6 minute read 13 Aug 2021
curvature of the earth

Retailers see M&A as a key driver in a post-pandemic recovery

By Jim Doucette

Global EY-Parthenon Consumer Products and Retail Leader

Business strategist. Consumer behavior professional. Passionate about helping clients, developing people and building teams.

6 minute read 13 Aug 2021

Amid an accelerated consumer shift toward digital channels, retailers look to buy vs. build to keep pace — if they can find the capital.

In brief
  • Retailers recognize an accelerated shift in consumer behavior toward digital channels for shopping and engaging with brands and are seeking to respond to it.
  • The pandemic has made it harder for retailers to fund their growth, making transformation an urgent and strategic imperative.
  • In the next 12 months, retailers expect to be more active in the M&A market compared to other industries.

Consumers have increasingly shifted from in-store to online shopping in recent years, and the pandemic accelerated this shift in 2020. The unprecedented disruption of the past year has served as a catalyst for retailers to fast-track their transformation plans and capital strategies needed to adapt as well.

In the early phase of the pandemic, retailers were impacted by restrictions on the movement of shoppers that countries had imposed. Since then, there has been an uneven recovery, with grocery and softlines having different experiences than other retailers. Overall, retailers have been hit harder by COVID-19 compared to other industries but are expecting a faster bounce back. Retail executives highlight more significant revenue and profit decline than the cross-industry average in 2020, with 92% of retailers stating their company has experienced a significant decline in revenues vs. 87% of executives across all industries.

However, retailers anticipate a much sharper recovery over the next two years — both in revenue and profits. Sixty percent of retailers expect revenues to return to pre-pandemic levels this year, while 30% anticipate profits to return in 2022.

Macroeconomic environment


of retail respondents say they expect to see revenues return to pre-pandemic levels in 2021.

As retailers prepare for the post-pandemic retail recovery in 2021, three key imperatives emerge from the EY CCB study: doubling down on understanding the future consumer better, deploying capital smartly and undertaking M&A proactively. Keeping pace with accelerating retail transformation will require players to focus on all of these imperatives. Agility and execution around these imperatives will differentiate the leaders from the followers.

1. Understand your future consumer and what’s important to them

The pandemic and resultant restrictions on movement led to a huge change in how people live, shop and eat. Some behaviors will revert to pre-pandemic mode as the COVID-19 situation improves. Others, however, may last longer. Retailers are acknowledging these shifts and trying to realign to the new ways in which consumers will behave.

Innovation of new products and services, and digital transformation emerge as top focus areas for retailers as they emerge from the pandemic. Although retail executives believe they outperformed relative to their competitors in these areas, rapidly changing industry dynamics mandate they continue to differentially invest in these areas.

As such, three-quarters of retailers say they are increasing their strategic and investment focus on digital transformation compared to approximately two-thirds of cross-industry players and consumer companies. Customer engagement also ranks high in retailers’ priorities to drive growth. Retailers need data in real time to link the customer journey with suppliers, partners and relevant parts of the business. Integrating ever-increasing data to create a central and universal data pool is a key focus area for many retailers.

Pandemic impact


of retail respondents say the pandemic has increased their strategic focus and investment on digital transformation.

As retailers seek deeper insights on consumers, data and technology will play a more critical role in predicting which current trends will persist. This is evident in the emergence of “identifying areas of investment in technology and digital capabilities” as the number one strategic consideration for retailers. Similarly, “investing in accelerating the digitization of customer journeys and business processes” is the most important strategic action in progress for them.

As omnichannel retail evolves further in the aftermath of the pandemic, retailers also are focusing on technology to improve profits. “Increasing customer interactions through digital platforms and touchpoints” emerges as the topmost strategic driver for retailers to improve profit margins.

2. Ensure you have the capital required to fund your reshaped strategy

Retailers were grappling with digital disruption even before the pandemic. Changes over the past year have necessitated that they not only pick up the pace in known areas but also identify and respond to new shifts. Retailers will need more capital to drive this business transformation —something they have struggled to attain in the past. The pandemic has further exacerbated their ability to invest for growth. A much higher share of retailers (69%) stopped a planned investment in the last year as compared to other industries (36%) and consumer companies (29%).

Corporate strategy


of retail respondents say they have stopped a planned investment in the past 12 months.

Like other industries, uncertainty related to the pandemic and macroeconomic outlook remain top risks for retailers. However, availability of and access to growth and investment capital is more of a risk for retailers compared to other industries.

The need to create liquidity and investment capital at scale (retail: 13%; cross-industry: 11%; consumer products: 10%) also has emerged as a higher priority for retailers. They will have to deploy existing capital smartly and explore ways to generate additional capital quickly as they seek sustainable growth.

3. Don’t sit on the M&A sidelines — active acquirers can outperform

The pandemic year is pushing retailers to make inorganic choices to drive growth. Compared to consumer products companies (39%), retailers (51%) expect to be more active in pursuing M&A in the next 12 months. However, with the recent intensifying pressure on retailer financials, they need robust capabilities to assess and prioritize M&A opportunities that will give them the highest returns. They also need to rethink their capital strategy, monetize assets and divest non-core, underperforming parts of their business to carve out much-needed investment capital.

Retailers more likely to undertake M&A than other sectors

As one of the sectors at the center of digital disruption from across industries, growth into adjacent business areas is a more significant driver for retailers pursuing acquisitions (retail: 27%; cross-industry: 21%; consumer: 19%).

Additionally, to better understand, engage and sell to consumers, retailers are looking to buy vs. build to enhance their data and digital capabilities. When considering a target asset, they are focusing more on digital strategy and technology alignment (20%) compared to other industries (18%) and consumer companies (17%).

Consistent with other sectors, more than 80% of retailers expect increasing competition for assets in the next 12 months. However, retailers (71%) anticipate that private capital will be a more important source of competition over the next 12 months than cross-sector (67%) or consumer (60%) companies.

In the past, disagreement on price or valuation has been a more significant factor in failed or canceled acquisitions planned by retailers. New digital-led business models and rising competition make this a key factor for more than half of retailers, vs. 36% for cross-industry and 34% for consumer products companies. With retailers facing increasing difficulty to get access to capital, it is likely that price and valuation disagreements also will grow, pushing them to become the highest bidder for the most attractive assets, such as retail tech.

As retailers reshape their strategy to better meet consumers’ needs in the post-pandemic era, they will need a robust capital framework and highly targeted M&A activity to win in a challenging market.

Kristen O'Leary, Chinmay Ojha and Anuj Bhatia of Ernst & Young LLP contributed to this article.


The EY Global Capital Confidence Barometer (pdf) gauges corporate confidence in the economic outlook and identifies boardroom trends and practices in the way companies manage their Capital Agendas.

About this article

By Jim Doucette

Global EY-Parthenon Consumer Products and Retail Leader

Business strategist. Consumer behavior professional. Passionate about helping clients, developing people and building teams.