Vintage Filings Business Blog

Research released today by BDO Seidman, has identified general
economic conditions (96%) and credit availability and company indebtedness (93%) as the most common risk factors among the 100 largest public U.S. retailers. While the economy was also cited as a leading factor in 2008, credit and financing jumped from number 11 on the list in 2008 to number two this year, indicating retailers’ acute concerns over their access to financing. Seventy four percent of retailers identified consumer confidence and spending as a leading risk, which was up from 58 percent in 2008, reinforcing retailers’ dependence on consumer sentiment. Certain risk factors such as competition and consolidation (#3) and impediments to expansion (#11) dropped in importance from 2008 showing that retailers are less focused on growth in the difficult economic climate.

“When consumers stop spending and retail sales fall, banks become increasingly concerned about lending to retailers,” said Doug Hart, a Partner in the Retail and Consumer Product Practice at BDO Seidman, LLP. “In order for retailers to improve their credit standing, they either have to reduce costs, leading to layoffs; or increase sales, which is dependent on consumer spending. On a positive note, there are some bright spots on the horizon that may signal an end to the cycle. An increase in consumer confidence in April, along with incoming tax refunds, may bode well for consumer spending and the greater economy.”

These are just a few of the findings in The 2009 BDO Seidman RiskFactor Report for Retail Businesses. The report examined the risk factors listed in the most recent SEC filings of the largest 100 publicly traded U.S. retailers; the factors were analyzed and ranked by order of frequency cited.

The following is the list of the Top 20 Risk Factors of the 100 Largest U.S. Retailers:

*This ranking has been amended to include breakout statistics for consumer confidence and debt levels

Further findings in the 2009 BDO Seidman RiskFactor Report for Retail Businesses:

• General Economic Conditions. Of the 96 percent of retailers that cited general economic conditions as a concern, financial market turmoil was most frequently cited (97%) followed by energy and oil (69%), unemployment (62%), interest rates (50%), inflation/deflation (33%), and the housing market (31%). In 2008, of the 82 percent of retailers that cited general economic concern, energy and oil was highlighted most frequently (75%), followed by interest rates (55%), unemployment (53%), financial market turmoil (43%), inflation (37%) and the housing market (23%).
• Consumer Confidence Comeback to Boost Spending? The Conference Board reported an increase in consumer confidence from 26.9 in March to 39.2 in April. While still low, any boost in consumer confidence may have a correlative impact on spending – which accounts for more than two-thirds of U.S. economic activity; this may provide some relief for the 74 percent of retailers that cite consumer confidence and spending as a concern.
• Acute Sensitivity to Consumer Pain. Forty-nine percent of retailers showed increasing concern over consumer credit and/or debt levels, up from 26 percent in 2008. Since 63 percent are paying attention to general trends and demand, an increase from 45 percent who cited it as a concern last year, retailers are likely to adjust their merchandising plans to recognize changes in consumer sentiment.
• Retailers React to Fewer Shoppers. With fewer consumers hitting the stores, balancing inventory levels and having the right promotional strategy is crucial. Forty-one percent of retailers cite maintaining inventory levels as a risk for 2009, which is a big jump from 22 percent last year. The number of retailers concerned over promotions and the dissemination of consumer information increased even more drastically – 42 percent of retailers cited it as a concern in 2009, compared to 19 percent last year.
• Regulatory Risk. More than half (66%) of retailers declared that changes in federal, state and local regulations may impact their bottom line. Some reports specifically cite changes in: tax, wages and hours, consumer credit, privacy and information security laws. Also, slightly more than one third (44%) percent of the retailers state that accounting standards presented risk, up from 36 percent last year. These concerns are likely driven by fear that increased government spending and regulation may result in higher taxes to retailers and consumers.
• Privacy Pressures. Since retailers store consumer data to focus marketing efforts, they remain wary about cyber security. Forty-six percent of retailers cite consumer data security breaches as a concern, up from 40 percent last year.