2014 Retail IPO Outlook

By most accounts, 2013 was a banner year for IPOs. According to Renaissance Capital, a total of 222 companies went public in 2013, marking the best year for the IPO market since 2000. As we predicted, the retail and consumer products industry was a high point for offerings, accounting for 19 offerings and $8.3 billion in proceeds. This marked a notable increase from the number of offerings seen in 2012 (15) and2011 (12), according to Renaissance Capital.

Moreover, performance was strong. Renaissance Capital also reports that the average return overall was 41 percent, with the retail and consumer products industry posting a strong showing. In fact, four retail chains doubled their IPO price this year: Container Store, Potbelly, Noodles and Sprouts.

We recently polled 100 capital markets executives on their expectations for the IPO market in 2014 and found that bankers are projecting continued growth on U.S. exchanges. Nearly two-thirds (63 percent) predict an increase in U.S. IPOs in the coming year, and on average, bankers predict a nine percent increase in the number of IPOs in 2014. Drilling down to specific industries, capital markets executives are most bullish for increased activity in the technology, energy, biotech and healthcare sectors. On the other hand, most bankers (52 percent) expect retail and consumer IPO activity to be flat, with just 22 percent forecasting an increase.

While retail and consumer IPOs may not be headed for large increases, it’s important to remember that these projections come on top of a record year for offerings in the industry. Moreover, there are reasons for investors to have continued optimism in the industry.

Positive performance in 2013 will likely be encouraging to companies who are considering IPOs in 2014, and continued low interest rates will help with investor demand. But there is still mixed news on the consumer front. December comparable store sales grew a modest 2.7 percent, but were reliant on deeper and longer discounts that harmed margins and led some retailers to cut holiday quarter profit expectations. At the same time, consumer confidence rose in December following a better outlook for hiring and 4.1 percent growth in the economy during the third quarter, the strongest showing in nearly two years. We know consumers have been spending on big ticket items like homes and cars, and renewed confidence bodes well for spending across the board as we enter 2014.

We’ll be covering the retail IPO outlook in more detail – including what investors are looking for and some challenges retailers may face – in the coming weeks on Chain Store Age. What are your expectations for IPOs in the retail and consumer products industry this year?