Risks Evolving for Retailers

Our first post about the 2011 RiskFactor Report for Retail Businesses pointed to the evolution of risks associated with the retail industry, especially in relation to the consumer and economic climate.

While these risks indicate the early stages of an economic recovery, concerns over potential tax increases, regulatory changes, commodity cost pressures and supply chain risks are growing in importance – specifically around exclusive brand partnerships, vendor relations and inventory levels.

Regulation Risks are on the Rise

With government budget deficits and healthcare costs looming, concerns over federal, state and local regulations increased significantly. In fact, 92% of retailers cite concerns about regulations, a 28% increase over 2010 (72%). This includes concerns over potential tax increases, which can have a considerable effect on retailers that operate in multiple states. In addition, risks associated with accounting standards and regulation saw a 24% jump this year (72%, up from 58% in 2010) as concerns over the new lease accounting standards, among other regulations, mount.

Rising Commodity Costs Escalate Supply Chain Risks

As input costs increase, nearly all (95%) companies note concerns over supplier and vendor issues, and among those companies, pricing pressures due to rising commodity costs are a top risk (84%). Given the increasing importance of leverage in negotiations with manufacturers, more retailers (47%, up from 22% in 2010) note risks associated with the loss of exclusive and proprietary brands. Markedly more retailers also see risk in inventory levels this year (54%), reflecting a 54% increase over 2010 (35%).

Increased Internal Pressures on Business Strategy

Retailers have turned back to internal factors which are now more crucial to their success as consumer spending stabilizes and there is greater need to fend off competition (95%, up from 85% in 2010). Read more about how retailers are controlling their own destiny in our next post on the study.
So what are the top 20 risks for retailers? See the full list below.
 
2011 Rank   2011 2010 2009
1. General Economic Conditions 97% 96% 96%
2. U.S. and Foreign Supplier/Vendor Concerns 95% 86% 86%
2t. Competition & Consolidation in Retail Sector 95% 85% 87%
4. Federal, State and/or Local Regulations 92% 72% 66%
5. Dependency on Consumer Trends 87% 63% 63%
6. Credit Markets/Availability of Financing & Company Indebtedness 86% 84% 93%
7. Labor (health coverage, union concerns, staffing) 84% 70% 74%
7t. Legal Proceedings 84% 62% 47%
9. Terrorism, Natural Disasters & Geo-political events 83% 70% 64%
10. Failure to Properly Execute Business Strategy 80% 43% 32%
11. Consumer Confidence and Spending 77% 83% 74%
12. Implementation of IT Systems 73% 64% 61%
12t. Loss of Key Management/New Management 73% 49% 48%
14. Changes to Accounting Standards and Regulations 72% 58% 44%
15. International Operations 70% 55% 47%
16. Impediments to Further U.S. Expansion 67% 57% 50%
17. Consumer Credit and/or Debt Levels 65% 69% 49%
18. Mergers & Acquisitions, Joint Ventures 62% 47% 41%
19. Privacy Concerns Related to Security Breach 55% 51% 46%
20. Inventory Balance 54% 35% 41%


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