2017 BDO Retail RiskFactor Report

July 2017

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The 2017 BDO Retail RiskFactor Report examines the risk factors in the most recent 10-K filings of the largest 100 publicly traded U.S. retail companies; the factors are analyzed and ranked by order of frequency cited.

Disrupted by technology, slowing foot traffic and consumers’ evolving tastes, retailers are hustling to keep up with swift changes driven by industry modernization and broader economic forces. If you follow the headlines, the outlook can seem bleak. 

To be sure, there are complex business issues to navigate: Retailers are scaling back their headcount amid slow sales and reporting challenges with competition from peers and agile e-commerce platforms in earnings reports. But the 2017 BDO Retail RiskFactor Report reveals that today’s largest retailers are weighing their challenges and adapting accordingly. 
 

“Retailers’ top risks show their eyes are wide open to the new wave of emerging and evolving risks, from widespread store closures and bankruptcies, to uncertain regulatory changes and mass digital disruption and its associated security threats. While awareness is a key first step, retailers’ proactive responses to these vulnerabilities will ultimately determine their fate.”     

2017-Retail-RFR-headshots1_Valdivia.jpgJennifer Valdivia
Partner in BDO’s Consumer Business practice

 



Top 20 Risk Factors
cited by 100 largest publicly traded U.S. retailers

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Trump Moves Raise Regulatory Flags

With a median 10-K filing date of March 1, 2017, nearly six weeks after President Donald J. Trump’s inauguration, 16 percent of retailers specifically cite concerns around the new administration. Overall, federal, state and local regulations are tied for the #1 risk, as retailers consider existing and anticipated regulatory and compliance requirements across business functions. 

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Retailers on Cyber Regulation Watch  

The industry is no stranger to cybersecurity risks, as hackers have long been targeting retailers’ systems. As companies grow more knowledgeable about their unique vulnerabilities and are increasingly held accountable for safeguarding sensitive data, they anticipate more cybersecurity guidance from regulators.  

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Clicks Outpace Bricks: Physical Stores on Shaky Ground 

Retail space overcapacity is a pressing issue. As e-commerce continues to accelerate, the pressure is on for retailers to reassess and optimize their real estate portfolios. 

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Laboring Over Labor Obstacles

Overall, job gains have averaged 185,000 over the first four months of 2017, in line with the first four months of 2016, according to the Bureau of Labor Statistics. On the other hand, widespread store closures have led to job losses in the industry, including 6,100 retail jobs in May. 

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Reliance on Discretionary Spending Incites Risk

Understanding the factors that underlie consumer spending is critical to success. Consumer confidence remains strong, but retailers are closely monitoring general economic conditions that could have a destabilizing effect. 

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Navigating Risk Overseas Amid Geopolitical Change

Since the beginning of 2017, retailers have been closely monitoring the effects of Brexit, the French election, potential U.S. import and trade policy changes and other geopolitical events. Whether by virtue of their physical store locations, supply chains or e-commerce sales, nearly all retail players are exposed to some degree of international risk. This year, 89 percent of retailers cite international operations risks as a potential impediment to their business in their 10-K filings.  


 

Retail Real Estate: Time to Return for a Better Fit?

Amid widespread store closures and the mass move online, retail real estate is seeing something of a revolution. The battle cry? Right-size, reimagine and refocus. Across the board, retailers are increasingly concerned about owning and leasing real estate, mall traffic, expansion, credit ratings and financing availability. Meanwhile, they’re gearing up to implement the Financial Accounting Standards Board’s new guidance on lease accounting—a risk cited by one in 10 retailers this year. 

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Retailers Balance E-Commerce Model with Data Security Concerns

The e-commerce model, promising as it may be, carries enormous risk for retailers and consumers alike. Consumers entrust their financial and personal information when they make purchases both in-store and online, thereby tasking retailers with securing data spread across multiple platforms. Our study reflects the weight of this process, as 100 percent of retailers cited risks associated with possible security breaches in their most recent 10-Ks. 

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For more information on BDO USA's service offerings to retailers, please contact one of the following practice leaders:
 
David Berliner
New York
  Mike Metz
Minneapolis

 
Douglas Hart
San Francisco
  Rick Schreiber 
Memphis

 
Natalie Kotlyar
New York
  Jennifer Valdivia 
Los Angeles

 
Issy Kotton
Los Angeles
  Ted Vaughan
Dallas