Survey: Credit Squeeze Hurting Retailers

The credit squeeze that culminated in a major financial meltdown last week has been impacting retail businesses throughout 2008, according to a new study by BDO Seidman, LLP. The survey found that nearly half (41%) of CFOs at U.S. retailers have experienced a tightening of credit by their lenders. In addition, more than a third (37%) of the CFOs report a reduction of planned inventory purchases for 2008, further illustrating a difficult lending and economic environment.

“There are a number of factors that are weighing on retailers, but the compounding affect of reduced consumer spending and a restricted credit environment has been especially challenging,” said Doug Hart, a partner in the Retail and Consumer Product Practice at BDO Seidman. “We have read the headlines about the bankruptcies and government takeovers of financial institutions, but this shows the knock-on effect; retailers are now suffering from a drain on liquidity.”

The findings are from the most recent edition of the second annual BDO Seidman Retail Compass Survey which surveyed 100 CFOs at leading retailers with revenues of more than $100 million, including 24% of the top 100 based on annual sales revenue. The survey was conducted in August and September of 2008. Among the findings:

  • One-in-four (24%) of the retail CFOs cite that they have had, or plan to have, significant staff reductions in 2008.

 

  • Thirty-six percent of the CFOs say that they have, or will, close stores in 2008, with 27% citing that they will close more stores this year than they did in 2007. Consistent with other survey finds, the top 100 retailers are experiencing a more difficult climate than the other respondents. They are twice as likely to close stores, with 57% reporting that they have already or will close stores in 2008 and 33% of those retailers saying that they will close more stores this year as compared to 2007.

  • On a more positive note, three quarters (77%) of CFOs have not or do not plan to delay store-opening plans in 2008. One-third (33%) of the CFOs at the top 100 retailers report reduced or delayed store openings in 2008, which is 10% higher than the other respondents.

  • The majority (91%) of retail CFOs reported that the weak U.S. dollar has not increased their concern of being acquired by an international entity.

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