United States

Q2 2018 Consumer Products Industry Spotlight



South Dakota v. Wayfair

The Supreme Court struck down the Quill ruling, the 1992 ruling that held that states could not levy sales taxes on businesses without a physical presence in their state. South Dakota v. Wayfair, which overturned Quill in June, allows states to collect taxes on online sales regardless of the company’s headquarters. This will have a fairly significant impact on the middle market, particularly on e-commerce retailers. In years past, the Quill ruling has effectively protected many businesses from collecting and remitting sales taxes in jurisdictions where they did not operate a physical location such as an office or warehouse. With the Wayfair ruling, middle market e-commerce companies will need to speed up their compliance efforts to meet the new standards.

Big picture

The consumer industry continues to evolve to meet the new requirements of an on-demand economy. With consumer preferences changing at a historically rapid pace, companies are racing to refine their omnichannel strategies, either organically or via acquisition. Given the resources required to organically build new distribution channels, private investors are betting on a future wave of acquisitions for smaller companies that focus exclusively on on-demand services. More than $152 billion was spent on consumer products (CP)-related acquisitions in Q2 2018, the second highest quarterly total since 2013. Moreover, almost $75 billion of private equity (PE) investments have been made through H1, which puts 2018 on pace for another strong year. Expect to see strategics continue diversifying both their product offerings and distribution channels to meet those consumer demands while PE investors continue to back companies that could provide those future acquisition opportunities.

Looking ahead

Recent tariffs imposed on several products may ultimately affect the consumer industry, though it is still too early to tell what those effects will be. PE investment in manufacturing should remain consistent going forward, though investors may show signs of caution. The consumer sector will likely see much quicker adjustments as they relate to the recent Supreme Court ruling allowing states to collect taxes on companies without a physical presence in their states. In the short-term, the MM will need to spend resources to get up to speed on compliance if they aren’t already. Once those compliance channels are in place, the long-term effect of the Wayfair ruling should recede, and retailers will go back to business as usual. 


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