Majority of retail CFOs doubt double dip speculation, according to BDO USA LLP study amid a sluggish consumer confidence forecast, unemployment to blame
By BDO USA, LLP
Chicago, IL – According to a recent study by BDO USA, LLP, one of the nation’s leading accounting and consulting organizations, 82 percent of chief financial officers at leading U.S. retailers anticipate a continuation of stagnant economic conditions as opposed to a double dip (9%) or an ongoing turnaround (9%). The majority (78%) of retail CFOs cite an ongoing economic turnaround as most dependent upon lower unemployment or consistent improvement in consumer confidence and spending. In contrast, less than one quarter of respondents cite either a rebound in the housing market (10%) or continued rebound in the U.S. and global financial markets (9%) as contingencies for an economic turnaround. Only two respondents believe the success of the Financial Reform Bill will influence an ongoing turnaround.
Unemployment seems to be the linchpin to retailers’ recovery; seventy-six percent cite it as the economic issue having the greatest impact on consumer confidence for the balance of 2010 (a jump from 64% in 2009). The impact of personal credit availability and debt levels (14%), the weak housing market (4%) and market volatility (4%) are also playing a role.
“Even with the slight improvements we’ve seen in recent consumer confidence numbers, the weak job market is darkening consumer’s long-term outlook. Retailers simply cannot answer the question ‘what will improve the job market in the US?’” said Al Ferrara, National Director, Retail & Consumer Product Practice at BDO USA, LLP. “An unemployment rate of 9.6 percent shows that a pint size recovery persists. In addition, the back-to-school season proved that offering deep discounts and value-oriented items remains critical.”
These findings are from the most recent edition of the BDO USA, LLP Retail Compass Survey of CFOs, which examined the opinions of 100 chief financial officers at leading retailers located throughout the country. The retailers in the study were among the largest in the country, with revenues ranging from $100 million to $100 billion. The survey was conducted in August and September of 2010.
Some of the major findings of the BDO USA, LLP Retail Compass Survey of CFOs include:
Mixed Assessment of Stimulus Package Provisions. The two-year anniversary of the Economic Stimulus Act is approaching, yet retail CFOs are still torn about which provisions have been helpful for their business. So far, the consumer tax incentives/Make Work Pay are having the biggest impact (40%) followed by corporate tax incentives (25%), bonus depreciation (22%) and increased deduction limits for asset write-offs (15%).
Retail M&A Activity to Rise. Despite a tepid outlook, almost all CFOs (94%) anticipate that merger and acquisition activity in the retail sector will increase or stay about the same during the next year or so as low interest rates and a favorable corporate debt climate remain. Seventy-six percent of CFOs expect retail M&A to take place in the United States market as opposed to Asia-Pacific (17%) or Europe markets (7%).
Asia Market Improving Despite China Sourcing Issues. When asked which one region CFOs will look to do business with in the future, Asia (39%) and Southeast Asia (24%) still lead the pack; as Vietnam, Indonesia, Cambodia, Bangladesh continue to gain popularity as apparel sourcing countries. North America (11%), Europe (7%), Central America (6%), South America (5%) and Africa (2%) follow. Interestingly CFOs (24%) say their company has taken action to reduce exposure to Chinese sourcing in the past year. Inflation remains a threat for Chinese suppliers and retailers question their ability to absorb costs and maintain profit margins.
Retailers Commit to Going Green. According toThe National Academy of Sciences’ recent global survey of 1,400 climate researchers, ninety-seven percent of respondents believe we are causing global warming. Perhaps retailers agree – 70 percent of CFOs say they are involved in green practices. In fact, retailers are taking a number of steps to reduce their carbon footprints including recycling (70%), using less paper (64%), and reducing electricity in: stores (43%), offices/other facilities (38%) and distribution centers (26%).
Taking Advantage of Green Tax Incentives. Retailers are also taking advantage of green tax incentives, as “going green” becomes more beneficial to the bottom line. CFOs are taking advantage of the following green tax incentives: energy efficient lighting (88%), energy efficient heating/cooling systems (35%), energy efficient building insulation (19%), state and local green incentives (19%) and energy efficient commercial building deductions on new buildings (12%).
The BDO USA LLP Retail Compass Survey of CMOs is a national telephone survey conducted by Market Measurement, Inc., an independent market research consulting firm, whose executive interviewers spoke directly to chief financial officers, using a telephone survey conducted within a scientifically-developed, pure random sample of the national’s retailers.
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