Podcast, Interview
Why Investors Are Shopping for Consumer Retail
- Continued capital deployment is expected to be required by investors as pent-up consumer demand, high savings rates, and strong wage growth generate discretionary dollars that need to be spent or invested.
- Short-term market performance may remain choppy, though historical data indicates post-IPO returns are likely to be strong.
- Robust IPO activity is forecast across apparel, accessories, footwear, beauty, home goods, fitness, and food/beverage sectors, with specific interest noted in companies such as Exponential Fitness, X45, Lifetime Fitness, First Watch, Dutch Brothers, Krispy Kreme, Sovos, Dole, and Zevia.
- The volume of direct listings is projected to grow as more companies consider this alternative, although they will likely remain a small percentage of overall IPO volatility.
- Companies without a primary capital need but seeking liquidity for shareholders or employees to avoid lockups and achieve immediate market-based pricing are expected to increasingly pursue direct listings.
- Public market multiples, currently trading at approximately 22 times forward PE against a long-term average of 17, are anticipated to continue paying outsized multiples relative to private markets, sustaining a dual-track incentive for IPOs over sales.
- Labor shortages and supply chain challenges, with shipping rates 800 to 1,000 percent higher than pre-pandemic levels, are expected to drive inflation that could prove more than transitory in nature.
- Companies that have scaled balanced country exposure, reduced import requirements, or negotiated contracts early are expected to be better insulated against current supply chain headwinds.
- The trend of blurred lines between online marketplaces, traditional retailers, and physical stores is expected to persist as technology enables brands to optimize distribution and scale by meeting customer needs wherever they exist.
- Direct-to-consumer channels and technology-enhanced brand experiences are expected to remain central strategies, exemplified by the shift in direct-to-consumer share from 15% to 40% for Nike over a decade.
- Megatrends including digitization, health and wellness, ESG, and casualization are expected to shape consumer buying choices and infrastructure investments through 2022 and beyond.
- Increased fragmentation and specialization are anticipated within the consumer retail sector as customers demand greater personalization.
- The capital markets linear trend is expected to remain robust for public market opportunities despite macro-related stops and starts.
- Large incumbents with significant cash reserves are expected to increasingly engage in M&A to assist specialized companies in scaling.
- All price references and market forecasts correspond to the recording date of Tuesday, October 12th, 2021.