BDO: Retailers reducing overall inventory, taking on more debt

Retail CFOs are feeling cautiously optimistic despite inflation and ongoing supply chain issues.

That’s according to the 2023 BDO Retail CFO Outlook Survey, which polled 100 retail CFOs with revenues ranging from $250 million to over $3 billion. The survey found that to prepare for a potential recession, 49% of retailers are focused on reducing their excess inventory — a major issue impacting their bottom lines in 2022. They are also leaning into technology and select digital investments to address ongoing issues and prepare for the uncertainty that lies ahead.

Other top strategies include adjusting the cost structure of SKUs to create liquidity ahead of a potential recession (47%) and increasing promotional sales and discounts (43%).

The survey also found that retailers are taking on more debt — despite steep interest rates and the impact it may have on profitability. Forty-eight percent of the surveyed CFOs expect their debt will increase this year compared to 39% that said the same last year.

“Retailers may be taking on more debt this year to make an investment, such as planned store renovations or upgrading technology systems, but it is more likely that retailers are borrowing to build in a cushion,” the report stated.

Retail CFOs should be laser-focused on building resiliency this year amid a hard-to-predict economic environment., advised BDO. Here are their recommendations.

• Focus on cost optimization, not cost-cutting.  Cost cutting is a more short-term solution to decrease costs. Cost optimization is a disciplined process designed to unlock value.

Retailers that must cut can look at tactics such as staff reductions and store closings. But it’s a fine balance: Don’t cut so deeply that you jeopardize long-term growth.

• Don’t slash marketing budgets. To capture wallet share, retailers will need to develop creative marketing and promotional campaigns that target specific consumers and foster an exceptional client experience.

Marketing data should be used in a constant feedback loop so that retailers can figure consumers’ habits into their product assortment, pricing and promotional strategies.

• Resilience is all for retailers. Building resilience into business models, operations, risk management and cash flow planning is a critical strategy for both retailers with strong balance sheets and those with vulnerable ones.

Formidable operations processes and high growth potential can create a competitive edge for any retailer.

The survey was conducted in October 2022 by Rabin Research Company, an independent marketing research firm.