While praising the recent corporate tax reform measures, c-level executives polled by advisory firm BDO noted some hurdles ahead this year, including bankruptcy and a fierce competitive landscape.
The 100 retail chief executive officers, chief financial officers and chief information officers who participated in the “2018 BDO Retail Compass Survey of CxOs” released this month said they expect a 3.2 percent increase in sales for the year.
Researchers at BDO said in their report the industry is generally bullish on the recent tax reforms. “When considering tax changes, more than one-third (34 percent) of retailers agree that a reduction in the U.S. corporate tax rate would have the greatest impact on their business, followed by a reduction in the U.S. individual income tax rate, changes to state and local taxes and cross-border tariffs,” authors of the report said. “The ways retailers adjust their financial and tax strategies to maximize returns will define how much money they will be able to spend on initiatives that can help them compete.”
Scott Ziemer, tax partner in BDO’s Retail and Consumer Products Practice, said the tax rate drop from 35 percent to a flat one of 21 percent is an “obvious win.”
“However, the limitations on interest deductibility, for instance, could impact retailers who are using debt to fund new store openings within the same taxable entity, possibly resulting in higher taxable income,” he added.
In regard to investments to meet new market challenges, BDO said “demanding, tech-enabled consumers and aggressive competition are driving retailers to make operational improvements.” But to executive that, researchers said some retailers “are tapping public or private capital, and others are absorbing businesses to fill gaps in their offerings. On the other end of the spectrum, highly leveraged and underperforming retailers are filing for bankruptcy as sales and margins fizzle.”
The list of retail bankruptcies over the past year include: The Limited; Wet Seal; BCBG Max Azria; Rue 21; Gymboree; True Religion; Gander Mountain; and Charming Charlie, among others.
Natalie Kotlyar, national leader of BDO’s Retail & Consumer Products Practice, said in 2018, “retailers need to focus on their differentiators, or invest to secure one. Positive economic trends are not translating into huge sales increases, and the industry is being squeezed on all sides. Many retailers are seeking PE investment or acquiring outside companies with complementary capabilities, while others are throwing in the towel. There’s no room for brands to coast.”
With digital convergence and the “balancing act” of online and in-store selling, BDO said about 51 percent of respondents “say they intend to invest more capital in e-commerce and mobile commerce in 2018 than 2017. At the same time, 39 percent of retailers will invest more in redesigning or remodeling their stores.”
For more business news from WWD, see: