More than half of retailers (57%) anticipate a recession in the next one to two years, but that isn’t hindering their growth strategies or stopping them from securing outside capital.
Digital transformation (67%), product or service expansion (65%), restructuring or reorganization (40%) and geographic expansion (36%) ranked as the top growth strategies that retailers are planning to pursue in 2020, according to a survey of retail CFOs by BDO. Investing in technology or infrastructure (28%), data privacy (16%) and preparing for an economic downturn (15%) ranked as their top priorities. The top three departments for increased investment were IT (69%), marketing/sales (69%) and risk management and compliance (60%).
The “BDO 2020 CFO Outlook Survey: Retail Rationalized” found that 53% of retailers secured capital last year and among those who did, 89% will look for more this year. The primary uses for outside capital were to capitalize on growth (59%), remain stable (24%) and drive a turnaround strategy (17%).
“Retailers aren’t shying away from using outside funds to capitalize on growth, but without adequate reserves to withstand a recession, any growth could be usurped by significant debt,” the BDO report warned.
Seventy-three percent of retail CFOs said their business is thriving, with 83% anticipating a revenue increase in 2020, and 77% expecting higher profitability. CFOs at big-box retailers are the most confident, with 92% saying their companies are thriving, followed by specialty retailers (76%), pure-play e-tailers (64%) and department stores (61%).
“Retail bankruptcies are accelerating, trade tensions are hindering sales, and a recession could be looming,” said Natalie Kotlyar, partner and retail and consumer products practice leader, BDO. “And yet, many retailers are thriving in uncertainty, refuting the rumors of an industry-wide apocalypse. But even today’s retail winners may stumble if the economy takes a turn for the worse and consumer spending drops off. Choppy waters lie ahead. To stay afloat, retailers must balance smart, customer-centric investment with financial discipline.”
Other survey findings are below.
• When considering their greatest geopolitical risks, trade tensions topped the list (28%), followed by the 2020 U.S. presidential election (22%) and potential economic downturn (19%).
• In response to escalating trade tensions, 40% of retail CFOs said they have raised prices on goods—a move that could heavily impact early 2020 sales and margins.
• Forty percent of retail CFOs also said they have considered other domestic alternatives for supply sourcing, and 39% have considered sourcing from other countries outside of China.
• PayPal (90%), Apple Pay (85%) and private-label credit cards (84%) are retailers’ most widely offered payment options. Venmo (71%) and AfterPay (68%) are catching up, as consumers seek greater payment flexibility, according to BDO.
For the full BDO study, click here.