Creative destruction tells us that eventually the new replaces the old. However, sometimes the imperative to change is imposed suddenly and unexpectedly, often at an inopportune moment. When that happens, we enter a world of created destruction. In an ongoing series, the FTI Journal looks at distressed M&A opportunities in various industries arising from the created destruction of COVID-19. This article snapshots the retail and consumer products industry.
he effects of COVID-19 had a catastrophic impact on an already-ailing retail industry. When the government designated "essential" versus "non-essential" businesses, the gulf between the haves and have-nots grew enormously.
Product categories that can anticipate greater demand post-pandemic include those that have seen a surge in spending during the crisis, including household care products and pet supplies. Those not faring as well include luggage and accessories, both suffering significant declines in sales as Americans travel less.
The landscape continues to shift. With unemployment high, consumers are understandably not opening their wallets often (discretionary spending is down by more than 50 percent since the shutdown), with one-third of people reporting they expect to continue to spend less post-shutdown. Retailers are reacting by scaling back on ad purchases (digital ad spends are down 33 percent) while trying to anticipate the transition to the new age of contact-free shopping to support the desire for social distancing.
On the flip side, the pandemic has created new consumer demands: People want to be “safe” (expect industrial cleaning brands to grow), they want to be pretty (specialty beauty retailers), and they want to DIY (hardware, if those businesses continue to invest in operations and digital innovation).
Ready to ditch the suit and tie? As we increasingly work from home, we’ll be wearing more camera-ready, comfy apparel like activewear.
Clearly, the virus is an inflection point for retail, causing greater disruption to the industry while also accelerating the digital trends already well advanced (such as comparison shopping online before deciding where to purchase).
Understanding new consumer shopping habits and behavior post-pandemic will be key to identifying winners in the retail space.
Read the full introduction to the series "Creative Destruction vs. Created Destruction." To learn more about specific distressed M&A opportunities in retail and consumer products, visit our Distressed M&A Outlook Series.