Stronger retail sector beginning to emerge

Increased competition from online shopping and foreign entrants to the local market have put pressure on local retailers, leading M&A insiders to give some interesting predictions for future deal activity in the sector

The retail sector will emerge as an active space for deals in the coming months with strong interest from local and international investors expected to continue, predict M&A insiders.

The period of uncertainty faced by retail over the last two to five years, as consumer spending dropped and online sales dramatically hurt profits, is beginning to recede as the number and volume of recent deals have shown.

“Increased competition from foreign online shopping and foreign entrants to the local market have put pressure on local retailers, making the industry more competitive,” Tom Story, partner at Allens told Australasian Lawyer.

Story explained that the recent arrival of overseas department stores such as H & M and Zahra were also responsible for driving more competition within the retail sector.

“This has tended to generate more activity.  Retailers are thinking about where their business is heading and they need to consider whether they need to combine with other companies to be more competitive and reduce costs,” Story added.

Adam Laura, partner at Gilbert + Tobin also believes the industry has adapted to the challenges it was facing and is has now emerged to be more competitive overall.

“Retail had been wrestling with the challenges of online strategies and with the digital offerings of their competitors, but now we have seen some deal activity and I believe we will continue to see more in the future,” Laura said.

“Whenever you have a sector where there is significant pressure on valuations, it becomes attractive as a source of local and foreign capital,” Laura added.

“A number of our retail clients continue to stay active and are looking at what they can do in the future.”

Last week saw the $2 billion acquisition of David Jones by the South African retailer Woolworths, which already owns a majority share of the Australian fashion chain Country Road.

Retail giant Westfield also recently completed a $22 billion debt refinancing allowing it to carry out its restructuring plans. 

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