Morgan Stanley focuses on the bigger picture for consumer retail

Kristen Rossi

To say it has been a challenging time for the consumer retail sector would be something of an understatement, but Kristen Rossi, global co-head of consumer retail investment banking at Morgan Stanley, is hopeful about the sector’s ability to bounce back from this current period of disruption and to continue to adapt and thrive into the future.

Ms Rossi has been with Morgan Stanley since 1997, and has worked with many “iconic” brands during that time. “Consumer retail is a dynamic space,” she says. “The types of organisations that we work with draw real emotional responses because we’ve all grown up with them and have connections to them. And as they navigate through these waters, it is an honour to be able to assist them.”

The bank’s consumer retail division works with a wide range of clients from “smaller growth businesses, to large-cap multinationals”, with the aim of being a “leading financial adviser” to them. It is a large and varied area, which encompasses manufacturers of consumer goods through to the retailers, who sell to the end customer. In recent months, with lockdown measures and enforced closures in many geographies, this has meant assisting firms to deal with often significant challenges around liquidity.

Ms Rossi believes that helping clients to access and raise capital at this time has not only been vital for ensuring their short-term viability, but has given them the breathing space to consider bigger strategic issues as well. “For the clients that made the decision to tackle their liquidity issues early on in this cycle, I think they have taken strength from that,” she says. “Their view is that ‘now I can really focus on the business. Making sure that I’m strategic coming through this period, as opposed to having to manage the liquidity considerations on a day-to-day basis’.”

Consumer bounce-back?

In the short term, there is understandably a focus on how quickly consumer spending and activity will resume as economies begin to open up again. Observing behaviour so far in Asian markets – some of which are further ahead in moving out of lockdown – Ms Rossi believes that although there are some “positive signals”, it is very much early days.

“I think there’s cautious optimism that, as we start to see reopenings, we will get a better sense of what the rest of the year looks like and into 2021,” she says, “I think consumers are happy to be out and returning to more of their normal patterns, but it’s a slow sense of recovery. Our expectation is that it does not immediately translate into full restaurants and the scale of activity we saw before this period. It’s a ramp [up] that will take place over time.”

There are also concerns of a resurgence in the coronavirus, which would lead to economies closing down again. Ms Rossi says: “It is possible in the [northern hemisphere] fall and into winter, we could find ourselves back in a scenario where the disease is spreading again. Companies are planning for the possibility of finding ourselves in that environment again, and making sure they can manage that. I think firms take a positive perspective from the fact that we are planning to see more openings, but there’s still a tremendous amount of uncertainty.”

She reflects on the fact that anticipating exactly what is going to happen in the coming months is impossible and, in any case, it isn’t helpful for businesses to plan on the basis that any single forecast will get everything right. “In my mind, what’s valuable for CEOs and for boards is to have those issues laid out on the table, and offer the differing perspectives,” she says. “Right now there is so much change happening, it’s less about ‘can I give you an exact, precise forecast for what the future holds?’. It’s much more about talking through the issues such as ‘what are the top 10 considerations that you and your board should be thinking through?’ and opening up the debate.”

A fluid market

For businesses operating in this sector, ensuring that products and services are in tune with ever-changing consumer habits and sentiment means that, even in favourable economic conditions, it can be an ongoing battle for firms to stay relevant, and Ms Rossi believes it is vital firms never to lose sight of the bigger picture. She cites growing consumer interest in health and wellbeing, the continued growth in e-commerce and increased concerns around sustainability as just three of the big issues driving change within the industry.

“When you think about consumer behaviour and dynamics, there are increasing levels of crossover between different sectors: for instance, as healthcare and consumer come together, as technology and retail come together in e-commerce, our sectors frankly touch many others,” she says. “We want to be thought leaders with our clients as they think about managing that rapidly changing environment.”

She also believes that the Covid-19 outbreak has sped up the rate of change in some of these areas. “For example, if we think about the idea of ordering groceries digitally, that is something which had already started to take hold,” she says, “but in the current environment, it’s accelerating even more rapidly. And there are other similar examples where our clients are having to evolve through those changes in consumer behaviour to ensure they are in the best position to serve their clients around the globe.”

Even where businesses have already invested heavily in their digital capabilities she believes this will need to remain a key area of focus: “There’s more to come. The consumer continues to change and you want to be on your front foot.”

Increasing expectations

In a context where companies are also increasingly being judged on environmental, social and governance (ESG) considerations, alongside more typical performance metrics, this creates an ever more complex framework for boards and executives to make decisions within.

“Some of the dynamics that we’re talking about here – it expands the group of constituencies for whom those organisations feel responsibility. It’s not just about the fundamental expectations that companies are run for the benefit of shareholders, as you think about sustainability dynamics and other ESG phenomenon. You’re considering an organisation’s impact on the globe, the environment and its employee base,” Ms Rossi says.

She adds: “I think the expectations of businesses are increasing, but companies are stepping up to meet those challenges and are prepared to have that type of dialogue.”

Following the economic fallout from the pandemic, businesses will also be facing the additional dynamic of many consumers having significantly constrained spending power. “The countervailing force that I think we’re all going to have to grapple with is that we are looking at a recessionary environment,” Ms Rossi says. “We still have all the dynamics that were playing out previously, but now we have this overlay of what will it mean to navigate through the next consumer recession. And that will present its own challenges.”

Asking the difficult questions

It could be easy to paint a gloomy picture given these challenges, but Ms Rossi believes that one positive aspect of the disruption caused by the pandemic is that it has encouraged an environment where big and difficult strategic questions about the future are being asked, and given serious consideration. “These types of moments force us to reassess what actually produces value, what we do, and to challenge some of our prior assumptions. And I think that’s a healthy exercise.”

In recent months, many large-scale transactions such as initial public offerings or mergers and acquisitions have had to be put on ice. Ms Rossi believes it is hard to predict when there will be a significant recovery in those markets, although she stresses: “Our view is that it’s best to be prepared, and ready when the opportunity presents itself.”

She adds, however: “While the transaction activity may be somewhat delayed as we wait for some of these markets to rebound, that does mean that longer-term strategic dialogues are even more active because now we’re really thinking through and discussing the ramifications of how the consumer will adapt, and what that means for any individual client’s business.”

On a practical level, the fact that bankers and business executives alike have effectively been grounded for several months, and not spending time travelling, has created time to have in-depth and regular discussions, albeit remotely. Ms Rossi believes the fact everyone has been in the same position of adjusting to working from home, and all the challenges that brings, has also brought some unforeseen benefits in deepening existing relationships.

“For client relationships that you may have held for a long period of time, interacting in this way can actually really strengthen the relationship. We’re speaking to each other [remotely] in our homes, we’re seeing each other in a very candid light. I actually think that can create strong bonds. We’re all navigating the trials of this situation together.”

From her perspective, this situation has demonstrated the efficiencies in certain areas that working from home can offer, and thinks that it will lead to a lasting change in some working practices, but she also believes there will always be a clear benefit to spending time with clients and colleagues in person as well. “There’s no way to ever truly replace the power of face-to-face,” she says. “There will always be a subset of our time that will be devoted to meeting new clients, building those relationships and engendering a level of connectivity that you can only do face-to-face.”

Managing a crisis

Although Ms Rossi observes that no-one “enjoys a crisis”, she finds it very motivating to help clients during periods of disruption and believes it is at times like this when her teams can really add value.

“These are moments in time where clients are looking for advice,” she says. “To be at a firm like Morgan Stanley that has that depth of content and perspective [provides] an extraordinary vantage point.

“Over my years at the firm, we’ve been through many crises and we’ve come through a variety of challenging circumstances. Each one is different, but helping clients manage through a crisis is a fundamental part of what we do, and it is a privilege to stand at our clients’ side.”