Unpredictable Business Risks Translate to Supply Chain Concerns

This year’s RiskFactor Report for Retail Businesses is a reminder of the challenges retailers have faced over the past 12 months, and how they are adapting for the year ahead. Findings from the report reveal that even as retailers grow more confident in business strategy and consumer spending outlook, they are increasingly wary of the unknown external factors that could threaten positive momentum.

Volatility in the Middle East and the devastating March 2011 tsunami off the coast of Japan were just a few of the geopolitical events that presented operational concerns to retailers over the past year. The report shows that risks related to terrorism, natural disasters, and geopolitical events are at an all-time high since the start of the study in 2006, cited as a risk by 84 percent of retailers.

Increased concern over unpredictable geopolitical events correlates with a rise in supply chain risks. It’s no wonder, considering the diverse and complicated array of locations and third parties that comprise the retail supply chain—a retail reality that can quickly become a vulnerability. This year, 97 percent of retailers cited U.S. and foreign supplier and/or vendor concerns as a top risk. In fact, supplier concerns were second only to general economic conditions as the top-cited risk factor.

Among the retailers who noted supply chain risks, 81 percent specify pricing pressures as a key factor of their concern. These pricing concerns are due in part to a significant increase in worries over currency exchange rates, another complication to supply chain operations. Currency-related risks are a mounting issue as Europe’s financial crisis continues and the Obama administration puts more pressure on the Yuan. Even as commodity costs have stabilized, risks related to volatile currency exchange rates are at their highest level in the survey’s history. The majority (56 percent) of retailers cited volatile currency exchange rates as a major economic risk, compared to just 27 percent in 2011.