Survey: CFOs adjust to new retail reality

Toronto A survey released Monday by PricewaterhouseCoopers LLP (PwC), found that as the 2010 holiday season approaches, retail CFOs have shifted their focus from reducing operating costs to driving profitable sales through better strategy execution, improvements to merchandising effectiveness and inventory management.

According to PwC’s 2010 Global Retail CFO survey, conducted by its Retail Consulting Services, many retail CFOs reported that customers are beginning to feel more optimistic about spending and retail chains are responding with initiatives to attract customers back into stores by investing judiciously in inventory and technology.

This was in contrast to last year’s report, said PwC, which showed a significant focus on managing in the midst of the recession, leading to stringent monitoring of inventory controls and capital expenditures and driving reductions in operating costs.

“Reducing investment in inventory is still a management priority, but retail CFOs surveyed said that this year they were allowing inventory levels to grow selectively in core categories. CFOs described their mood as cautious optimism, as they were starting to shift their focus to more strategic initiatives like profitable growth, international expansion, board management and judicious real estate portfolio optimization,” said Antony Karabus of PwC’s Retail Consulting Services.

Among the key findings, 49% of CFOs surveyed said they believe their customers are feeling slightly more optimistic about their financial situation and have begun to slowly resume retail purchases. To more effectively communicate with those customers, survey respondents said retailers are more focused now on spending advertising dollars on retaining and growing current customers instead of acquiring new shoppers. Some cited modest early successes with social marketing programs while others continued to use more traditional campaigns such as circulars, catalogs and other brand-building campaigns.  

With regard to e-commerce, most CFOs surveyed said the majority of retailers have not achieved the needed scale to make online sales significant to their financial performance. While all participating retailers have web sites, only 67% of CFOs said that their sites were actually e-commerce transactional sites. All participants said they felt some degree of channel blurring as customers often use web sites for product research or competitive price checking and then buy in store or at a competitor.

Regarding real estate, many retailers surveyed stated they were generally unable to get significant concessions from landlords except on renewals where they were able to better negotiate controls on future increases especially in strip malls and enclosed malls that were not Tier “A” class shopping malls. About a third of retailers surveyed continued to defer new store openings where possible, but those that deferred did so on a smaller percentage of planned new stores.

Respondents set their 2010 holiday priorities as cash flow management, tighter management of inventory and sustainable reductions to SG&A. New to the list of key CFO priorities from last year was a heavier focus on quality of talent. Ten percent of CFOs felt that they had talent gaps either at store level or in corporate support centers in order to navigate through today’s challenging economy.

The 2010 Global Retail CFO survey was compiled from interviews with 56 retail CFOs, including 33 North American and 23 International retail chains in the specialty, grocery and department store sectors.