Retail Industry Report

Even amid ongoing geopolitical uncertainties, inflation cycles, rapid technological advancements, and supply chain disruptions, the overall outlook for the global retail industry remains extremely optimistic, with retail sales growing in the multi-trillion-dollar range. The market is driven by the growth of the e-commerce industry, sustainability and ethical shopping trends, rising urbanization, technology, and the adoption of artificial intelligence (AI).

Market Segmentation

By product type:

• Food, beverage, and grocery
• Personal and household care
• Apparel, footwear, and accessories
• Furniture and home décor
• Toys and hobbies
• Household appliances
• Pharmaceuticals

By distribution channel:

• Supermarkets/hypermarkets
• Online
• Specialty stores
• Other

Key Growth Drivers

As is the case with most industries, technology is a major force that is reshaping the retail industry. Technology is driving change in various capacities. People are shopping more than ever from their smartphones, tablets, computers, and smart-speaker devices, and retailers' social media is offering improved commerce experiences.

The continued rise of e-commerce giants such as Amazon is not only upping the competitive stakes but is also causing some retailers to close some of their brick-and-mortar store locations. If companies want to remain competitive, they will need to keep up and adapt to changing technologies that take advantage of augmented reality (AR), virtual reality (VR), and AI.

More and more brands are using AR and AI to enhance customers’ experiences and improve company performance. AI spending continues to grow by billions of dollars year after year.

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Companies are using AI to track demand, understand consumer behavior, offer targeted promotions, increase productivity, and boost revenue. AI is also being used to streamline inventory, automate tasks, educate employees, determine pricing, and test new ideas. Retailers are also using AI-powered chatbots to address consumer inquiries, deliver product information, and provide other features.

Retailers are using AR to allow customers to try on clothing and 3D products, see what products look like in their homes, and scan in-store signage to access additional product information. The sectors leading the use of AR in retail are furniture and clothing.

Further, retail companies are using big data analytics to better grasp consumer behavior, tastes, and trends. This helps them to form more successful marketing strategies. They are also partnering with other companies to offer consumers more creative products. To boost the average order value, retailers are using personalized recommendations to enable the cross-selling of related products, as well as the upselling of higher-value items. Individualized experiences are being implemented in physical locations with the use of personalized greetings, loyalty programs, and tailored services that are all based on collected user data. Success comes with offering heightened services that bolster customer satisfaction.

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There is another class of retailers that is maintaining a competitive edge. These companies are digitally native, vertical brands, known as DNVBs. These businesses sell their own products directly to consumers through their own online spaces, and they are growing at a remarkable rate. DNVBs cut out third parties and instead cultivate powerful direct relationships with their customers. These smaller, niche brands seek to inspire and give a new value to consumers’ experiences. They are changing the buying experience by understanding their customers on a deeper level and creating loyalty and trust with their audiences. They are also more able to focus on the quality of their product because it is their only area of expertise. The world can expect the continued emergence of new DNVBs, creating a myriad of possibilities in the retail industry.

Even with the surge of online retail, it is important to remember that shoppers are using multiple channels to shop, and that still includes physical store locations. For this reason, brick-and-mortar locations are becoming more integrated with online spaces, and there is more focus being placed on seamless experiences and added convenience. As a result, some mass retailers are reducing the footprints of their large stores and downsizing them to smaller stores. And some popular new DNVBs are branching out of their digital space and opening brick-and-mortar stores. There is also the continued trend of pop-up shops, also known as flash retailers. These are temporary sales spaces that crop up randomly, and they are estimated to represent a multi-billion-dollar market.

M&A

Retail M&A is being driven by technology, changing consumer preferences, and the need for economies of scale. Retailers are focusing on strengthening their digital capabilities and expanding their market reach, which means they must endure regulatory scrutiny, capitalize on AI-driven efficiencies, and adapt strategically.

Retailers are turning to M&A to quickly and efficiently achieve scale that translates to cost efficiencies and operational flexibility. A competitive edge can be found for companies that are able to streamline operations and seamlessly integrate acquisitions. Retail companies are also evaluating their portfolios and selling non-essential assets, product lines, and subdivisions that do not fully align with their long-term strategic goals. Add-on acquisitions are also being used as a way to close gaps regarding geographical channels or product lines to meet shifting consumer needs.

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The retail industry demonstrates moderate concentration, with a handful of major big box retailers accounting for a significant portion of sales and exerting heavy influence on supply chains. These leading retail giants use economies of scale, proprietary technology strategies, and deep data tactics that drive algorithmic pricing, unlimited aisle assortment, and rapid fulfillment. Strategic themes rely on omni-channel mobilization, private-label insights, and diversification into other services (from media to healthcare). Retailers are also pouring capital into AI for demand forecasting and warehouse automation.

Corporate buyers have been focusing on deals that provide long-term strategic value. There are also opportunities for private equity (PE) firms to sell assets that line up with corporate buyers’ ever-changing demands. Corporate and PE players are looking for high-confidence investments. More are buying digital native brands, wellness and omnichannel capabilities, consolidated distressed assets, direct-to-consumer platforms, and vegan and natural ingredient brands. Consolidation indicates that there has been a strategic shift toward improving operational efficiencies, capturing market share, and ensuring technology-facilitated resiliency.

Industry disruptors include:

• Direct-to-consumer micro-brands
• Creator-led merchandising
• Venture-backed speedy-delivery professionals

Long-time retailers are responding by acquiring technological assets. Success lies with those who can masterfully combine automation with human-centric services, responsibly monetize user data, and employ nimble operating models that evolve with changing consumer behaviors.

With such a fast-moving M&A environment in the retail industry, companies must remain deal-ready in order to capitalize on the right opportunities and avoid missing out. It is all about investing in technology, embracing change, and getting deals done swiftly and precisely.

Are You Deal-Ready?

We can get you there. If you are interested in selling your business or embarking on a new venture, contact Benchmark International for unique strategies that create value and lead to results.

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