OPERATIONS

BDO risk report: Growth opportunities fueling new concerns for retailers

BY Marianne Wilson

Chicago — General economic conditions, federal, state and/or local regulations, and retail competition/consolidation ranked as the top three risk factors cited by retailers, according to a survey by BDO USA. Rounding out the top five: U.S. and foreign supplier/vendor concerns and labor (health coverage, union concerns, staffing) concerns.

The 2014 BDO Retail RiskFactor Report, the firm’s eighth annual analysis of the top risks impacting the retail industry (based on analysis of 10-K filings from the 100 largest U.S. retailers) also found that a different set of top challenges — those more closely associated with growth initiatives — are emerging in the retail industry as retailers focus on more upbeat economic news.

This year, 78% of retailers noted risks related to U.S. growth, up 22 percentage points from 2013; 74% cited merger and acquisition risks, up 20 percentage points from 2013. Retailers are finding that a competitive market and growing consumer demands for an omnichannel shopping experience require expanding distribution channels and updating storefronts, web presence and IT systems, whether through strategic acquisitions or careful capital investments. However, both approaches involve financial and organizational challenges, and 89% of retailers indicated concerns about successfully implementing their business strategy.

The study also found that retailers contending with growing workforce challenges, including attracting and retaining store associates and distribution center workers. In addition, the cost of labor is a top concern as retailers contend with calls for minimum wage increases and the growing costs of benefits. Labor concerns reached the top five risk factors overall for the first time this year, with 94% of retailers citing it as a risk.

Additional findings in the BDO report include:

Interest Rates Take Over as Top Economic Risk. For the first time in the study’s history, interest rates (80%) overtook fuel prices (74%) and unemployment (70%) as the most frequently cited economic concern.

While the slowly improving job market bodes well for retailers, it is heightening concerns that the Federal Reserve may move to increase interest rates after five years of historic lows. In addition to the potential impact on consumer spending and sales, retailers also express concern that changes in interest rates could impact their debt financing and pension plan assets.

Breach Concerns are Universal. Risks related to IT systems and data breaches are at an all-time high. Since 2009, the number of retailers citing concerns over data security has more than doubled, and now nine-in-ten note it as a risk factor. While the industry continues to invest in security improvements, growing concerns over litigation (91%) suggest that failures can be costly beyond the harm to brand reputation and customer loyalty.

International is a Risky Area for Growth. Eight-in-10 retailers cite international operations risks including managing a dispersed workforce and complying with international laws and regulations like the Foreign Corrupt Practices Act. While most retailers source internationally in U.S. dollars, international sales expose companies to currency exchange rate fluctuation risk, which was cited by 67% as an economic concern, up from 40% in 2013.

Regulation is a Growing Concern. Eighty-seven percent of retailers noted concerns related to accounting standards and regulations, up from 69% in 2013, and the most in the report’s history. Much of this pressure can be attributed to a renewed focus by companies, auditors and regulators on internal controls, including the new COSO internal control framework published in 2013.

BDO US is a professional services firm providing assurance, tax, financial advisory and consulting services to a wide range of publicly traded and privately held companies.

keyboard_arrow_downCOMMENTS

Leave a Reply

No comments found

Polls

Consumer confidence is high. Is that reflected in your stores’ revenues?

View Results

Loading ... Loading ...
OPERATIONS

Study: Amazon low-price leader in several categories

BY Dan Berthiaume

Ottawa, Canada – Amazon.com was the predominant low-price leader in several product categories from January through early April 2014. 360pi compared the pricing strategies of the industry’s top retailers, such as Amazon, Walmart, Home Depot, Costco and others, all based off of Amazon’s own product assortment relative to other retailers in power drills, televisions and outdoor gear.

360pi analysis shows that Amazon lowered prices on power drills by 14% from Jan. 19 to April 9. Except for Jan. 16-23, when Home Depot claimed the lowest prices for power drills, Amazon maintained its lead in price competitiveness throughout January and April. In fact, Home Depot priced up to 5% below Amazon for nearly seven days, from Jan. 16-23, before Amazon reclaimed the lowest prices on power drills by performing its steepest short-term price drop of the season in the days following Jan. 23. On average, Wal-Mart followed Amazon’s lead closely, never pricing more than 5% higher than Amazon, and actually matching Amazon prices consistently throughout March.

Amazon also dropped prices on televisions by nearly 10% just before the Super Bowl, and then steadily increased prices by 15.5% from January 29 to April 9, jumping up right after the Super Bowl heading into the March Madness playoff season. Amazon was the most price-aggressive retailer in the category, causing retailers to appear as much as 22% higher priced than Amazon during January and February. From Jan. 2 to April 8, Costco maintained lower prices than Amazon 75.3% of the time, and at its best, Costco’s prices were up to 4% lower than Amazon.

“Weather isn’t the only thing that heats up in the spring and summer months — March Madness is the spring’s most popular sport, and baseball ramps up as we head into the summer,” said Jenn Markey, VP marketing at 360pi. “The fact that television prices appear to have increased just after the Super Bowl heading into March Madness may point to the theory that retailers believe they don’t have to create a need for people to buy televisions during popular televised sport months.”

According to the pricing data, Amazon appears to have set its sights on gaining market share in outdoor gear. In the outdoor SKUs that Amazon, Sears, Dicks Sporting Goods and Newegg have in common, Amazon has prices that were 23 to 40% lower than its competition. Walmart was also aggressive with its outdoor gear prices, as it was never more than 5% higher than Amazon in Amazon’s own assortment.

keyboard_arrow_downCOMMENTS

Leave a Reply

No comments found

Polls

Consumer confidence is high. Is that reflected in your stores’ revenues?

View Results

Loading ... Loading ...
REAL ESTATE

Starbucks expanding in Latin America

BY Marianne Wilson

Seattle — Starbucks Coffee Company is expanding its presence in Latin America, with plans to open locations in Colombia, Bolivia and Panama.

Starbucks said it is on track to open its first store in Colombia, in the city of Bogota, in mid-summer 2014 through a joint venture between two of its longest-term business partners in the Latin America region – Alsea and Grupo Nutresa. During the next five years, the joint venture plans to expand aggressively in Bogota and to other major cities in Colombia.

Later on in 2014, Delosi, Starbucks’ business partner in the Andean region, plans to open Starbucks first store in Bolivia, in the commercial center of Santa Cruz. Starbucks sees an opportunity to add up to 10 stores in Bolivia over the next several years.

In early 2015, Corporación de Franquicias Americanas, Starbucks’ Central America business partner, will open Starbucks first store in Panama. Over the long term, Starbucks and CFA plan to open more than 20 stores in Panama.

“We see significant opportunity to grow our retail presence beyond the more than 740 stores and 10,000 partners we currently have in 12 countries in the region in a way that will continue to celebrate the region’s rich coffee heritage while also deepening our relationships with each of the communities we serve,” said Cliff Burrows, group president, Starbucks Americas, U.S., and Teavana.

keyboard_arrow_downCOMMENTS

Leave a Reply

No comments found

Polls

Consumer confidence is high. Is that reflected in your stores’ revenues?

View Results

Loading ... Loading ...