This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.
To coincide with the 20th anniversary of the London Stock Exchange’s AIM, international law firm Olswang has composed a compendium of articles that highlight AIM’s ascent in becoming a hugely successful small cap marketplace and how companies and global sectors have grown as a result. From the explosive growth of technology and retail companies listed on AIM to thousands of both domestic and international company IPOs, Olswang’s Future of AIM series examines the past, present and future of companies listed and looking to float on this rapidly growing marketplace.
Looking back 20 years ago to the launch of AIM, the retail industry was a very different place. Out of town shopping malls dominated, and many of the successful brands listed on AIM today were just a twinkle in an entrepreneur’s eye. 1995, the year AIM opened its trading doors, arguably also saw the two pivotal retail innovations of the 20th century: Tesco launched the Clubcard, transforming its fortunes and kick starting the quest for customer data, and Amazon and eBay introduced online stores, disrupting the industry and irreversibly changing our purchasing habits.
Fast forward two decades and technological change has led to the emergence of multiple purchasing channels and revolutionised the retail supply chain. Customers now treat stores as showrooms, using their smartphones to compare prices and read reviews of the products in front of them. Decisions are influenced in real time by social media, and a good or poor customer service experience can be shared with millions instantly. Over that period, AIM has also changed from a fledgling exchange to a robust market housing 1,100 companies with a combined value of about £70 billion in which individuals can invest their ISAs and benefit from the removal of stamp duty charges.
With an annual contribution of £180 billion to UK economic output, the retail industry has a crucial role to play in Great Britain plc. AIM tells a similar story: 65 consumer goods companies with an aggregate market capitalisation of £5,305 million. These include the largest company on AIM – the online fashion giant Asos – and well-known retailers such as Mulberry, Majestic Wine, Portmeirion, Card Factory, United Carpets and boohoo.com. High-growth market AIM loves companies that have cornered a niche – and retail is no exception. Unlike other sectors, the rumour of an IPO of a retail business makes the front page of the news. That’s hardly surprising when you consider that the retail industry employs more than 15% of the British workforce.
So what are the challenges for the retail sector and those consumer goods companies currently trading on AIM and those seeking to be listed in the years to come?
Investing in technology
Just as technology has transformed the sector over the last 20 years, it will continue to disrupt and shape the future. Retailers understand that they need to invest in technology, in their websites and their internal systems, but will their shareholders be prepared to prioritise investment over dividend returns?
Agility and flexibility
Consumer businesses will need to be nimble and quick to react to changing customer demands. The decline of the ‘big weekly shop’ has left those main market rivals holding a large real estate portfolio with a millstone around their necks. Similarly as customers embrace click and collect and other omni-channel solutions, retailers will need to retrain staff and adapt their infrastructure. The costs associated with not getting this right could derail any IPO hopes.
Know your customer
Demographics are also going to play their part. The profile of the average British shopper is changing. Our ageing population means that general retailers will need to increasingly listen to the Grey Pound and we may see businesses with specialist products for the over 50’s joining AIM. Equally the change in the cultural mix of the UK and the rise of the single person household will change the types of products consumers buy, with greater variations by geographical location.
The burden of greater regulation
Another challenge for AIM-listed retailers will be complying with changes in the law. Enhancement of consumer and shareholder rights, greater regulation of data processing and laws to implement social change, such as increases to the national minimum wage and the plastic bag levy, all increase the compliance burden.
Lastly, the global economy has an impact on all listed businesses but for those retailers who rely on India and the Far East for manufacturing or sales, the effect of demands for more responsible sourcing or a Chinese slowdown will be felt more keenly.
Whilst IPOs continue to be seen as the pinnacle of exit strategies by private equity and trade owners, we are certain to see more retailers come to market over the next few years. How a business chooses to face the above challenges will determine how likely the realisation of that dream is.