by Luis Miguel Ochoa Comments (33)

Apparel, Appliances, and Advisory: What You Do in the Consumer Retail Group at an Investment Bank

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Whenever the economy sinks and consumer confidence falls, pundits come out of the forest and start talking about consumer spending and just how much the damage will be.

You might think that only matters if you happen to own your own jewelry, appliance, or sporting goods store – or you’re looking for discounts at any of those.

But it’s also bound to be on your mind if you work in the consumer retail group at an investment bank and you advise companies on M&A deals and financing activities.

While the consumer group may not exactly be the most counter-cyclical place to weather a recession in, there are plenty of other benefits – including getting to work with companies that make products you use every day. This interview features valuation and financial analysis commentary by Saikyaw Htetoo.

In this interview, our interviewee will go into all of those benefits, plus:

  • How most consumer retail groups are set up at banks.
  • What deal types are most common.
  • How to set yourself apart in recruiting – from valuing retail companies to discussing industry trends.
  • The banks with the biggest presence in consumer retail.


Q: Why don’t we start by breaking down exactly what you do in the consumer retail space: what are the different areas, and how do banks divide the group internally?

A: Consumer retail is a pretty broad space, kind of like industrials.

In consumer retail, you’d cover both hard goods (also known as “durables” – appliances, sporting goods, etc.) and soft goods (also known as “non-durables” – mostly ready-to-wear apparel, food, etc.).

Automotive suppliers might be classified as “hard goods,” especially companies such as AutoZone (a provider of parts and engine chemicals).

Your firm might classify those types of companies under “industrials” instead, but those are the basic divisions: hard goods and soft goods, and then the individual sub-sectors within each one (e.g. clothing, footwear, textiles, etc. within the soft goods category).

The technical difference between the two is that hard goods tend to last for 3+ years and have longer periods between purchases, whereas the cycle is much shorter for soft goods.

Q: Right, so those are the different types of companies you’d be analyzing.

What about the deal focus at the bank?

I’ve noticed that some groups are focused on different products these days; for instance, aerospace and defense focuses on M&A and high yield, and I’ve seen real estate groups do a lot of equity offerings.

What’s the focus in consumer retail?

A: Definitely M&A, which has been the usual driver of transactions in the consumer retail sector. Equity research analysts typically cite factors including the need to achieve economies of scale, cut costs, or raise revenue via product diversification.

In terms of sponsor-backed transactions, there is a focus on consumer non-durables, mainly of the food and beverage sort.

On the financial sponsor front, consortium deals are pretty popular. Think of a consortium deal as a way for sponsors to spread their bets among one another and pool their funds to buy a company.

The key concern when investing in retail is how resistant individual sub-sectors of consumer retail are to a recessionary environment.

In a developed economy such as the US, you should expect to see money flowing into safe names: products that consumers keep buying even when the economy is tanking.

As with any leveraged buyout, you want stable cash flows, tangible assets, and, of course, a growth opportunity to convert your stake into a solid exit.

Q: So you just mentioned how M&A, and to some extent, LBOs, are one of the key focus areas for the industry.

When you’re working on one of those M&A deals, what determines the work that you actually do?

Since you’re in an industry group, will you always do qualitative-oriented work?

A: That’s a good question. In my experience, the coverage role and the M&A product role can sometimes switch.

A friend of mine once put it this way, “The M&A analyst was researching the state of my coverage area, and I was doing more of the heavy M&A modeling.”

Especially in this market, an industry specific banker needs to be flexible and needs to collaborate with his/her peers; I’ve seen industrial bankers become more like tech bankers, and tech bankers become more like healthcare bankers.

It’s an interesting trend, and definitely not something I would have predicted.

Let’s take a specific example: Hooters is a restaurant chain, and it also has a casino business.

If your bank is advising them, a restructuring analyst might compile rulings that are favorable to the client, whereas a consumer retail analyst might assemble some bench-marking analytics.

The point in both roles is to inform the valuation, and of course demonstrate a solid foundation for that valuation.

So, the short answer on this one: your role on specific deals is not perfectly predictable, and you need to be prepared for anything that comes up.

You might get asked to do advanced modeling work, complete industry research, or almost anything else depending on the deal and what everyone else is doing.

The lines between coverage and execution groups have blurred, and you can’t assume that roles at a bank are strictly defined anymore.

Retail Recruiting

Q: Right, so I guess it’s an even worse idea to say in interviews that you want to do M&A to work on “advanced modeling” all the time.

A: Yeah, that wouldn’t be taken too seriously in interviews. Not recommended.

Q: On that note, what about recruiting for consumer retail groups? How can you set yourself apart?

A: If you’ve read this site for any length of time, you’ve heard all about investment banking networking and the investment banking interview guide offered here; they’re very useful and I’ve used both myself before.

Consumer retail is no different from other coverage groups in terms of the basic questions, so you need to know those just like you would anywhere else.

To set yourself apart above and beyond those questions, you should review actual work samples – here’s an example for a concurrent offering used in the oil & gas sector.

Believe it or not, even in horrible markets, few people take the time to go the extra step and really set themselves apart by bringing up these small case studies to demonstrate their market knowledge.

You can always fill in details using Dealogic, Capital IQ, or even Bloomberg; if you don’t have access to those, you can always look at the filings.

In terms of lateral recruiting, you would want to know 1) What’s going on in the retail sector; and 2) How to analyze retail companies.

Q: Ok, so can you walk us through those items?

Could we go through a few examples of how to discuss industry trends?

A: Ok, let’s start with the retail sector, particularly with the longer-term trends that have been around for a while:

1. Resurgence in the Number of Online Start-ups

Traditional softline retailers (+1 brownie points if you remember what a softline retailer is) continue to see more and more online start-ups catering to consumers under the guise of exclusivity (e.g. Gilt Group, Shopittome, JackThreads), including companies that offer discount activities and experiences (e.g. Groupon, 1 Sale a Day, AHALife, Urban Daddy, Living Social).

Since costs have come down, more and more people are launching these companies – though, to be fair, starting something vs. keeping it going and maintaining that momentum are two different things.

2. Cross-Collaboration Continues (Timex / JCrew, Paloma Picasso / Tiffany)

Once in a while, you’ll see one brand working for a different brand. The work adds a bit of diversity, but not that much (since many companies are doing similar things anyway).

Every little bit helps, though, in terms of differentiating yourself from the competition. As you might remember from your economics classes, non-price competition occurs when two products are pretty similar (Coke and Pepsi).

So those are a few of the longer-term trends you might discuss; they’re great because you can re-use them even in future interviews as long as nothing dramatic has changed.

Q: Right, but you also need to be prepared to discuss news and current events, right?

A: Yes. Those can be a little trickier because they change so quickly, so it’s impossible to come up with talking points that will work for years into the future/

For news-related items, I would focus on geography, timing, and demographics: What happened with middle-class consumers in the US over a recent holiday? What about with affluent consumers in Asia?

Here are a few examples of news events you might discuss:

1) US Holiday Shopping – Were Black Friday, Christmas, or other holiday sales higher / lower than last year? Did any sectors such as discount stores do particularly well? What does that imply about where families and consumers are spending their money? Have any sectors been recession-resistant, or, if we’re in a better economy, have any sectors benefited from that?

2) Income Levels vis-à-vis Spending – Are consumers spending more or less than they are expected to spend? And if income levels haven’t changed much, where is that extra spending coming from? What if income levels have changed? (Unlikely in recent times, but hey, who knows…)

3) Emerging Market Sales – Did governments in emerging markets such as those of the BRIC countries and Latin America do anything to boost sales (e.g. discount windows, bonuses)? Did same-store sales go up as a result? Is the growing middle class in these places spending money on different types of items now that they already have basic necessities?

4) European Sales – How have debt crises and general unemployment affected retail stores? Have certain sectors such as groceries or department stores seen more or less of an impact? What strategies have European stores used / not used in order to get through challenging times?

To find specific industry articles, try these links: Financial Times, WSJ, Economist, HBR.

For a capital markets spin, check out the Raymond James Consumer Investment Banking weekly newsletter. Lastly, if you’re interested in sponsor activity in this sector, look up the McGladrey Consumer Products and Services Quarterly.

Q: I see, that’s very helpful – thanks for pointing out all those resources!

What about how to analyze and value retail companies? Any tips or tricks?

A: Valuation: You’ve got the usual suspects, including transaction multiples (see page 22 for a valuation of J Crew, including the multiples used), trading multiples, and equity research price targets. You see TEV / EBITDA, P / E, occasionally TEV / Revenue for multiples – nothing new or dramatically different there.

It’s also important to understand lease accounting in this sector because so many consumer/retail companies own and rent their properties.

Benchmarking: This is probably more interesting, as there are metrics you definitely won’t see in other areas.

Same Store Sales (including drivers such as # transactions and average transaction amount) = Sales / Square Feet. This one lets you know where top-line growth is coming from. By excluding new stores, an analyst can determine how much growth comes from existing stores performing better vs. brand-new stores.

Inventory Turnover = COGS / Average Inventory. This measures how quickly a retailer can sell products once they arrive at the store.

Number of Stores and Retail Square Feet. These metrics show how well the company is reaching out to customers.

Industry Analysis: As I mentioned before, consumer confidence is a good leading indicator of where the sector is going.

Consumer spending is also a good figure to look at. As an industry analyst, these two items are the equivalent of the defense budget release to an industrial analyst.

Remember, though, you’re a consumer retail analyst, not an economist – your job is to figure out how these data points affect your client.

The most relevant topic is the specific market your client is doing business in, and you can find details for those items in the Management Discussion and Analysis (MD&A) of any filing of a public traded company.

Q: Great, thanks for sharing all that. I think the J Crew valuation and analysis is a great read for anyone interviewing for consumer retail groups who wants to understand valuation in more depth.

We’ve been through a few recruiting and interview tips now, but any thoughts on the best M&A advisors in the consumer retail sector? What banks should readers focus on if they’re interested in this area?

A: If you look at the league tables, Goldman Sachs, Credit Suisse, and Morgan Stanley tend to dominate.

Outside of the big banks, doing corporate development or strategy consulting at an actual retailer are also options, and then you have boutique investment banks and consulting firms that focus on consumer / retail.

A couple well-known firms there include Sawaya Segalas, Telsey Advisory Group, and L2 Think Tank (a consulting boutique focused on retail).

Q: Great. Thanks so much for time.

A: Happy to help!

M&I - Luis

About the Author

Luis Miguel Ochoa has facilitated a variety of strategic initiatives from corporate acquisitions to new market development. He earned his B.A. in economics from Stanford University where he was a member of the varsity fencing team.

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Read below or Add a comment

  1. Hi Brian. Could you please tell me some interesting things to say when answering the ‘Why consumer & retail’ question? What could a candidate say to stand out and demonstrate genuine interest (no prior experience in a CR company)

    1. I can’t tell you what to say because I don’t know your background or any connections you have to the industry. The best thing to do is to think very carefully about your friends, family, acquaintances, professors, and find an angle where one of them is somehow involved in consumer/retail and say that sparked your interest. Anything else, like citing books, movies, news events, etc. is too generic.

  2. Hi Brian, do you know how I can get access to the commentary by Saikyaw Htetoo? The link you provided doesn’t seem to work and google couldn’t find it either. Need it ASAP for the upcoming interview. Many thanks in advance!

    1. Apologies, it’s all sorted now. My iPad couldn’t open this page fully due to poor internet connection at the airport and it’s all sorted now after a number of attempts. P.S. Wanted to delete my comment but couldn’t find a “delete” button.

    2. Apologies, It’s all sorted now. My iPad couldn’t download this article fully due to poor internet connection at the airport. P.S. Wanted to delete my comment but couldn’t find a “delete” button.

  3. Great article BIWS!

    I am really interested in this sector. 2 questions that I hope you may be able to answer:

    1) Besides the banks mentioned above (Goldman Sachs, Credit Suisse, Sawaya Sagalas, etc.) are there any other middle market or boutiques that do well in consumer / retail IB?

    2) Does region matter greatly in retail IBD? Specifically, are there any strong consumer / retail groups on the US West Coast (Los Angeles / SF) or are the strongest ones usually in New York?

    Thank you!

      1. Thank you! :)

  4. What are some good reasons to say for “Why Consumer & Retail group”?

    1. Avatar
      M&I - Nicole

      Best if you had experience with consumer/retail companies (you’ve worked in one, your family owned one, or you have analyzed such stocks). Or perhaps you’re very interested in one particular consumer retail company which sparked your interest in the whole group. Link the above to your interest in the group, and perhaps you can even talk about how much you can relate to this group because you like to shop quite a lot etc.

  5. Hi M&I,

    Thanks for your valuable information!

    If you work in any group for your SA internship, is it likely that you are placed in the same group for full-time?
    That is, are FT offers generally tied to the group you worked in as an SA or will you be put into an FT Analyst pool like anyone else?
    Are there differences among the firms?

    Thanks for your input!

    1. Yes, it’s likely you’ll be in the same group for full-time. But you can opt to change or be placed in the generalist pool to be placed later. Some firms do it differently but most of the time the same group wants you back if you did well.

  6. For those following consumer retail firms, an IPO prospectus can be a great way to learn about a particular deal. Here’s a good example from Michael Kors

  7. Hi

    Just wonder if you know something about working at a credit rating agency, like S&P or Moody’s? Would you know anything about for instance how much they pay? I’m kind of interested in macroeconomics so I thought it might suit me, but I’d like more info on pay, hours etc.

    1. Avatar
      M&I - Nicole

      We are focused on front office roles in IB/PE/HFs so I don’t know much about working at S&P/Moody’s. Readers might be able to offer better insights

  8. How does the consumer practice at Centerview compare the BBs you mentioned?

    1. Avatar
      M&I - Nicole

      Haven’t worked at Centerview so can’t say though I presume BBs will offer a more structured training environment. You might be able to take up more responsibilities at Centerview though (more entrepreneurial I might add?)

  9. Awesome article! I’m really interested in the different groups within IBD.

    (I think there’s a typo in the 2nd question – it should read “groups are focused”)

    1. Thanks! More coming up soon. And yes, fixed the typo, thanks.

  10. How is the Consumer retail group for J.P. Morgan? I know they have an office in dallas as well, whould that be much different form NY? Exit opps?

    1. Think it’s fairly strong though maybe not as much as the others above. I can’t comment on the Dallas office directly but generally you do more deals in NY. And with Dallas you would be more geographically restricted with exit opps.

      1. Agreed with Brian’s thoughts. Any job right now is better than no job, so let’s start with that.

        When thinking about how well a group performs, I really focused on deal flow, and quality of deals. At the same time, it’s important to meet the people in that group, so you have a firsthand experience on how they are like, behave, etc. Reading about a group, and speaking to team members are two different things.

        Naturally, if you’re in Dallas, it’d be great to position yourself for exit opps in the area. If you were in New York, it’s a different ballgame in terms of just being more reachable to the NY buyside firms.

  11. If possible can you please do an article on Financial Institutions Group? Given the current economic climate I think it would be very interesting to learn how FIG groups are affected.

    1. Yeah this is the first in a series, so FIG will be coming up in the future. We try to avoid mentioning specific economic conditions because I don’t like mentioning dates / current events.

      1. Hi,

        Would you be speaking with anyone who could give us the same sort of insight into what the financial sponsors group coverage individuals do as well? I think this would be very interesting as well.

        1. To clarify, I do not do these interviews. I edit things and coordinate. So you will have to ask Luis, who conducted this interview, what he has planned – he may drop by later if he gets a chance, but yes I think financial sponsors is on the list.

          1. Yes, financial sponsors is on the list of things to cover. I’m aiming to cover all the groups within IBD, just not all at the same time :-)

      2. FIG will definitely be covered in the future. As a short answer to your question, as the economy is perceived to be not so hot… FIG (Depositories / Banks & Thrifts) will be impacted as smaller regional chains are sold to larger chains. If things are on an uptick, expect to see more equity offerings.

        1. So that means in a bad economy FIG groups in an ibank will have a lot of work trying to sell of smaller banks, S&Ls etc to larger banks? Are FIG groups impacted heavily by a recession? Sorry for noob questions.

          1. As a FIG professional, you might be on either side of the M&A transaction – looking for a smaller bank to acquire, or leading a sale process of a smaller bank.

            FIG is definitely affected by both recessions and by expansions. If markets are slow, consolidation can occur to cut costs and achieve scale. If markets are good, consolidation can occur to achieve growth or entrance into particular sectors.

  12. Sorry for hijacking on this article, but the BIWS website is not working at all.

    1. Should be restored shortly.

    2. It is working again. Sorry for the difficulties.

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