FINANCE

BDO: Retail execs bullish on tax reform; expect ‘moderate’ sales increase in 2018

BY Marianne Wilson

Retailers’ expectations for the year ahead are moderate, with c-suite executives forecasting a 3.2% increase in total sales for 2018.

That’s according to a survey of 100 retail CEOs, CFOs, and CIOs by BDO. At the same time, the industry is generally bullish for tax reform. When considering tax changes, 34% of the retailers in the 2018 BDO Retail Compass Survey of CxOs agreed that a reduction in the U.S. corporate tax rate would have the greatest impact on their business, followed by a reduction in the U.S. individual income tax rate, changes to state and local taxes, and cross-border tariffs.

The ways retailers adjust their financial and tax strategies to maximize returns will define how much money they will be able to spend on initiatives that can help them compete, the report cautioned.

“The reduced corporate rate from 35% to a flat rate of 21% is the most obvious win — the savings will be valuable for the already cash-strapped industry,” said Scott Ziemer, tax partner in BDO’s retail and consumer products practice. “However, the limitations on interest deductibility, for instance, could impact retailers who are using debt to fund new store openings within the same taxable entity, possibly resulting in higher taxable income.”

Demanding, tech-enabled consumers and aggressive competition are driving retailers to make operational improvements, according to the survey. To do so, some are tapping public or private capital, and others are absorbing businesses to fill gaps in their offerings. On the other end of the spectrum, highly-leveraged and underperforming retailers are filing for bankruptcy as sales and margins fizzle.

Additional findings from the BDO report include:

• Fifty-one percent of executives surveyed said intend to invest more capital in e-commerce and mobile commerce in 2018 than 2017. At the same time, 39% of retailers will invest more in redesigning or remodeling their stores.

• Over one-third of retailers are planning to invest in initiatives that enable Internet of Things (40%) and automation (34%) adoption in the year ahead.

• As retailers plan to invest in more digital transformation, they’re also allocating more dollars to secure these initiatives in the year ahead. Seventy-three percent of CIOs surveyed say they used new software security tools in the last twelve months, while 59% of CIOs created a response plan for security breaches and 26% hired an external security consultant.

“In 2018, retailers need to focus on their differentiators, or invest to secure one,” said Natalie Kotylar, national leader of BDO’s retail & consumer products practice. “Positive economic trends are not translating into huge sales increases, and the industry is being squeezed on all sides. Many retailers are seeking PE investment or acquiring outside companies with complementary capabilities, while others are throwing in the towel. There’s no room for brands to coast.”

BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, advisory and consulting services to a wide range of publicly traded and privately held companies.

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