2013 Retail IPO Outlook

While the biggest public offering in 2012 was undoubtedly Facebook, the retail and consumer product industry quietly saw fairly robust IPO activity. According to S&P Capital IQ data, there were seven retail IPOs in 2012, which marks the most since 2002 and a steady increase from 2008 when there were zero offerings. For two years in a row the industry also raised more than $1 billion in proceeds, a positive indicator for 2013.

Our recent IPO Outlook Survey of capital markets executives found that 30 percent forecast an uptick in retail/consumer IPOs this year, up from 23 percent in 2012. While this is less bullish than their outlook for IPOs generally (50 percent expect an increase in IPOs overall), there are several encouraging signs.

Holiday sales were good. Sales in Q4 were impacted by the Presidential Election, Hurricane Sandy, and concerns over the fiscal cliff, but consumers proved fairly resilient in the face of uncertainty. The NRF reports that holiday sales were up 3 percent, which is lower than their expectations but nevertheless positive. And several retailers, including Nordstrom, outperformed expectations. The good news for retailers in 2013 is that most of the factors that led to the dip in consumer spending were temporary.

The stock market is less volatile. We’ve seen more stability in the markets, and that bodes well for IPO activity. PE firms have been holding on to many investments for a long time trying to wait out the storm, and now that conditions have improved, they will likely be pursuing more exits. Our IPO survey found that private equity portfolios (41%) are the most often-predicted source for IPOs in the coming year.

There’s a lot of opportunity in luxury. Michael Kors’ IPO was a tremendous success, and the brand continues to exceed expectations. Luxury consumers have rebounded in tune with capital markets. Companies looking to IPO this year need three things: 1) steady annual growth, 2) the ability to predict quarterly earnings in the next year, and 3) the ability to hit those targets. Because the luxury sector is more predictable, they are in a good position to accomplish those three things, making IPOs more attractive.

We’re optimistic that retail IPOs will continue their upward trajectory this year. For more on general IPO expectations, including projections for additional industries, see our survey results here.

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