Study: Retailers Eye Consumer Behavior as Economy Evolves

With sales experiencing the peaks and valleys of a slowly recovering economy, retailers are watching their customers even closer than ever.



According to a study by accounting and consulting firm BDO USO, LLP, New York City, retailers have been less concerned in 2011 about consumer confidence and spending and, instead, are more watchful of consumer demand and interest.



BDO’s 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, found that consumer confidence and spending dropped from the fifth most cited risk factor in 2010 to the eleventh so far in 2011. Conversely, 87% of retailers are concerned with consumer demand and interest, up from 63% in 2010.



Almost all retailers -- 97% -- said general economic conditions remain their top risk. However, because of the decline in risks associated with consumer spending, BDO says it’s clear that retailer confidence in the recovery is increasing.



“Retailers are shifting away from the defensive recessionary mode. They are paying more attention to controllable risks, as opposed to external factors like economic conditions,” said Doug Hart, partner in the Retail and Consumer Product Practice. “Consumer balance sheets are stronger, and retailers see a critical opportunity to sharpen inventory and offer a breadth of merchandise.”



Among other report findings, top retailers have reason to be concerned about personnel risks. Amid several executive leadership changes, risks associated with the loss of key personnel saw a notable 49% increase this year. Seventy-three percent of retailers cited it as a concern.



This year has seen a return of mergers, acquisitions and growth plans. The recovery of both consumer spending and corporate bond markets has contributed to a recent spate of retail acquisitions by private equity firms. As a result, risks associated with mergers and acquisitions and joint ventures are back on the rise (62%), up from 47% in 2010. Retailers are also returning to expansion plans with an eye towards updated store formats and concepts. With the renewed focus on expansion, 67% of companies cite risks associated with U.S. growth plans, an 18% increase over 2010.



“While retailers are highly concerned with pricing pressures, they are also looking to expand,” said Hart. “Gradual increases in consumer spending, favorable rents and stronger balance sheets have retailers looking for growth opportunities.”