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US retailers hopeful about the future

I remember writing a column about sentiment amongst retailers in the US a year ago following a survey of retailers conducted by my KPMG colleagues there and, although at the time confidence was returning for some, plenty were still feeling somewhat cautious. By Helen Dickinson, Head of Retail, KPMG


US retailers hopeful about the future

One year on, their latest survey reveals a change in how US retail businesses are feeling about their prospects. Senior executives in the industry appear to be seeing an improved business picture in 2010 and expect to see better revenue, profitability and an improving jobs picture in 2011.
Almost two-thirds of the retail industry executives who participated in the KPMG survey, which was conducted earlier this year amongst 65 CEOs and other C-level executives, said overall business conditions in retail were better now than a year ago. This is in marked contrast to last year when only one-fifth thought so. 

Looking forward to 2011, more than 90 percent of those expect better conditions, up 20 percentage points from last year’s level of optimism.
And there’s an eye to future growth too.  More than nine out of ten senior retail executives in the survey cited “product innovations” and “innovative merchandising strategies”, including online and mobile internet shopping, as their biggest revenue drivers over the next three years.

However, in the midst of this more upbeat feeling, respondents were still cautious regarding employment in their sector.  Only 14 percent of respondents thought the employment picture was better now than a year ago and when it came to their specific hiring plans, while 40 percent of respondents said they expect to add headcount, most estimated the increases to be in the range of only one to three percent. 

Also on the people theme, forty-six percent see an increase in employee salaries and bonuses this year compared to last, with 42 percent saying the level of pay will stay the same and 12 percent stating a decrease.

When considering the overall economic picture, nearly half of those surveyed expect their sector to recover ahead of the US economy as a whole.  On average, they predict an overall US economic recovery in 1.9 years, which projects to March 2012.  When asked this same question in a KPMG survey last summer, retail executives predicted the economy would recover in an average of 1.8 years, or April 2011.

So while there was more optimism in this year’s survey, the fact that the expected economic recovery timeline has been extended suggests they are still cautious about declaring the recession and its impact is completely behind them.

Asked to identify the factors most likely to hinder economic recovery in their sector, retail leaders most frequently cited continuing high national unemployment (66 percent), decreased consumer confidence (63 percent) and a distressed real estate market (28 percent) as well as limited access to credit for consumers (also at 28 percent).  And when asked to identify their biggest challenges, 25 percent said “recognising/responding to customer trends” and 23 percent pointed to “discounts driven by market competition.”

The survey also asked retail executives to indicate if their strategic focus was now on investing for growth or cutting costs.  In-line with last summer’s results, more than half (55 percent) chose the investment option, but 45 percent said they were still focused on cost cutting.

And while on the investment theme, thirty-seven percent said their ability to get financing/raise capital has improved the past six months while 46 percent stated it has stayed the same and 17 percent say it has worsened.

It is also interesting to see what the survey revealed regarding growth prospects from the American point of view too.  About half the respondents in the survey said they believe emerging markets would be a driver for revenue growth.  Forty percent said they were already expanding into emerging market countries, with China the most frequently named market (26 percent) and Latin America second (23 percent).

So, although overall optimism is on the rise for US retailers, businesses are looking to rebound from what was a drastic economic downturn for them, indicating there is considerable room for improvement yet.  They know they must do more than cut costs; they need to capture more of their customers’ spending in what will continue to be a low-growth environment. Online and mobile internet shopping represent examples of how retailers can accomplish that goal, allowing consumers to get what they want, when they want it and that is a significant key to growth in the industry.  Sounds familiar, doesn’t it?

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