External Business Threats are Top Risks for Retailers

For the sixth year in a row, we analyzed the 10K filings of the 100 largest retailers to determine the top industry risks. The latest installment of the RiskFactor Report for Retail Businesses found that despite less-than-stellar April sales, retailers are generally encouraged by consumer spending. As retailers grow more adept at responding to evolving shopping practices, they are turning their attention towards the risks that lie outside of their control and could threaten positive momentum.

What are these top external risks? While the economy remains the top risk for the nation’s largest retailers, concerns over the cost of fuel prices outpaced unemployment for the first time since 2009. Of the 99 percent of retailers citing general economic conditions as a risk, 71 percent point to fuel prices as a primary reason, up from 58 percent last year. With tepid progress in job reports, 68 percent of retailers note lingering concerns over unemployment, but the risk is down from its peak in 2010 (70 percent).

Technology risks are also forefront. The growth of e-commerce and the mobile platform has created a retail market that is more competitive than ever. While IT has always been mission critical to retailers, they also face the added complexity of dealing with new channels- and a proliferation of information coming from online channels.  Yet as the industry places more focus on adding new technologies and adjusting existing IT infrastructure, retailers are increasingly aware of the accompanying operational and reputational risks. This year, 83 percent of retailers noted concern over the maintenance of IT systems and operations, a notable rise from the 12th most-cited risk factor to the sixth.

Aligned with technology concerns, security risks are also on the rise, made more salient in the aftermath of several high-profile consumer data breaches. In March a breach at payments processor Global Payments Inc. was said to have affected as many as 1.5 million credit card accounts. As retailers recognize the importance of data protection, security risks jumped 31 percent from the 19th most-cited risk factor to the 12th. Retailers are also carefully monitoring pending cybersecurity bills that will likely reach the Senate floor this year. Online privacy measures included in the Cybersecurity Act of 2012 and the SECURE IT Act could translate to costly and cumbersome changes in retail technology efforts.

Stay tuned for more insights from my colleagues on the top risks.