Retail CFOs Temper their Outlook for 2016

Each year, we survey 100 retail CFOs in the U.S. for our annual BDO Retail Compass Survey of CFOs. The study—now in its tenth year—covers a broad range of topics and CFOs’ expectations for the year ahead, including sales projections, promotional strategies and the outlook for consumer confidence.

This year, we found that CFOs are quite modest in their outlook for 2016. Following a year of anemic consumer demand and uneven sales results month-to-month, and with instability roiling the financial markets as the New Year kicked off, CFOs expect gross sales to grow by 3.4 percent. This is the second consecutive year that total sales growth projections have declined after CFOs predicted a 5.1 percent sales spike in 2014.

Behind the cautiously optimistic expectations lies concern about consumer confidence. A quarter of the CFOs we surveyed expect consumer confidence to decrease this year, up significantly from the 11 percent who expected declines last year, and nearly half (46 percent) say financial market volatility will be the primary factor influencing consumer confidence trends.  With market fluctuations driving speculation about whether the United States’ economic recovery is approaching a stall, consumers appear to be taking a more conservative approach to their shopping—despite record-low fuel prices and a stabilizing job market.

Meanwhile, CFOs are also keeping a close watch on the perennial challenges they must grapple with. Twenty-nine percent say competition and consolidation in the sector is their primary business risk this year. This is most likely due to the recent uptick in planned store closures, like Walmart’s announcement to shutter 269 stores, that have been largely driven by unwavering competition throughout the industry, and particularly from e-tailers. The regulatory environment is also cited as a top risk by 21 percent of retailers, followed by geopolitical events and natural disasters (20 percent), and protection of customer information from cyber theft (15 percent). Tax concerns also persist, with about a quarter of CFOs citing individual income taxes as their leading tax issue. CFOs also remain cognizant of evolving accounting standards and the potential impact to their business: 43 percent say they are concerned about new lease account standards.

With the industry’s success hinging upon its ability to adapt to consumers’ shifting behaviors, particularly in a shaky economic environment, CFOs are looking to leverage promotional strategies that respond directly to customer preferences. Unsurprisingly, retailers are seeing success in tapping into the ever-growing prominence of online and mobile shopping. Respondents report that their most successful promotional strategies in 2015 were email and social media promotions (31 percent), as well as free shipping (20 percent). Conversely, more traditional promotional strategies, such as in-store deals and print and broadcast promotions, are declining in efficacy and popularity.

For more insights into these survey findings, click over to our infographic here, and stay tuned to the blog for fresh insights in the weeks to come.