Retail: Disruptive consumer behavior forces U.S. retailers to rethink their business models

1/1/2016 - Report
ic_blogtagUnited StatesRetailDemandM&APrice
The U.S. retail market has enjoyed +5% growth per year since 2010 and is forecasted to reach USD 5.6tn in 2016, supported by strong customer confidence and increasing disposable income.

Changes in consumption expectations have, however, bound retailers to fiercely compete on price. In 2015, consumer price growth barely reached +1.5% on a 4-year average, while operating costs have soared � a combination that is seriously eroding profits. Earnings Before Interest & Tax (EBIT) were down to 2.9% of revenues in 2015 and forecasted at only 2.5% in 2016.

The price war model is coming to an end, forcing traditional players to rethink their business models towards digital and omnichanneling. U.S. consumers have been particularly swayed by e-commerce, for which sales grew +15% per year between 2004 and 2014. In the U.S., Euler Hermes forecasts the e-commerce market to reach nearly USD 450bn in 2016. But e-commerce itself is constantly moving, particularly from desktop to mobile purchasing, which involves heavy capital expenditures. A minimum 5% of revenues is spent by the largest U.S. retailers each year on e-commerce capabilities � not every company can afford to make such investments on their own.

To achieve new digital strategies, retailers have favored mergers & acquisitions (M&A) to get stronger market power and acquire new capabilities. The value of M&A deals in the U.S. retail sector have soared to USD 89bn, and are expected to reach USD 94bn 2016.

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Retail: Disruptive consumer behavior forces U.S. retailers to rethink their business models - Report