth
Dealmaking remains an important lever for retailers to achieve their growth. In our latest M&A survey, 45% of retail executives say their company is actively pursuing M&A in the next 12 months, up from 36% from a year ago.
Of those who plan on acquiring, 42% are targeting assets that offer transitional capabilities, while 30% are looking at bolt-on deals. The main strategic drivers for these acquisitions are split among securing the supply chain in response to regulatory or trade and tariff issues, acquiring talent and acquiring technology. Acknowledging China as a leader in retail technology and driver of innovative experience, retailers identified China as a top destination for acquisition. Other top countries include the UK, the US, France and Germany.