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BDO survey: Retailers preparing for downturn

A majority of retailers are surviving, but not thriving.

More than half (54%) of traditional retailers—including big-box, department store, discount and specialty retailers— say they are just surviving headed into 2019, according to a BDO survey of 300 c-suite executives. At the opposite end of the spectrum, 84% of pure play e-commerce businesses say they are thriving, likely thanks to their lighter overhead and lack of dead store weight.

The findings of the “2019 BDO Retail Rationalized Survey” laid bare a clear distinction between the “survivors,” retailers who report being stable and breaking even, and the “thrivers,” those who identify as profitable and experiencing robust growth. Survivors tend to avoid risk and are focused on keeping pace with traditional competitors, according to BDO, while thrivers are making smart bets and focused on standing out from competition with exclusive offerings.

The survey revealed that thrivers are planning ahead, with 51% actively preparing for an economic downturn in 2019. Also, 52% anticipate increased levels of retail bankruptcy in 2019. Conversely, the majority of survivors are taking a wait-and-see approach to what could be a “legitimate retail apocalypse,” according to BDO. Four-four percent of all retailers surveyed are actively preparing for a market correction in 2019.

“The majority of retailers are stuck in survival mode, said Natalie Kotylar, national leader of BDO’s retail and consumer products practice. “Playing catch-up in perpetuity is preventing retailers from seizing new opportunities and leapfrogging the competition. It’s time for retailers to get rational: Scale with stability. Focus with foresight. Invest with intention.”

Notably, 70% of those surveyed believe the cons of partnering with Amazon outweigh the pros. Only 9% of retailers see exclusive products as Amazon’s biggest advantage over their business.

In other survey highlights:

• Two-in-three c-suite executives surveyed say they have recently secured—or will soon secure—outside capital, but their needs for capital infusion vary by type of retailer. In a sign of industry health overall, fewer than one-in-five retailers need a capital infusion to drive a turnaround strategy.

• Retailers are also deploying capital into M&A—and increasingly, with nontraditional partners. In fact, the value of U.S. deals in the retail trade sector reached approximately $8.85 billion as of Q3 2018, according to Statista. Deal activity throughout 2018 illustrates the growing trend of traditional retailers partnering with start-ups and pure-play e-tailers—some of which may have once been competitive threats.

• Across the board, retailers are making significant investments in their e-commerce operations. As a result, retailers’ real estate assets are the lowest priority for investments, and among those who have changes planned for their store footprints, most are remodeling or downsizing. Still, over one in three thrivers are planning to grow their store count, while some e-tailers making their foray into the physical space.

• After e-commerce operations, retailers’ biggest areas of investment include cybersecurity, marketing, supply chain, and inventory management.

• The majority (38%) of retailers say consumer demand is the greatest driver of digital transformation, yet only 41% are planning to significantly invest in improving their understanding of customer behavior over the next 12 to 18 months. To leapfrog competitors, retailers should prioritize revenue-generating digital initiatives that address consumer pain points unmet by competitors or automate routine processes that detract from that focus.
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