CHICAGO--(BUSINESS WIRE)--Mobile and online sales will continue to drive growth for retailers in 2014. However, now that e-commerce has firmly taken root in the retail industry, growth is beginning to stabilize. According to a recent BDO USA, LLP survey, a majority (64 percent) of retail CFOs expect that online sales will grow in the year ahead, representing a modest decline from the number of CFOs expressing similar sentiments last year (74 percent). At the same time, 34 percent anticipate that their online sales will remain consistent with last year, up 62 percent from 2013. Despite this realignment, however, retailers are confident that e-commerce will remain a profitable channel in 2014: They project 8.2 percent growth in online sales this year.
To achieve this projected growth, 34 percent of CFOs are focusing primarily on developing their e-commerce and mobile commerce platforms as many companies attempt to streamline and integrate multiple channels in order to compete with major players like Amazon. Along with e-commerce and mobile commerce, CFOs are also improving their merchandise assortment (28 percent) and expanding within the U.S. (24 percent) to achieve growth in the year ahead.
The rise of online retailing has also introduced new risks for retailers. With recent high-profile data security breaches at Target and Neiman Marcus, it’s no surprise that a plurality of CFOs (27 percent) say they will invest the most capital in 2014 in IT systems and technology. Meanwhile, 18 percent of CFOs plan to invest the most capital in e-commerce channels, and 12 percent say that mobile application development will encompass their largest investment, with a full 40 percent planning to increase their investment in mobile overall.
“After a banner year of e-commerce and m-commerce growth in 2013, retailers largely expect these platforms to keep delivering big returns in the year ahead,” says Natalie Kotlyar, partner in the Retail and Consumer Products practice at BDO USA, LLP. “But safeguarding this future growth requires retailers to invest across channels in order to deliver a safe, seamless and efficient experience for shoppers. All the moving parts—mobile apps, websites, supply chain IT systems, brick-and-mortar—need to be carefully coordinated for companies to hold their own in this fiercely competitive landscape.”
These findings are from the eighth annual BDO 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. The survey was conducted in January 2014.
Other major findings of the 2014 BDO Retail Compass Survey of CFOs:
CFOs maintain a domestic focus. Several of the largest U.S. retailers, including Target and Wal-Mart, have experienced challenges enacting their plans for international expansion over the past two years. Wal-Mart continues to struggle to establish its presence in China, while Target has faced roadblocks expanding into Canada, such as inconsistent inventory availability, poor merchandise assortment and customer concerns over pricing. On the heels of these headlines, only 29 percent of CFOs say that they plan to expand internationally in 2014. The challenges associated with international expansion, such as issues of scale and customer loyalty, make success elusive for retailers. As a result, many are opting to stabilize their domestic operations to stay competitive locally, while also bolstering their e-commerce channels in order to reach the growing pool of global online shoppers.
Disagreement over tax concerns. As retailers look to improve margins and cut costs in this increasingly competitive environment, a plurality of CFOs (35 percent) are primarily worried about corporate federal income tax and its impact on their bottom line. The relatively high U.S. corporate tax rate, along with the various methods that many corporations use to reduce their tax liability, remain significant issues in Washington, and their immediate impact on earnings will stay top of mind for retailers in 2014 unless Congress is able to enact substantial reform. Meanwhile, as retailers stay cognizant of their customers’ disposable income levels, individual income tax is top of mind for 22 percent of respondents, while payroll-related tax comes in at 19 percent.
Internet sales tax concerns appear muted. Concerns over internet sales tax (cited as a top tax challenge by 17 percent of CFOs) remain subdued overall. When asked to what extent their business would be impacted if the Marketplace Fairness Act were to pass this year, more than half say that they would expect minimal impact. Only 9 percent of CFOs expect a decline in e-commerce if the bill were enacted, while 19 percent anticipate that it would increase the cost of the systems that they use to track and report sales.
Asia remains popular for sourcing, but U.S. is encroaching. When it comes to sourcing opportunities, 39 percent of retailers find Asia to be the most attractive region. As rising manufacturing costs begin to strip Asia of its competitive advantage, 30 percent of CFOs responded that they are primarily focused on leveraging sourcing opportunities at home, which may offer a glimpse of optimism for job growth in the U.S. in the year ahead.
The BDO Retail Compass Survey of CFOs 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 nation’s retailers.
About the Retail and Consumer Products Practice at BDO USA, LLP
BDO has been a valued business advisor to retail and consumer products companies for over 100 years. The firm works with a wide variety of retail clients, ranging from multinational Fortune 500 corporations to more entrepreneurial businesses, on myriad accounting, tax and other financial issues.
About BDO
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