United States Federal Reserve officials recently pushed pause on plans to raise interest rates because of global economic uncertainties, mainly from China. According to the latest analysis from HRC Advisory, the bank is not the only one worried about what’s going on overseas.
The annual chief executive officer and chief financial officer report, published Tuesday, found that only 20 percent of retailers surveyed are currently considering international expansion as one of many growth strategies—a far cry from 2011 when it was considered one of the most important areas of focus.
The remaining 80 percent have no international expansions whatsoever.
The study, which surveyed CEOs and CFOs of 20 retail chains in the specialty, department store and discount sectors (with median annual sales of $800 million) was conducted by HRC CEO Antony Karabus during the spring of 2015. He discovered that instead of opening brick-and-mortar stores overseas, retailers are focused on growing their North American businesses by investing in e-commerce and omnichannel.
However, HRC found that only 20 percent of those surveyed are spending on the right combination of strategies, including physical stores (both new and remodeled ones) and digital channels. That same group is also significantly increasing total capital spend by up to 50 percent in 2015/16 to fund growth and operating strategies, enabled by greater access to external capital.
“As a result, this group is able to most effectively connect their brick-and-mortar stores, e-commerce and fulfillment centers,” the report said, noting that the others are spending about the same amount of capital as in prior years, using internally-generated cash flow.
And of that 80 percent, where the bulk of sales and profits come from brick-and-mortar stores, many retailers expressed concern that e-commerce technology applications were emerging so fast that they were “unsure which digital investments would bring the most effective ROI.”
That explains why 40 percent are prioritizing e-commerce and omnichannel investments as their top capital spend, with a further 40 percent placing it second and 20 percent only making it a number-three priority.
Furthermore, that same group is focusing on new stores (40 percent) rather than remodels (10 percent), while 85 percent don’t plan to shut stores outside of lease expiration or relocation.
“Disciplined capital allocation is one of the most important ways in which a CEO and CFO can influence a retail chain’s profitable growth,” Karabus said. “Striking the right balance between different strategies to optimize the growth trajectories of a retailer’s online and brick-and-mortar assets is crucial.”