Last year wrapped up with consumer confidence near historic highs and jobless claims at a historic low, according to BDO Retail and Consumer Products.
These strong indicators of economic health typically translate to optimism for retailers. At the same time, the term “retail apocalypse” was mentioned 6,809 times in news articles throughout the year as reports of store closures occupy the spotlight.
The disconnect between traditional economic predictors and current industry realities has left retailers with moderate expectations for what’s to come in the year ahead. According to a mix of 100 retail CEOs, CFOs, and CIOs in BDO’s first Retail Compass Survey of CxOs, C-suite executives forecast a 3.2% increase in total sales for 2018.
More than half (53%) of retailers anticipate higher total sales this year compared to 2017 and, overall, online sales are projected to grow 6%, said Natalie Kotlyar, national leader of BDO’s Retail & Consumer Products practice
While expectations for online sales are unanimously optimistic, opinions differ among the C-suite when it comes to the role of e-commerce within the broader sales picture. According to the US Census Bureau, e-commerce sales currently make up approximately 9% of all domestic retail sales.
However, retailers surveyed are divided in their plans to devote more dollars to their e-commerce efforts. Just over half (51%) of executives surveyed said they intend to invest more capital in e-commerce and mobile commerce in 2018 than they did in 2017. Cash may be limited and competition may be stifling, but investing in anticipation of continued acceleration online—and even investing to maintain a position on the curve—is worthwhile. The trajectory of online sales as a portion of total sales is trending upwards, and retailers that don’t make the necessary investments are likely to fall behind.
The fact remains, however, that e-commerce currently comprises 9% of all retail sales and 91% of retail spending still takes place in store. The importance of in-store sales is not lost on retailers: When it comes to investments in physical space, more retailers are expanding or remodelling than downsizing.
Some retailers are investing to create a more connected and convenient in-store experience, whether by cutting time in line or arming store associates to be personal assistants. Others are optimising their real estate by transforming traditional store fronts into innovation labs, logistical space for delivery or inventory warehouses. The key is to shift from a “bigger is better” mentality to focus on how best to leverage existing space and provide consumers with specialised, frictionless experiences that keep them coming back.
This reality is punctuated by the flurry of activity—between mergers and acquisitions, IPOs, and bankruptcies—that morphed the retail landscape in 2017: Amazon and Target both acquired grocery players, while Coach bought Kate Spade and rebranded to Tapestry; online personal shopping service Stitch Fix filed for IPO; and rumours swirled around luxury retailer Valentino doing the same. Meanwhile, Nordstrom neared a family buyout and Toys “R” Us joined at least 20 other retailers in filing for bankruptcy. Retailers expect 2018 will be another busy year.
RPA Perspective Retailers are also feeling the heat as Amazon continues to permeate the market. According to a Bloomberg analysis from July 2017, the behemoth was mentioned by corporate executives as a risk 635 times over 90 days on earnings calls, compared to 162 times for the President. With this threat top of mind, more than 1-in-4 retail executives think strategic acquisitions will be driven by attempts to protect or gain market share.
According to BDO’s first Retail in the Red: Bi-Annual Bankruptcy Update, Amazon is not the sole cause of distress within the industry. The plurality of retailers that filed for bankruptcy in the first half of 2017 had accumulated over $5 billion of liabilities in aggregate. This increase in liabilities is likely due to a substantial uptick in leveraged private equity buyouts. In our CxO survey, it’s CIOs who most expect this trend to escalate in the year ahead. In fact, 57% of retail CIOs believe there will be more bankruptcies among retail and consumer products companies in 2018 compared to 28% of CFOs.
The highest percentage of retail executives surveyed think price is most critical to today’s consumer by a large margin. Meanwhile, just a quarter of respondents perceive convenience or customer experience to be shoppers’ main priority. And while variety, brand prestige, and healthy living may motivate a specific fraction of the population, these factors could be more of a perk than necessity for the vast majority.
The precondition for strong connectivity across the business and with customers has retailers dedicating resources to spur engagement and bolster their tech infrastructure to support it. Specifically, retail executives plan to invest more in their advertising and marketing strategies, IT systems and technology, and e-commerce and mobile channels in 2018.
As brands are expected to offer unprecedented degrees of convenience and speed, over one-third of retailers are planning to invest in initiatives that enable Internet of Things (IoT) and automation adoption in the year ahead. Between voice-controlled shopping, one-click ordering, robotic packaging and drone delivery, it’s evident that no aspect of retailing is exempt from technological disruption. For businesses, both consumer-facing and in-house innovation is a mandate, not an amenity.
