Mid-Year Retail IPO Outlook All About Alibaba?

This week the NRF lowered their expectations for retail sales growth in 2014. The group adjusted its forecast to a 3.6 percent increase for the year, down from the 4.1 percent increase they had predicted in January. Still, they were bullish for the second half of the year, noting that consumers are likely to feel more optimistic about spending in the months ahead. With back-to-school on the horizon and holiday preparations already underway, what is the outlook and appetite for IPOs in the retail and consumer industry during the back half of the year?

Our IPO Halftime Report, which polls 100 investment bankers, may offer a glimpse. The report found that capital markets executives are closely divided about overall IPO opportunities during the remainder of 2014. More than one-third (38 percent) anticipate the pace of U.S. IPO activity will increase further in the second half of 2014, while a similar proportion (35 percent) believe activity will be consistent with the first half of the year. As noted by my colleague Wendy Hambleton in our Capital Markets practice, if the market maintains its current pace of offerings, this would make 2014 the best year for IPOs since 2000.

Looking at the retail industry, 18 percent of bankers forecast an increase in retail and consumer IPOs during the second half of 2014. But that forecast may not account for the elephant in the IPO pipeline—China’s Alibaba. The e-commerce giant is poised to price in September, and may be the biggest IPO in history. While the number of retail and consumer IPOs may hold steady with last year, the volume is certainly on the rise. With close to $250 billion in transactions in 2013—more than Amazon and eBay combined—Alibaba is the world’s largest e-commerce company, and investment bankers are bullish for a successful IPO which could raise as much as $20 billion. More than three-in-four executives surveyed (77 percent) believe the Alibaba IPO will be well received by U.S. investors, and another 73 percent think it will have a major impact on the number of China-based businesses considering offerings on U.S. exchanges.

While Alibaba may steal the spotlight this fall, there is still opportunity for retail and consumer businesses eyeing IPOs this year and in early 2015. Though sales growth is slow, it is still positive, and consumers are expected to spend slightly more for back-to-school, which bodes well for holiday. As I noted in Chain Store Age earlier this year, it’s critical for any retailers considering an IPO to ensure they have a strong management team in place and to be able to demonstrate a track record of sales and positive growth. We also saw with Michaels’ IPO earlier this summer that data protection continues to be an area of concern for companies that are going public. Michaels’ data breach was the third risk factor cited in their S-1, an indicator that retailers considering IPOs will need to show stakeholders how they are working to protect their customers’ information.

As we move into the second half of the year, what are your expectations for IPO activity in the retail and consumer industry? Let us know in the comments below.