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Tracking The Pandemic Recovery Of Retail And Hospitality Sectors

Posted on July 11, 2022 By

The Retail Industry
Now that we seem to finally be closing in on the end of the COVID-19 pandemic, 2022 is likely to continue to see overall growth in the retail sector, but not without its share of challenges.

Many industries are still not caught up with supply chain issues. 2021 brought new consumer demand surges while manufacturing capacities couldn’t keep pace. Nevertheless, the supply chain congestion has begun to wane and even normalized in some industries while others are still backed up. This is due to geographical circumstances, issues with unloading shipping containers in ports, and a shortage of truck drivers. Many experts believe that 2022 will be the year of the “retail reset,” while others do not think that an utterly standard supply chain will fully return this year.

The pandemic has changed consumer demands as their daily routines change. For example, more people started working from home, which meant spending more on comfortable leisurewear and home technologies and less on business attire. And while the remote work economy is expected to continue, so is the online shopping boom.

There is also a combination of less financial assistance and rising inflation that is hurting spending. For example, retail survived the worst of the pandemic because consumers were receiving help such as federal stimulus money and unemployment support. But that aid has been pulled back at the same time that inflation is up. This means less money for discretionary retail spending as consumers are unsure of what the future holds.

With all of these changes, retailers are still unsure when making commitments. As a result, inventory remains a difficult path to navigate. Many companies are turning to new technology solutions to help them better manage inventory in real-time. As a result, physical stores may become smaller, offering fewer options and quantities.

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The Hotel Industry
It’s been a slow but steady recovery for the hotel business in the U.S. and many parts of the world over the past year. A report from the American Hotel & Lodging Association (AHLA) showed that U.S. hotels lost nearly $112 billion in room revenue between 2020 and 2021. But the recovery is underway around the world, albeit spotty. Some destinations bounce back faster than others. But, for the most part, there are encouraging occupancy rates for the sector compared to pre-pandemic data.
A report from the AHLA forecasts that the U.S. hotel industry will not fully recover to pre-pandemic levels until 2025. This is mainly due to the ongoing lack of business travel, which accounted for half of the industry’s revenue before the pandemic. Hotel revenue from 2019 to 2021 dropped by $59 billion, making for a long way to go in a slow recovery.

Luxury hotel properties, however, are seeing a solid recovery. In April of 2020, luxury hotel closures peaked at 54%. According to a report by CBRE, only 1.5% of luxury hotel properties will be closed at the end of 2021. That’s down from 13.7% at the end of the first quarter.

The Hospitality Labor Shortage
Aside from the recovery from pandemic lockdowns, there are other challenges that hospitality businesses face in 2022. The labor shortage is hitting hospitality especially hard. In November of 2021, 4.5 million Americans quit their jobs, and a record 1 million were restaurant and hotel workers. Many people who worked in the industry before COVID moved on to find different work. Data shows that a third of former hospitality workers will not be coming back. And many others now demand better pay and better working conditions. Hospitality businesses must now make the employees that they do a priority, offering better pay, signing bonuses, and health benefits. This is especially true for restaurants.

M&A
Last year, merger and acquisition activity rebounded for the hotel sector as demand began to recover and net operating income accelerated. As a result, global hotel transaction volume exceeded expectations in the first three quarters of 2021. As a result, sales were up 86% year-over-year, totaling $41.4 billion. This trend is expected to continue at a stronger pace in 2022 as travel makes a comeback, cash flows further stabilize, and there is plenty of private equity available, as well as many distressed assets.

Regarding the retail sector, M&A activity is also upward for 2022. According to data from PitchBook, deal volume in the retail sector was up in 2021, with 510 deals completed, up from 369 deals in 2020. Many M&A experts expect deal volume to increase over the next several months and valuations to rise. Retail businesses with brick-and-mortar stores and e-commerce are thought to be the most likely to be part of deals. The retail subsectors that are expected to see the most M&A activity include electronics & appliances, health & personal care, and food & beverage.

 

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ABOUT BENCHMARK INTERNATIONAL:

Benchmark International’s global offices provide business owners in the middle market and lower middle market with creative, value-maximizing solutions for growing and exiting their businesses. To date, Benchmark International has handled engagements in excess of $8.25B across various industries worldwide. With decades of global M&A experience, Benchmark International’s deal teams, working from 14 offices across the world, have assisted thousands of owners with achieving their personal objectives and ensuring the continued growth of their businesses.

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