Most retailers surviving rather than thriving, finds BDO USA

19 February 2019 4 min. read
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Fifty-four percent of traditional brick-and-mortar retailers say they are just “surviving” in 2019, according to a recent survey of 300 C-suite executives.

The 2018 holiday season provided retailers with record results, but it also most likely came on the tail-end of a decade of market growth, which many analysts expect to end somewhere near the end of the year. The looming downturn spells trouble for retailers.

As such, accounting and consulting firm BDO USA tapped Rabin Research Company to conduct the 2019 BDO Retail Rationalized Survey, which examines the retail sector’s overall health and strategic planning ahead of the inevitable business cycle conclusion. Three-hundred CEOs, CFOs, and COOs from retail and consumer products firms with revenues between $50 million and $3 billion were surveyed.

The survey asked the retail CEOs if their firms were "thrivers" (profitable and experiencing robust growth), "survivors" (stable and breaking even), or "strugglers" (unprofitable and/or losing out to competition). Fifty-four percent said they were only surviving, while 37% said they were thriving, and 9% reported they were struggling.

Self-assessment by category

As could be guessed, the pure play e-commerce segment had by far the highest proportion of thrivers (84%), buoyed by less overhead, no dead store weight, and, of course, consumer trends. Meanwhile, department stores had the highest proportion of strugglers at 20%, unsurprising given current trends and high-profile bankruptcies like Sears. 

Specialty retailers had the highest percentage of thrivers among brick-and-mortar, at 40%. Nonetheless, every non pure play e-commerce retailer (specialty, discount, department store, and big box) were mostly in the surviving category.

Notably, the BDO report examined the differing characteristic between thrivers and survivors. Broadly, thrivers were e-commerce-centric and early tech adopters, saw exclusive products as competitive advantage, cited “less convenience” as the greatest weakness, and were more likely to be planning ahead for the worst.

Meanwhile survivors are more likely to be risk averse, lagging in tech adoption, view customer service as a competitive advantage, cite higher prices as their greatest weakness, and are likelier to be using outside capital to remain stable.

Thrivers are planning ahead, Survivors are waiting

Thrivers are likelier to be proactive, and are planning with a perspective towards harsher economic conditions. Survivors on the other hand, are more inert and more optimistic about the future retail landscape – complacent, in a word.

“The majority of retailers are stuck in survival mode," Natalie Kotlyar, national leader of BDO’s retail and consumer products practice, said. “Playing catch-up in perpetuity is preventing retailers from seizing new opportunities and leapfrogging the competition.”

Most retailers surveyed believed their exclusive products, customer service, and in-store experiences set them apart from their competition. Department stores skewed towards in-store experience, pure play e-commerce tagged exclusive products, and big box and discounters favored customer service.

Retailers are, as yet, reticent to partner up with Amazon, with 70% saying the cons outweigh the pros. Though Amazon offers strong potential to quickly move inventory, has a soaring Prime membership base, and market-leading distribution and shipping networks, the cons of potential cannibalization and diminished brand equity are too strong.

For now, the surveyed retail CEOs view Amazon as being relatively weak in the category of exclusive products, with only 9% seeing it as the firm’s biggest advantage. Similarly, only 4% think customer service is Amazon’s biggest advantage. BDO notes that this is probably why many survivors are doubling down on customer experience and human interaction.

Retailers would adopt an emerging technology

The survey found that 38% of retailer are planning to increase spending on digital investments by 1-9%, while a further 27% expect to increase spending by 10% or more.

Thirty-eight percent of respondents said the greatest driver of digital transformation is consumer demand, followed by pressure from competition (23%) and inefficient operations (18%). Despite the centrality of consumer demand to digital initiatives, only 41% of retailers said they were planning to significantly invest in improving their understanding of consumer behavior over the next 12-18 months.

In the sphere of technology, it’s apparent that thrivers are willing to take risks and be early adopters. Sixty percent of thrivers would adopt an emerging technology when it is unproven, compared to survivors, who would prefer to wait and see.

In terms of specific technology spending, BDO recommends prioritizing revenue-generating digital programs that alleviate consumer pain points which haven’t been addressed by the competition. Additionally, the consultancy advises automating routine processes – with robotic process automation, for example – to free up resources for the above-mentioned strategy.