How Retail is Performing Amidst Constant Change

Jul 2019

Lincoln Managing Directors discuss brick & mortar retail approaches with the integration of technology. Click the banner above to watch the video.

Rob Brown: So, Dom is our resident expert in retail and restaurants with a long history in bricks and mortar approaches- Do you want to walk off the stage, or do you want to do you have something to contribute here?

Dominic Rispoli: Well here’s the thing Rob, retail is the underdog right now, and I’m going to be the person up here who is going to support the underdog because I believe it has a staying power. So let’s put it in context for a second. If you think about retail, 80% of purchases are still made at a brick and mortar environment today. And if you think about the e-commerce arms of those omnichannel retailers it’s close to 90%. So it’s still a very meaningful business. Now some of you who were here last year might remember we did a survey and asked you a question, do you believe retail is dying, and 70% of you came back and said retail is not dying, I concurred with that and we talked about it a lot last year. This year what we did is say ok one year later is retail worse off than it was, better off/ innovating, or in the same spot. And interestingly 13% of you said that retail was worse off, over 30% of you said that retail has either innovated, or evolved or it better off. I would agree with that by the way. Lets just talk about a couple of the buckets of innovation that we’ve seen in retail and I’ll give you some examples of it, but it’s really more meant to be illustrative because that’s what’s driving a lot of M&A value in the companies that we are bringing to market. One is integration of technology. So a great example in the restaurant space, a very high profile and prolific, McDonalds, a company who hasn’t done an M&A deal is 20 years, then the first one they do they go out and buy a technology company that drives customer engagement, drives lifetime value effectively because they really get to understand that customers purchasing and eating patterns over time. That’s a very powerful theme we’re seeing across retail. Second, I would mention is space allocation. A lot of retailers with a lot of excess space- Great example, Kohls has allocated space to Planet Fitness to better utilize that space and also benefit from the foot traffic drivers, and we’re seeing fitness as a category that in it’s own right, of course, is driving exceptional multiples, but also in the context of utilizing space better for others that have that availability. The third powerful theme in retail we’re seeing is really around experiential retail and we have two great companies today Stern Pinball and Uptown Jungle that will be presenting and talking to you about that. Those are very powerful segments that we’re seeing terrific interest from investors in.

Janki Gandhi: Yeah, and to really build on those comments Dom, I do believe that one of the key driving forces that we’re seeing in this kind of rapid evolution of retail, at least as we all knew it, is the race to capture that new age consumer. So it’s to capture their attention and their wallets and particularly focusing on millennials and Generation Z. So, not only is that group important because they have a significant amount of buying power, but even more importantly, they do have a pretty tremendous halo effect, that is setting the tone for how others think about consuming and sort of using products and services. So, what we’re seeing the most successful consumer products businesses do is to really pursue these customers by employing disruptive marketing techniques- This is both online and offline, and then in addition to that, utilizing technology and data analytics to track their behavior. They’re then taking this data real time and are modifying their sort of customer retention and customer acquisition strategies on an ongoing basis. And why this is extremely important to all of us in the room is that because of this attention on again, the super valuable audience, strategic buyers have realized that they are not able to acquire that audience on their own and they’re not looking to necessarily build it in house. So now they’re aggressively pursuing companies at much earlier stages that have been able to do this. So in personal care, similar to what we’re seeing on the food side is that you all of a sudden have multi-billion dollar Strategics who are looking at companies with $20 million dollars or less of revenue and little to no profitability. So as they’re coming downstream then you have private equity whose getting in at earlier and earlier stages. So this is really driving you know a significant amount of M&A activity in our space and it’s also driving up multiples in a big way.