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HRC Study: Retail industry divided on growth strategies, capital spend

BY CSA STAFF

The majority of retailers are not doing a very good job when it comes to integrating online channels with brick-and-mortar stores.

What’s more, many retailers are not properly balancing their investment spend, sometimes investing more in online while neglecting their physical stores, which puts them in danger of losing market share.

Those are among the findings of an annual survey of retail CEOs and CFOs by HRC Advisory (HRC), a leading strategic retail advisory firm, which reports that the retail industry is divided on the growth and operating strategies and capital spend required to transform business models to succeed in today’s retail environment.

According to the report, only 20% of retailers are investing in the right combination of growth strategies — including new stores, e-commerce, m-commerce, omnichannel and existing store remodels — that is needed to compete in today’s market.

The same 20% is also significantly increasing total capital spend (by up to 50%) in 2015/2016 to fund their growth and operating strategies, enabled by greater access to external capital. As a result, this group of retailers is able to most effectively connect their brick-and-mortar stores, e-commerce and fulfillment centers.

“Disciplined capital allocation is one of the most important ways in which a CEO and CFO can influence a retail chain’s profitable growth,” said Antony Karabus, CEO of HRC Advisory, Northbrook. Illinois. “Striking the right balance between different strategies to optimize the growth trajectories of a retailer’s online and brick and mortar assets is crucial”.

The remaining 80% of the retailers surveyed are spending approximately the same amount of capital as in prior years, using internally generated cash flow. Of this group, where the vast majority of a company’s total sales and profits are generated from brick-and-mortar stores, 40% are prioritizing e-commerce and omnichannel investments as their top capital spend, with another 40% prioritizing it as their number two capital spend category, and 20% prioritizing it as their number three category.

But many of the retailers expressed concern that the emergence of new e-commerce technology applications were moving so fast that they were unsure which digital investments would bring the most effective ROI.

Here are some additional highlights of the report:

Focusing on new stores rather than remodels. Of the 80% group, 40% are prioritizing new stores as their top total capital spend (representing the largest single focus for the group,) and an additional 20% are somewhat likely to add new stores. However, only 10% are prioritizing remodeling and refreshing existing stores as a key growth strategy to increase store sales productivity, with the remaining 90% treating remodels as “maintenance” only or spending remodel capital only when required by lease obligations.

Store closures: Of all the retailers surveyed, 85% do not plan to close stores other than those in the ordinary course upon lease expiry or relocation.

International expansion no longer a priority. Only 20% of the retailers surveyed are even considering international expansion as one of many growth strategies, yet it was one of the most important areas of focus identified in the 2011 growth strategy survey conducted by Karabus. The remaining 80% has no international expansion plans at all.

The report surveyed CEOs and CFOs of chain retailers in the specialty sector (70%) (including apparel, accessories, home and footwear), department store sector (15%) and discount sectors (15%).

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