Retail IPOs Expected to Hold Steady in 2011

Notwithstanding the strong results from the 2010 holiday shopping season and the strong 2011 outlook for IPOs in general, the consumer/retail industry has ranked at the bottom of the IPO growth estimate for the second year running in the BDO IPO Outlook Survey.

Even the industries which took a decline since last year’s survey, including biotech, healthcare and the industrial/manufacturing sector, fared better than retail, which did manage to hold steady from 2009 with 23% of executives expecting an increase in the number of IPOs, 46% expecting the number to hold steady and a full 30% expecting to see a decline.

Possible theories for this lack of enthusiasm abound.  One possible explanation is that there is a perception that consumer spending has been relatively weak in the recent recession years meaning that consumer companies would be less likely to show consistent historical growth in an IPO document.  If that is the case, however, this prejudice may be a bit misguided. Even though 2009’s numbers may have been a bit weak, the resulting fallout left a larger market share for the remaining companies.  Further, due to a difficult 2009 many retailers used 2010 to cut costs and increase profits.  Finally, online sales have continued to rise for both traditional retailers and pure-online players in the field, giving some much needed strength to the industry.

The development of course may simply be based on IPO performance in recent years. With only five retailers (three apparel and one each in food and general merchandise) going public in 2010, the most recent being in July, and news about J. Crew exploring strategic options, including a take private transaction, 2011 may be a year for retail privatization, as opposed to public offering.

Another, perhaps more conservative theory, is that as the investment banking community is divided on the outlook for retail IPOs in 2011 generally, with nearly half of those surveyed expecting the sector to hold steady. Given the lukewarm growth expectation of the field it may be that there is simply a wait-and-see approach to any IPO candidates.

What are your expectations for IPOs in 2011?

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