MA Report 30.07.2021

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Retail Industry Overview 2020

Retail Industry

Characteristic of this industry
Retail industry includes the activities of transforming the goods and services directly to consumers or end-users, excluding the manufacturing process, acting as the intermediate on the supply chain. In some legal regions in the world, legal terms of retailing specify that at least 80% of the sales activities must be to end-users. (Source: Wikipedia) There are diverse ways of making categories in retail industry:

If it’s sorted by the nature of the retailing goods or supply chain participants, retailing could be comprised of the following components:

In a survey conducted in 2018 by Statista, among the world’s 250 leading retailers, FMCG (Fast-moving Consumer Goods), Hardlines & leisure goods and Apparel & Accessories were the top 3 product sectors in retail revenue. As for the retail brands worldwide in 2020, the top 7 are: Amazon, Walmart, Home Depot, Taobao, T-mall, Lowe’s and CVS. As for the leading retailers in the market by the order of revenue (with CAGR from 2013 to 2018), the top 7 are: Wal-Mart Stores (1.6%), Costco Wholesale Corporation (6.1%), Amazon.com (18.1%), Schwarz Group (7.1%), The Kroger Co. (3.6%), Walgreens Boots Alliance, Inc (8.9%) and The Home Depot, Inc (6.5%).

The retail market is mature and highly competitive in the developed economies of Europe and North America. On the other hand, the developing economies of Asia-Pacific, the Middle East, and Latin America have been instrumental in driving the market growth. (Quote: Mordor Intelligence)

Generally used features and valuation tools
In retail industry, the most commonly used valuation multiples are: enterprise value over sales (EV/S), EBITDA (EV/EBITDA), or EBIT (EV/EBIT), P/E and Price to Book (P/B). For traditional retail methods, SPF (Per square foot) is a key indicators to consider as the rent price is very crucial to retailers and it was usually the major operating expenses for them, rents in excess of 10% of gross revenue are a red flag to the company, so companies use this feature as the benchmark to maximize its revenue (or put in the way of sales per square foot), thus maximizing the profit. Due to the retailers rely on their revenue, the most commonly used industry valuation multiple for a retail business is the business sale price to annual revenues. From this beginning, varied by the different nature and character in retail industry, for example, the returns and discounts are a major contribution to the sales, so the investors should use business sale price to net sales valuation multiple. If it comes to a private retail business, we could also use business sale price (revenue) to seller’s discretionary cash flow, under these circumstances, it measures directly on the amount of cash flow the business generates during the period. But it needs to take into considerations that the cash flow multiple cannot match with the business net profit or EBITDA to prevent a high undervalued result.

Retail Industry worldwide
The global retail sales in 2020 has exceeded 23.36 trillion dollars as of the end of November, from which, physical retail store sales were 22.13 $tr and E-commerce retail sales were up to 4.13 $tr. It’s estimated by analysts that the total sales would come to 25.04 $tr in 2021 and 26.69 $tr in 2022. However, the global retail sales YoY growth rate in 2020 was only -5.7% and
the retail sales lost in EU were valued at 3.2bn EUR. Credit to the lockdown polices worldwide after the impact of Covid-19, supermarkets became the entity that with highest increase in online traffic and tourism was attacked the most with a 43.7% decrease in total traffic.

In year 2020, global M&A activities were heavenly impacted by Covid-19 and unstable political changes such as US presidential election campaign, due to the analyst’s data in Arendt, by the end of Q3 2020, there were 3494 deals worth 891.4 $bn in Q3 2020, with a QoQ rate of 139.5%, but in the whole picture to a YoY rate, global M&A deals were only as -28% as last year with a value of 1,857.3 $bn, it’s estimated with a negative hope by the end of this year that the global deals would exceed last year, as the accumulated number either in volume and value have a huge gap than last year.

The M&A deals analysis in the past 1 year, under Covid-19 impact (by types of retailing products, by region, by types of deals)
We strived the M&A deals in retail industry from 11/30/2019 to 11/29/2020 in Capital IQ database, with the following characteristic showed: There were in total 1450 M&A transactions in the industry, with 1055 successfully closed during this period of time, 18 were suspended or cancelled and 377 still ongoing.

In terms of the region, USA, EU and APAC ranked top 3 in total M&A transactions volume in retail industry with respectively 546, 484 and 326 deals; Lithia Motors, Inc completed 9 deals, making it the top amongst other companies for the transaction volume individually; 7-Eleven, Inc. with no doubt reached to 21,000 $mm transaction value whereas Just Eat Takeaway.com
and Reliance Retail Ventures Limited followed it afterwards with a great gap to 8,118.04 $mm and 3,425.66 $mm in value. Speaking to transaction value, there were 12 mega deals in retail industry last year with the total number beyond $1bn and 315 relatively smaller deals under 100 $mm.

Written on 30/11/2020

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