Retail Rationalized

Majority of Businesses Say They Are Surviving, Not Thriving, in 2019

44% of Retailers Preparing for a Market Correction

New research from BDO Retail Rationalized study identifies survivors and thrivers in a volatile economy.

February 06, 2019 — CHICAGO–(BUSINESS WIRE)–More than half (54 percent) of traditional retailers—including big box, department store, discount and specialty retailers— say they are just surviving headed into 2019, according to the 2019 BDO Retail Rationalized Survey of 300 c-suite executives. The survey’s findings laid bare a clear distinction between the Survivors, retailers who report being stable and breaking even, and the Thrivers, who identify as profitable and experiencing robust growth. Survivors tend to avoid risk and are focused on keeping pace with traditional competitors, while Thrivers are making smart bets and focused on standing out from competition with exclusive offerings.

An overwhelming majority of pure play e-commerce businesses (84 percent) say they are thriving, likely thanks to their lighter overhead and lack of dead store weight, while one-in-five department stores (9 percent) report struggling as they seek to optimize their physical assets and best compete with online offerings and attractive prices.

“The majority of retailers are stuck in survival mode,” says Natalie Kotlyar, national leader of BDO’s Retail and Consumer Products practice. “Playing catch-up in perpetuity is preventing retailers from seizing new opportunities and leapfrogging the competition. It’s time for retailers to get rational: Scale with stability. Focus with foresight. Invest with intention.”

Excerpts from the Retail Rationalized Survey

Capital Moves and Investments
Sometimes it takes money to make money. Two in three C-suite executives surveyed say they have recently secured—or will soon secure—outside capital, but their needs for capital infusion vary by type of retailer.

Traditional retailers that need capital are largely using it to remain stable, while the majority of pure play e-tailers are looking to capitalize on growth. A sign of industry health overall, fewer than one in five retailers need a capital infusion to drive a turnaround strategy.

Across the board, retailers are making significant investments in their e-commerce operations, with traditional retailers facing an uphill battle against pure play e-tailers who exclusively operate digital channels. As a result, retailers’ real estate assets are the lowest priority for investments, and among those who have changes planned for their store footprints, most are remodeling or downsizing. Still, over one in three Thrivers are planning to grow their store count, with some e-tailers making their foray into the physical space.

Retailers are also planning to invest in improving their customer experiences over the next 12-18 months. As younger generations are increasingly spending on experiences over material goods, it’s critical that retailers make a compelling case for dollars to be spent on their brand. Facing heightened demand for convenience, exclusivity, novelty and authenticity, nearly all retailers are dedicating resources to enhance delivery services and product lines, as well as boost speed to market for new products.

Competition & Differentiators
To have foresight, retailers must first have a firm understanding of their status quo, including their strengths, weaknesses and true competitive differentiators.

The highest percentage of retailers believe that their exclusive products, customer service and in-store experiences set them apart from their greatest competitor—with the top differentiators varying by category. In particular, most pure play e-commerce and specialty retailers tout their exclusive products, while big box and discount retailers rely on their customer service to capture business from competitors. Department stores see their physical space as their strongest assets and hope their in-store experiences are more memorable than competitors.

Although some retailers may not consider Amazon their greatest direct competitor today, 70 percent of those surveyed believe the cons of partnering with Amazon outweigh the pros. With most retailers disinterested in leveraging the behemoth’s reach and reputation, they are wise to Amazon-proof their business as the giant continues to extend its roots.

Only 9 percent of retailers see exclusive products as Amazon’s biggest advantage over their business. While this may change as Amazon continues to roll out its private label brands, Thrivers are wise to be capitalizing on this perceived gap today.

Similarly, just 4 percent of retailers see customer service as Amazon’s biggest advantage over their business. Despite the convenience that Amazon offers, they are perceived to lack strong customer service when it comes to experience and human interaction—areas where Survivors are doubling down.

Technology & Transformation
Only 14 percent of retailers see superior technology as a top advantage over competitors. As technology continues to disrupt all business functions, from finance to supply chain and marketing, it’s likely that future Thrivers will be the ones in that 14 percent.

Notably, 70 percent of those surveyed believe the cons of partnering with Amazon outweigh the pros. Only 9 percent of retailers see exclusive products as Amazon’s biggest advantage over their business. While this may change as Amazon continues to roll out its private label brands, Thrivers are wise to be capitalizing on this perceived gap today...

According to our 2019 Middle Market Digital Transformation Survey, 38 percent of retailers plan to increase their spending on digital investments by between 1 percent and 9 percent over the next 12 months, while 27 percent plan to increase their spending by 10 percent or more.

Deciding where to implement new technology is a challenge, and often comes with a trade-off. Retailers across the board cite competition as a top factor driving business transformation and investments in new technology. To leapfrog competitors, however, retailers should prioritize revenue-generating digital initiatives that address consumer pain points unmet by competitors or automate routine processes that detract from that focus.

Capturing R&D credits can help offset some of those hard investment choices, as they are designed to encourage innovation and reward retailers for investing in related personnel, research and equipment. However, one in five retailers surveyed are not taking advantage of R&D tax credits.

Competitive Retailers Foresee Turbulent Times

To gauge retailers’ perceptions of their standing, the survey queried respondents to evaluate their strengths, weaknesses and true competitive differentiators. Most importantly, Thrivers are planning ahead: the survey revealed 51 percent are actively preparing for an economic downturn and 52 percent anticipate increased levels of retail bankruptcy in 2019. Conversely, the majority of Survivors are taking a wait-and-see approach to what could be a legitimate retail apocalypse.

Capital Investments Needed
Two-in-three c-suite executives surveyed say they have recently secured—or will soon secure—outside capital, but their needs for capital infusion vary by type of retailer. Across the board, retailers are making significant investments in their e-commerce operations, however over one-in-three Thrivers are planning to grow their store count, with some e-tailers making their foray into the physical space. A sign of industry health overall, fewer than one-in-five retailers need a capital infusion to drive a turnaround strategy.

To Amazon or Not to Amazon? Retailers Weigh Partnerships
Notably, 70 percent of those surveyed believe the cons of partnering with Amazon outweigh the pros. Only 9 percent of retailers see exclusive products as Amazon’s biggest advantage over their business. While this may change as Amazon continues to roll out its private label brands, Thrivers are wise to be capitalizing on this perceived gap today.

Technology & Transformation
The majority (38 percent) of retailers say consumer demand is the greatest driver of digital transformation, yet only 41 percent are planning to significantly invest in improving their understanding of customer behavior over the next 12-18 months. To leapfrog competitors, retailers should prioritize revenue-generating digital initiatives that address consumer pain points unmet by competitors or automate routine processes that detract from that focus.

Read the entire Retail Rationalized survey here.

 

 

 

About the 2019 BDO Retail Rationalized Survey
The 2019 BDO Retail Rationalized Survey was conducted by Rabin Research Company, an independent marketing research firm, in November 2018. The survey included a mix of 300 CEOs, CFOs and COOs from Retail & Consumer Products companies with revenues ranging from $50M-$3B.
About BDO USA
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. For more than 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through more than 60 offices and over 500 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multi-national clients through a global network of 1,408 offices in 154 countries.
BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. For more information please visit: www.bdo.com.