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Keri Toomey
Bliss Integrated Communication
212.584.5471
Keri@BlissIntegrated.com

Monday, May 14, 2012
2012 RETAIL RISKFACTOR REPORT
FUEL PRICES OVERTAKE UNEMPLOYMENT AS RETAILERS’ CHIEF ECONOMIC RISK, BDO USA REPORT FINDS

- Mobile Technology Brings Security Risks to the Forefront –

Chicago – May 14, 2012 – As summer approaches, retailers are feeling the heat from volatile fuel prices. A study by BDO USA, LLP, a leading accounting and consulting organization, found that while the economy remains the top risk for the nation’s largest retailers, concerns over the cost of fuel prices outpaced unemployment for the first time since 2009. Of the 99 percent of retailers citing general economic conditions as a risk, 71 percent point to fuel prices as a primary reason, up from 58 percent last year. With tepid progress in job reports, 68 percent of retailers note lingering concerns over unemployment, but the risk is down from its peak in 2010 (70 percent).

The 2012 BDO RiskFactor Report for Retail Businesses, which examines the risk factors listed in the most recent SEC 10-K filings of the largest 100 public U.S. retailers, also found that IT infrastructure and security risks have increased, partially due to growth of the mobile platform. This year, concerns over the maintenance of IT systems and operations leapt from the 12th most cited risk factor to the 6th. Following the significant data breach at Global Payments, security risks jumped 31 percent from the 19th most cited risk factor to the 12th. As retailers have more data than ever to protect and increasing endpoints due to the increased use of mobile devices, business interruption risks are also more worrisome. Retailers also reported heightened concerns over geopolitical events and natural disasters, which moved from the 9th most cited risk factor to the 5th, largely due to the Japanese tsunami and volatility in the Middle East.

"Despite a dip in April, consumer spending has been improving, and retail executives feel that their strategy adjustments are on point," said Doug Hart, partner in the Retail and Consumer Products Practice at BDO USA, LLP. "This year, there is an increasing concern over unknown external factors, such as IT security, supply chain disruptions and geo-political events that could derail the execution of their strategies. While retailers are also concerned about gas prices this summer, they are otherwise encouraged by consumer spending."

The following chart highlights the top 20 risk factors cited by the 100 largest U.S. retail companies:

2012

Rank

 

2012

2011

2010

2009

1.

General Economic Conditions

99%

97%

96%

96%

2.

U.S. and Foreign Supplier/Vendor Concerns

97%

95%

86%

86%

3.

Competition & Consolidation in Retail Sector

94%

95%

85%

87%

4.

Federal, State and/or Local Regulations

85%

92%

72%

66%

5.

Terrorism, Natural Disasters & Geo-political Events

84%

83%

70%

64%

6.

Implementation & Maintenance of IT Systems

83%

73%

64%

61%

6t.

Dependency on Consumer Trends

83%

87%

63%

63%

8.

Credit Markets/Availability of Financing & Company Indebtedness

82%

86%

84%

93%

9.

Consumer Confidence and Spending

81%

77%

83%

74%

10.

Labor (health coverage, union concerns, staffing)

78%

84%

70%

74%

11.

Legal Proceedings

73%

84%

62%

47%

12.

Privacy Concerns Related to Security Breach

72%

55%

51%

46%

13.

Failure to Properly Execute Business Strategy

68%

80%

43%

32%

13t.

International Operations

68%

70%

55%

47%

15.

Loss of Key Management/New Management

63%

73%

49%

48%

16.

Consumer Credit and/or Debt Levels

59%

65%

69%

49%

17.

Changes to Accounting Standards and Regulations

58%

72%

58%

44%

18.

Mergers & Acquisitions, Joint Ventures

54%

62%

47%

41%

19.

Seasonality and Cyclicality of Results; Holiday Sales

49%

48%

44%

44%

20.

Insurance Costs & Uninsured Liabilities

46%

53%

40%

36%

20t.

Impediments to Further U.S. Expansion

46%

67%

57%

50%

Further findings in The 2012 BDO RiskFactor Report for Retail Businesses:

  • Supply Risks Paramount Amid Pricing Pressures and Currency Fluctuation.. Although commodity costs have stabilized, supply risks remain a significant focus for retailers. For the third year in a row, U.S. and foreign supplier and vendor concerns are the second most commonly cited risk factor. Rises in China sourcing costs and volatile foreign currency exchange rates contribute to these concerns. Among retailers who note supply risks, 81 percent of companies specify pricing pressures as a key factor of their concern. For retailers sourcing internationally, currency risk is also a mounting issue with 56 percent of retailers citing it as one of their top economic concerns. This marks a significant jump from 2011 (27 percent).


  • U.S. Expansion Risks at All Time Low. . Risks associated with U.S. growth and expansion are at the lowest levels since the start of the study in 2006. Just 46 percent of retailers note concern over U.S. expansion, an indicator of softness in the retail real estate market and modest store expansion plans as commerce gradually shifts to the Internet. However, as the industry becomes increasingly global, international operations risks continue to be top of mind. A vast majority of retailers (68 percent) cite international risks as political turmoil and the European debt crisis impact sales, vendors and distribution channels.


  • Holiday Performance More in Focus as Consumers Recover . Positive sales results in the first quarter have left retailers feeling more confident about consumer spending. Concerns over consumer confidence still linger in 10-Ks for 81 percent of retailers, but are stabilizing following a peak in 2010. Risks associated with demand and the ability to stay up to date with consumer trends are also on the decline (83 percent vs. 87 percent in 2011). Still, a great deal of weight continues to be placed on fourth quarter results and the ability to attract shoppers during the holidays. Concern over holiday results and the seasonality of the industry increased to the 19th most cited risk, up from the 22nd in 2011. With year-end results impacting momentum and strategic plans for the year ahead, a strong holiday performance is crucial for success.


  • Regulation Risks Tempered. Despite the election year, retailers are less concerned about government regulation. As the conversation in Congress shifts from corporate taxes to individual taxes, government regulation risks eased with 85 percent of retailers noting concern over regulations, down from 92 percent in 2011. Risks associated with accounting standards also tempered. With IFRS on a less accelerated track, fewer retailers (58 percent vs. 72 percent in 2011) cite accounting challenges as a risk factor.


  • The 2012 BDO RiskFactor Report for Retail Businesses examines the risk factors in the most recent 10-K filings of the largest 100 publicly traded U.S. retailers; the factors were analyzed and ranked by order of frequency cited.


Material discussed is meant to provide general information and should not be acted on without professional advice tailored to your firm’s individual needs.

About BDO

BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, financial advisory and consulting services to a wide range of publicly traded and privately held companies. For 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm services clients through more than 40 offices and more than 400 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multinational clients through a global network of 1,082 offices in 119 countries.

BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firm. For more information, please visit: www.bdo.com