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A better outlook for retail from across the pond

The old adage that 'when America sneezes, the rest of the world catches a cold' has certainly rung true during this recession, with many countries following suit after the U.S. economy faltered. By Helen Dickinson

GENERAL MERCHANDISE

A better outlook for retail from across the pond

But what happens after the sneezing has stopped and America starts to feel better? With this question in mind I thought I would share some research which was published across the pond recently by my KPMG colleagues.

According to the survey, which reflects the responses of 65 CEOs and other C-level executives in the American retail industry, 70 percent expect business conditions to improve in 2010, with 68 percent anticipating stronger revenue and 66 percent expecting improved profitability. However, 44 percent still believe the U.S. economy as a whole could take as long as 2011 or later to substantially recover.

Overall, 84 percent see an improving jobs picture in the industry in 2010, with 52 percent stating it would be stable and 32 percent saying it will be better than 2009. At the same time, three-quarters said they had already instituted headcount reductions and only 14 percent were contemplating further action in this area.

This means the outlook for the year ahead and beyond should be heartening both for the sector and America’s economy alike. The importance of the retail industry to gross domestic product and overall economic health cannot be overstated as it is the second largest industry in the US, employing the second highest number of people among all sectors.

In coping with the economic downturn, more than nine in ten (91 percent) said they had cut capital expenditure. But the survey also asked retailers to indicate if their strategic focus was now on investing for growth or cutting costs. More than half (54 percent) chose the investment option, but 46 percent said they were still focused on cost cutting.

A clear majority (77 percent) said they were implementing IT solutions to reduce operational costs as a means to adjust to the downturn.

Looking ahead, when asked to identify the triggers that will spur a U.S. economic recovery, the most frequently-cited factors by far were increased consumer spending (52 percent), improved consumer confidence (51 percent) and an increase in jobs/employment (48 percent).

The biggest challenges currently being faced in dealing with the economic downturn, include restoring consumer confidence (55 percent), finding new sources of revenue growth (51 percent), managing/cutting costs (48 percent), and adjusting to changing customer demand (46 percent).

But 69 percent of retail executives believe their business is well-poised right now to take advantage of an economic recovery. Also, 49 percent of the respondents said they thought the retail industry would fully recover ahead of the U.S. economy, while 51 percent thought their industry would recover at the same time or after the U.S. economy.

It seems that the retailers surveyed which have taken the opportunity to consolidate and restructure their operations and risk exposure, as well as invest for the future during the past year, are now preparing as the economy rebounds. Those surveyed are cautiously optimistic that they have seen the economic bottom and 2010 will look more favourable for the industry.

So, with UK retail having been suffering from a chill for some time, this more positive outlook is one trend we would love to see coming this way.


Helen Dickinson, Head of Retail, KPMG

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