Retail CFOs Feeling Optimistic in 2014

Despite ongoing market uncertainty, retail chief financial officers are feeling more confident about the state of the consumer. According to this year’s BDO Retail Compass Survey of CFOs, retailers forecast a 5.1 percent increase in total sales and a 4.8 percent increase in comparable store sales this year, marking a significant increase from the number expressing similar sentiments last year, and confirming our readers’ expectations. 

An anticipated uptick in consumer confidence may be a driving force behind these sunny projections. A majority of retailers (56 percent) say that they expect consumer confidence will increase in 2014—a more optimistic outlook than our readers predicted last week. However, CFOs remain wary of impediments to confidence, particularly a weak jobs outlook. Job creation across sectors continues to be sluggish; as a result, a plurality (39 percent) of retail CFOs cite unemployment as the top factor influencing consumer confidence in 2014. Personal credit availability and debt levels (18 percent) also continue to place pressure on consumers, and are collectively the second most-frequently cited factor by CFOs. However, with the political climate surrounding the Federal budget stabilizing after a contentious 2013, CFOs are less concerned about tax changes: This year, only 12 percent say that tax increases will be the top influencer of consumer confidence, a 50 percent decrease from 2013.

With growth on the horizon, CFOs are taking a close look at how employment levels support their business goals—and how regulation might impact their plans. While a majority of CFOs (55 percent) say that the number of employees at their firm will stay about the same this year, a notable 40 percent say they will increase headcount. However, with a plurality (37 percent) of CFOs citing Federal, state and local regulations as a top risk in the coming year, it appears that retailers are trying to strike a balance between creating an employee base to support their growth while managing increased regulatory burdens. Actual and potential regulatory changes, such as the implementation of the Affordable Care Act and debates around minimum wage, may continue to impact retailers and their hiring plans in the coming year. 

We also asked CFOs to look back at their promotional efforts during the 2013 holiday seasonAlthough sales matched expectations, a shorter and more competitive season led to heavy discounting that took a toll on some retailers’ margins. When asked about which promotion strategies worked well this past season, CFOs indicate that online promotions that added convenience for shoppers were the top performers. Retailers cite free shipping (28 percent) and email and social media promotions (24 percent) as the most successful promotions, with extended hours (40 percent) and price-matching (20 percent) noted as the least successful tactics. For some retailers, price-matching policies may have helped drive holiday sales, but they also contributed to compressed margins that have caused some stores to adjust earnings expectations.

Stay tuned to the blog for additional findings from this year’s Retail Compass Survey of CFOs, including retailers’ expectations for M&A and IPO activity in 2014.