US retail CEOs expect growth in near term, driven by wave of M&A

02 August 2018 Authored by Consulting.us

US consumer and retail industry CEOs expect their firms to grow over the next three years, driven by mergers and acquisitions, as well as strategic alliances. In order to compete and advance, retail firms are likely to ramp up tech spending – with acquisitions or alliances, for example – in order to strengthen and personalize the customer experience.

As part of its annual CEO Outlook, KPMG dug into the results from the US consumer and retail (C&R) industry. The consultancy found that most US chief executive officers (83%) in the C&R industry were very confident about the growth prospects of their firms over the next three years – almost thirty points higher than their global counterparts (54%). Retail CEOs expect mergers and acquisitions (M&A) and third-party alliances to drive company growth. CEOs also expect to bring in new digital technologies and to improve customer experience.

38% of US retail CEOS identified M&A as the top growth driver for their firms over the next three years, while ‘strategic alliances’ placed second with 23%. CEOs expect M&A to transform their business models faster than organic growth – while reducing costs, increasing market share, and bringing in new technology.

The report cautions however, that though CEOs in the retail industry are bullish on growth, actual increases over the next three years may be moderate. Retail sales declined for three straight months between December and February (the longest losing streak since 2015), before rebounding in March, April, May, and June. KMPG recommends effectively integrating the right tech – whether through M&A or alliances – while personalizing customer experiences in order to realize the highest growth.US retail CEOs expect growth in near term, driven by wave of M&A“The future of retail is more about the experience than the product or service,” remarked Mark Larson, national leader of KPMG's Consumer & Retail practice. “Powerful technological advancements and the surging of the experience economy are driving forces in the retail industry.”

Indeed, 94% US retail CEOs expect a significant return on investment from digital transformation and artificial intelligence in the next five years. A further 88% already report that the tech investments made in pursuit of customer experience personalization have delivered the expected growth benefits.

"Personalizing the shopping experience by leveraging technology, customer data, and insights is key to delivering an outstanding, individualized experience for consumers," said Julio Hernandez, leader of KPMG's Global Customer Center of Excellence and U.S. Customer Advisory Practice. "Retailers also have an opportunity to engage in conversations with consumers to learn how to better serve them. In others words, asking consumers directly how they would like to be engaged."

However, collecting the vast amounts of data and personal information needed for experience personalization exposes firms to higher levels of digital risk in the form of breaches and cyber attacks. “Managing cyber and technological risks, therefore, become paramount for retailers to transform to remain competitive, and importantly, to grow,” added Larson.

Though US retail CEOs overwhelmingly see tech disruption as an opportunity rather than a threat (98%), they concede that tech risks like cyber attacks could hinder top-line and long-term growth. Retail CEOs identified cyber security and disruptive technology as the greatest threats to their organizations’ growth (25% for both), with operational risk ranking third (21%).  As such 90% of US retail CEOs said protecting customer is a top priority in order for their firms to grow.

"Since the various risks in retail are heavily interconnected, rapidly evolving, and impact each retailer in a unique way, companies need to be creative in taking a balanced approach in managing risk and maintaining consumer trust, particularly as it relates to technology,” concluded Duleep Rodrigo, risk consulting industry leader, consumer & retail, KPMG.

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