Published: October 25, 2010
CFOs Adjust to New Retail Reality, According to New Survey from PwC
TORONTO - (BUSINESS WIRE) - As this year's critical holiday season approaches, CFOs have shifted
their focus from reducing operating costs to driving profitable sales
through better strategy execution, improvements to merchandising
effectiveness and inventory management, according to a new Global Retail
CFO survey from PwC's Retail Consulting Services.
According to the survey, many retail CFOs reported that customers are
slowly beginning to feel more optimistic about spending and retail
chains are responding with initiatives to attract customers back into
stores by investing judiciously in inventory and technology. This was in
contrast to last year's report, which was characterized by a significant
focus on managing in the midst of the recession, leading to stringent
monitoring of inventory controls and capital expenditures and driving
substantial reductions in operating costs.
The 2010 Global Retail CFO survey, which was conducted to explore the
efforts retailers have taken to improve business and financial
performance over the past year and their priorities going into 2011, is
compiled from interviews with 56 retail CFOs, including 33 North
American and 23 International retail chains in the specialty, grocery
and department store sectors. CFOs were asked to provide insight into
five key areas: consumer sentiment, marketing/advertising, e-commerce,
inventory productivity and real estate.
"Reducing investment in inventory is still a management priority, but
retail CFOs surveyed said that this year they were allowing inventory
levels to grow selectively in core categories. CFOs described their mood
as cautious optimism, as they were starting to shift their focus to more
strategic initiatives like profitable growth, international expansion,
Board management and judicious real estate portfolio optimization," said
Antony Karabus of PwC's Retail Consulting Services.
KEY SURVEY FINDINGS:
1. Consumer Sentiment - Although
consumer sentiment and confidence is slowly rising there remains a
significant "lingering" effect from the recession as customers are more
attuned now to the "price value" proposition. Forty-nine percent of CFOs
surveyed believe their customers are feeling slightly more optimistic
about their financial situation and have begun to slowly resume retail
purchases.
2. Marketing/Advertising - Faced
with a tough sales market, retailers have been working hard to find new
and more effective ways to communicate with current and prospective
customers. According to survey respondents, retailers are more focused
now on spending advertising dollars on retaining and growing current
customers instead of acquiring new shoppers. Some cited modest early
successes with social marketing programs while others continued to
enhance their loyalty and targeted outreach tactical programs at the
expense of more traditional campaigns such as circulars, catalogues and
other brand building campaigns. Most retailers agreed that the jury is
still out on the impact of social media on sales and customer
satisfaction but that increasingly it is becoming a "necessity."
3. E-Commerce - While the
growth rate of e-commerce is outpacing that of traditional brick-
and-mortar stores, most retailers have not achieved the needed scale to
make online sales significant to their financial performance. While all
participating retailers have web sites, only 67 percent of CFOs said
that their sites were actually e-commerce transactional sites. All
participants felt some degree of channel blurring as customers often use
web sites for product research or competitive price checking and then
buy in store or at a competitor. A year later, retailers still have a
long way to go to leverage e-commerce opportunities.
4. Inventory Productivity –
Unlike 2009, when retailers were keenly focused on reducing inventory
due to much lower sales and weaker balance sheets, improving consumer
confidence has begun to shift the focus from stringent inventory
management to merchandising effectiveness and targeted inventory
investments in an effort to best serve customers. CFOs noted that while
their balance sheets are much stronger now versus the last two years of
economic turmoil, inventory management remains a key priority.
5. Real Estate – Compared to
last year's survey results, landlords, in general, were less
responsive to retailers' attempts to renegotiate leases. Many retailers
surveyed stated they were generally unable to get significant
concessions from landlords except on renewals where they were able to
better negotiate controls on future increases especially in strip malls
and enclosed malls that were not Tier "A" class shopping malls. About a
third of retailers surveyed continued to defer new store openings where
possible, but those that deferred did so on a smaller percentage of
planned new stores.
"Retailers continue to strategically manage spend and have worked hard
to minimize the risk of owning too much inventory, placing them in a
better position than in 2009. These actions have been a key driver to
improving retail balance sheets in 2010 and the continued focus will be
critical in the year ahead," said Susan McPartlin, U.S. Retail &
Consumer Industry Leader, PwC.
2010 Holiday and 2011 Priorities for CFOs
With many analysts predicting modest comp sales improvement for the 2010
holiday season versus last year, CFOs ranked cash flow management,
tighter management of inventory and sustainable reductions to SG&A as
their top three key priorities for 2010 holiday season. New to the list
of key CFO priorities from last year was a heavier focus on quality of
talent. Given the changes to the retail landscape, 10 percent of CFOs
felt that they had talent gaps either at store level or in corporate
support centers in order to navigate through today's challenging economy.
"While most retailers have already addressed the big cost reduction
opportunities, retailers now need to address the more subtle and complex
opportunities for judicious cost optimization to produce the best ROI,"
said Mr. Karabus. "Additionally, it will be critical for retailers to
put in place a methodology to ensure they sustain the savings achieved
in 2008/9 and avoid any "cost creep" .
"2011 will be another transition year for retailers as they continue to
adapt to the new world of retailing. Shoppers are applying a 'new lens'
to what they buy and will continue to trade down where it makes sense,
seeking deals and generally limiting retail purchasing to goods that are
truly needed vs. wanted. This will present new and exciting challenges
to retailers as they maneuver to respond."
For more information regarding the 2010 Global Retail CFO survey, please
contact Jessica Liddell of Berns Communications Group at 212-994-4660 or jliddell@bcg-pr.com.
Notes on Survey Methodology and Analysis
This survey of 56 retail CFOs includes 33 North American and 23
International retail chains in the specialty, grocery and department
store sectors. Within this group, which was 30 percent public and 70
percent private, annual sales ranged from $200 million to over $10
billion. These results are based upon the survey responses of 56 retail
CFO participants, collected during July-September 2010 and are not meant
to be representative or projectable for the entire domestic or
international retail market.
About PwC
PwC firms provide industry-focused assurance, tax and advisory services
to enhance value for their clients. More than 161,000 people in 154
countries in firms across the PwC network share their thinking,
experience and solutions to develop fresh perspectives and practical
advice. See www.pwc.com
for more information. In Canada, PricewaterhouseCoopers LLP (www.pwc.com/ca)
and its related entities have more than 5,300 partners and staff in
offices across the country.
"PwC" is the brand under which member firms of PricewaterhouseCoopers
International Limited (PwCIL) operate and provide services. Together,
these firms form the PwC network. Each firm in the network is a separate
legal entity and does not act as agent of PwCIL or any other member
firm. PwCIL does not provide any services to clients. PwCIL is not
responsible or liable for the acts or omissions of any of its member
firms nor can it control the exercise of their professional judgment or
bind them in any way.
"PwC" refers to PricewaterhouseCoopers LLP, an Ontario limited
liability partnership, which is a member firm of PricewaterhouseCoopers
International Limited, each member firm of which is a separate legal
entity.
Berns Communications Group
Jessica Liddell, 212-994-4660
jliddell@bcg-pr.com
or
PwC
Kiran
Chauhan, 416-947-8983
kiran.chauhan@ca.pwc.com
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