Bolstered by positive consumer indicators, retail CFOs are largely optimistic for 2017. But competition and consolidation could cloud their outlook.
That’s according to BDO USA’s 11th annual Retail Compass Survey of CFOs, in which respondents predict a 4.9% bump in total sales this year, up from 3.4% in 2016. The bullish predictions are echoed by online sales projections, with a 10.7% increase expected for the year ahead — the highest in survey history.
Still, with regulation and competition concerns mounting, there may be a bifurcation of industry performance this year. In fact, 38% of respondents cite competition and consolidation as their most concerning risk in 2017; and 11% of surveyed CFOs plan to invest more capital in M&A activity this year.
“The 2016 holiday season was a moment of reckoning for many in the retail industry,” said Natalie Kotlyar, national Leader of BDO’s consumer business practice. “Some are fired up following record-breaking results, and others are catching their last sparks. 2017 holds promise, but there’s no room for coasting in a marketplace so saturated with new and legacy concepts.”
All retail CFOs are coming to terms with escalating competition in the industry. Overall, 46% of retailers expect an uptick in deal activity, and just 1% project a decrease. Retail CFOs expect buyers will pay an average EBITDA multiple of 7.0, the highest in our survey’s history.
Additional findings of the 2017 BDO Retail Compass Survey of CFOs include:
• Trump’s tax and regulatory priorities drive uncertainty. When asked about potential tax changes, 61% of retailers say a reduction in the U.S. corporate tax rate would have the greatest impact on their business.
Another 19% cite potential state income and franchise tax audits and 10% point to expanding sales and use taxes as having the greatest impact. Retailers are keeping a close eye on the fate of the highly impactful border-adjustment tax proposal, which could impact the price of imported goods and lead to increased costs for consumers.
• Retailers integrate tech in pursuit of a perfected omnichannel recipe. It’s increasingly imperative that retailers move beyond a one-dimensional business model or risk becoming obsolete, which includes striking the right balance between brick-and-mortar and e-commerce offerings and capabilities.
As retailers assess how to take their in-store experience to the next level, 52% plan to invest in redesigning and remodeling stores. At the same time, many are focusing online, resulting in 68% planning to invest more capital in e-commerce and mobile channels in 2017. To help those channels communicate and improve operational efficiencies, 74% of retailers will invest in IT systems technology this year.
• Focusing on building a bedrock, starting with the supply chain. Consumers seamlessly transition between online and off — and they expect retailers to enable these behaviors. Ensuring transactions can take place smoothly starts with the supply chain. Thus, 39% of retail CFOs intend to invest more capital in their supply chain in 2017. And 14% of retail CFOs are most concerned with issues involving U.S. and foreign suppliers this year.
• Preparing for cyber risk and regulation. This year, 82% of retailers are EMV compliant, up from 76% last year.
EMV aside, 70% expect cybersecurity regulation to increase at least somewhat in the next year, and just three percent believe regulation will decrease. To prepare for regulations and security risks alike, 57% of those surveyed noted they increased cybersecurity spending in the past 12 months.