CHICAGO-- According to a recent survey by BDO USA, LLP, 82 percent of retail CFOs report they either increased (31%) or maintained (51%) inventory levels for the 2011 holiday season. However, they continue to be split over whether insufficient inventory (53%) or too much inventory (47%) poses a greater risk this holiday season, especially in response to cost inflation. Only 19 percent of retailers report cutting inventory as their primary response to rising costs. Instead, most retailers are passing cost increases onto consumers (35%) or improving supply chain management (35%).

Despite increased costs and luke-warm holiday sales projections, retailers are eyeing growth opportunities in 2012. More than a quarter of CFOs (29%) say e-commerce and mobile commerce will be their primary objectives for growth in the next year, eclipsed only by improving merchandise assortments (39%). U.S. expansion (20%), M&A (7%) and global expansion (5%) are also seen as opportunities for growth in the upcoming year.

“Retailers are relying on interesting product offerings and enhanced mobile and online shopping experiences to make the registers ring this season,” said Al Ferrara, partner in the Retail and Consumer Product Practice at BDO USA, LLP. “But unfortunately for shoppers, retailers ordered holiday inventory when raw material prices were at all-time highs. To preserve margins, there was no way to avoid passing along those cost increases to the consumer.”

These findings are from the fifth-annual BDO Retail Compass Survey of CFOs, which examined the opinions of 100 chief financial officers at leading retailers located throughout the country. The retailers in the study were among the largest in the country, including 10 percent of the top 100 based on annual sales revenue. The survey was conducted in August and September of 2011.

Other major findings of the 2011 BDO Retail Compass Survey of CFOs:

Growth Expected in Mobile and Online Channels. Retailers overwhelmingly view mobile commerce as an opportunity (86%), as opposed to a threat (11%). With the rising popularity of comparison shopping and mobile apps, 100 percent of CFOs in the top 100 largest retailers expect to increase their mobile investment in the upcoming year. Overall, 54 percent of CFOs plan an increase in mobile commerce investment next year. Retailers are also more bullish on growth from their online sales channels. Nearly half of CFOs (49%) expect more than 10 percent growth this year, up 44 percent from 2010 projections (34%). On average, retailers expect revenue from online channels to grow by 11.9 percent in 2011.

Potential Federal Tax Reform Causes Concern. Given Washington’s increasingly heated budget rhetoric, it’s not a surprise that the majority (58%) of CFOs say they are most concerned about a federal income tax aspect of a tax reform bill. CFOs also note concern over potential employee related tax (19%) and state income tax (11%) reforms. While 12 percent of CFOs cite Internet sales tax issues as their greatest tax reform worry, most (63%) do not expect Internet sales tax legislation to have a meaningful impact on their business.

Products and Sourcing Costs are Greatest Threat to Margins. Drastic raw materials price increases have plagued the industry this year. As a result, many CFOs (43%) name products and sourcing costs as the greatest threat to their operating margins for the remainder of 2011, a notable 54 percent jump from 2010 (28%). Another 20 percent of CFOs specify store operating and administrative costs as their greatest concern, a drop from 2010 (38%). Threats from inventory levels and markdowns are also less of a concern this year (18%), down 38 percent from last year (29%), as are concerns about logistics and transportation (13%) and foreign exchange (7%).

Asia Markets Improving the Most for Sourcing Opportunities. Similar to 2010, CFOs point to Asia as the region improving most in terms of sourcing (58%), even in the face of natural disasters and economic concerns. South America’s economy, led by Brazil, received increased attention this year. Sixteen percent of CFOs name it as the region with the most improved sourcing opportunities, a significant jump from 2010 (5%). Improvements in North America (13%), Europe (8%), Central America (3%) and Africa (1%) sourcing were also cited.

About BDO

BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, financial advisory and consulting services to a wide range of publicly traded and privately held companies. For 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm services clients through more than 40 offices and more than 400 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multinational clients through a global network of 1,082 offices in 119 countries.

BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. For more information, please visit: www.bdo.com.
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