Despite ongoing market uncertainty, retail chief financial officers are feeling more confident about the state of the consumer. According to a new BDO USA, LLP survey, retail CFOs forecast a 5.1 percent increase in total sales and a 4.8 percent increase in comparable store sales this year, marking a significant increase from the number expressing similar sentiments last year. A majority of CFOs (63 percent) indicate that they include online sales in their comparable sales projections, suggesting that some of this expected growth and optimism may be linked to the exploding popularity of e-commerce.
Underlying these projections, a majority of retailers (56 percent) say that they expect consumer confidence will increase in 2014. Though plunging briefly in Fall 2013 as a result of the government shutdown, confidence levels have recovered to 80.7, their highest point since August 2013, according to the Conference Board. However, CFOs remain wary of impediments to confidence, particularly a weak jobs outlook. Job creation across sectors continues to be sluggish; as a result, a plurality (39 percent) of retail CFOs cite unemployment as the top factor influencing consumer confidence in 2014.
Personal credit availability and debt levels (18 percent) also continue to place pressure on consumers, and are collectively the second most-frequently cited factor by CFOs. These numbers remain consistent with last year's survey. However, with the political climate surrounding the Federal budget stabilizing after a contentious 2013, CFOs are less concerned about tax changes: This year, only 12 percent say that tax increases will be the top influencer of consumer confidence, a 50 percent decrease from 2013.
"With consumer confidence gaining momentum, retail CFOs are relatively bullish about 2014 retail sales," said Doug Hart, partner in the Retail and Consumer Products practice at BDO. "While concerns remain about unemployment and financial market volatility due to the Fed's pullback, they appear to be offset by the housing market recovery and less concern over Washington gridlock. Retailers are hoping that those factors will help boost consumer confidence in the coming year."
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:
Regulations impacting retail employment. With growth on the horizon, retailers are taking a close look at how employment levels support their business goals. While a majority of CFOs (55 percent) say that the number of employees at their firm will stay about the same this year, a notable 40 percent say they will increase headcount, despite reports of staff layoffs and a shrinking of retailers' brick-and-mortar presences. This suggests that where retailers may not be hiring to support their in-store operations, they may be looking to bolster their e-commerce capabilities, such as online customer support and shipment fulfillment capacity.
Retailers are similarly split when it comes to compensation levels, with 46 percent expecting average compensation per employee will increase and 54 percent saying it will stay about the same. With a plurality (37 percent) of CFOs citing Federal, state and local regulations as a top risk in the coming year, it appears that retailers are trying to strike a balance between creating an employee base to support their growth while managing increased regulatory burdens. Actual and potential regulatory changes, such as the implementation of the Affordable Care Act and debates around minimum wage, may continue to impact retailers and their hiring plans in the coming year.
Online promotions win during holidays. According to the NRF, holiday sales increased by 3.8 percent, matching the prediction in last Fall's Compass Survey of Retail CMOs. Although sales matched expectations, a shorter and more competitive season led to heavy discounting that took a toll on some retailers' margins. When asked about which promotion strategies worked well this past season, CFOs indicate that online promotions that added convenience for shoppers were the top performers. Retailers cite free shipping (28 percent) and email and social media promotions (24 percent) as the most successful promotions, with extended hours (40 percent) and price-matching (20 percent) noted as the least successful tactics. For some retailers, price-matching policies may have helped drive holiday sales, but they also contributed to compressed margins that have caused some stores to adjust earnings expectations.
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