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Retail CFOs Upbeat for 2020, But Coronavirus Looms: The Week Ahead

Seventy-three percent of retail chief financial officers in the U.S. say their businesses are thriving and expect that momentum to continue in 2020.

Furthermore, 83 percent anticipate a revenue increase, and 77 percent expect higher profitability. And across retail sectors, CFOs at big-box retailers are the most confident, with 92 percent stating their companies are “thriving,” followed by 76 percent of specialty retailers, 64 percent of pure-play e-tailers and 61 percent of department stores.

For the retail financial C-suite cohorts, 28 percent said investing in technology or infrastructure was the top priority, followed by 16 percent for data privacy and 15 percent preparing for an economic downturn.

And despite what is perceived as a fairly optimistic outlook, the CFOs are also thinking about restructuring operations.

“They look at reorganization and restructuring as a stable thing. Forty percent of companies considered thrivers are looking at a restructuring or reorganization….The retail era of staying the same is over [and every] retailer is looking to restructure as they look at the times and the changes they foresee that’s upcoming in the industry,” said Natalie Kotlyer, BDO partner and retail and consumer products practice leader.

BDO conducted an October-November survey of 100 U.S. retail CFOs at companies with revenues between $250 million to $3 billion.

Among other data points, the top three geopolitical risks were international trade tensions, at 28 percent, the U.S. presidential election in 2020, 22 percent, and potential economic downturn, 19 percent. The top three presidential election policy priorities were trade and tariffs, at 39 percent, tax reform, 21 percent, and international security and diplomacy, 14 percent.

And the top three tax issues were navigating shifting trade and tariff policies, at 29 percent, tax transformation, 20 percent, and uncertainty around digital taxation, 19 percent.

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The survey also saw 40 percent of retail CFOs saying their firms have raised prices on goods, a move that could “heavily impact early 2020 sales and margins,” BDO said. The same percentage also said they have considered other domestic alternatives for supply sourcing, and 39 percent said they have considered sourcing from other countries outside of China.

“The trade war with China has been an impetus for executives to rethink their global supply chains. However, rising costs of labor in China and other trends mean supply chains will be under review regardless of [what’s going on with] trade negotiations,” BDO said.

More than half, at 57 percent, anticipate a recession within the next two years.

The study was completed before the coronavirus outbreak in China was declared a global health emergency by The World Health Organization this week. In the U.S. equities markets, the Dow Jones Industrial Average closed down 603 points when it ended the week’s trading session on Friday as investors digested possible impact and worries stemming from the new worldwide contagion, which has killed 259 and counting amid more than 11,000 reported cases.

So far, the U.S. has not had the same level of infections as those seen in Wuhan, China, the epicenter of the outbreak. And the U.S. has since put into play procedures to curtail the spread of the virus stateside. The next several weeks are likely to determine whether the infection can be successfully contained at Wuhan’s ground zero. But questions still remain over how global supply chains will fare and recover from the epidemic’s ripple effects.

For the weeks ahead, companies will likely keep a close watch on how the situation develops in China as they try to gauge its impact on economic growth in 2020.