Consumer confidence remains strong, but that's not stopping retailers from worrying about the economy.
General economic conditions ranked as a top risk factor for the 9th consecutive year in an annual ranking of the top 25 risk factors by retailers, cited by 100% of respondents. Cybersecurity and regulatory concerns shared the top spot with the economy.
That’s according to BDO USA’s 11th annual “Retail RiskFactor Report,” which examines the risk factors listed in the most recent SEC 10-K filings of the largest 100 public U.S. retailers. Other top risk factors include: industry competition and consolidation; natural disasters/terrorism/geo-political events; labor, litigation; implementation/maintenance of IT systems; and credit markets/availability of financing.
Retail space overcapacity is another pressing issue. As e-commerce continues to accelerate, retailers continue to reassess and optimize their real estate portfolios. Eighty-four percent of retailers cite impediments to U.S. expansion as a risk, and 69% reference risks associated with owning and leasing real estate, up from 54% last year.
In addition, failure to invest new capital in new stores or projects was cited by 63% this year. And 44% are concerned with risks associated with mall traffic and competition for prime real estate
“Retailers’ top risks show their eyes are wide open to the new wave of emerging and evolving risks, from widespread store closures and bankruptcies, to uncertain regulatory changes and mass digital disruption and its associated security threats,” said Jennifer Valdivia, partner in BDO’s Consumer Business practice. “While awareness is a key first step, retailers’ proactive responses to these vulnerabilities will ultimately determine their fate.”
In other key findings:
• Regulatory: Forty-four percent of retailers cite concerns around potential border tax, and 76% reference U.S. accounting rule changes, internal controls and financial reporting risks. Thirty-six percent list FCPA as a risk factor.
• Geopolitical: Whether by virtue of their physical store locations, supply chains or e-commerce sales, nearly all retail players are exposed to some degree of international risk. Eighty-nine percent cite international operations as a risk, up from 73% in 2016, and 41% reference impediments to international expansion, up from 30%. Twenty-two percent of retailers mention Brexit in their 10-Ks, 95% of which have U.K. operations
• Labor: Among the 98% of retailers who cite labor concerns as potential risks, 49% point to minimum wage increases, and 26% list pension costs. Eighty-five percent are concerned about the loss of key management or new leadership, up from 73% last year, and 58% cite healthcare reform and benefits risks.
• Cybersecurity: As companies grow more knowledgeable about their unique vulnerabilities and are increasingly held accountable for safeguarding sensitive data, they anticipate more cybersecurity guidance from regulators. Seventy-eight percent point to risks associated with data privacy and security regulations, and 30% name Payment Card Industry standards and EMV compliance as a concern.
To see a chart listing the top 20 risk factors in the report, click here.