Retail News : According BDO USA American Retailers Perceive More Regulatory Risk

Retailers are feeling pressure from a heightened regulatory climate. A new BDO USA, LLP analysis of the risk factors listed in the most recent 10-K filings of the largest 100 public U.S. retailers found that federal, state and local regulations have increased as a risk among the nation’s largest retailers.

Nearly all retailers (97 percent) cite regulatory risks as they navigate the effects of government deficits, payroll tax increases and internet sales tax legislation on their businesses and on consumer spending. The risk was cited by the most retailers in the study’s seven-year history and was second only to general economic conditions (100 percent). Retailers also note increased concern over environmental (57 percent) and accounting (69 percent) regulations.

The BDO RiskFactor Report for Retail Businesses also found that retailers are increasingly concerned over the protection of their crucial IT systems and customer and company data. Verizon’s 2013 Data Breach Investigations Report recently found that the retail industry accounted for 24 percent of data breaches in 2012, second only to financial services. And in the wake of several high-profile industry security breaches, IT and data security risks were cited by the most companies in the study’s history at 89 percent and 85 percent, respectively.

“Data protection is critical given that retailers process and retain a tremendous amount of sensitive data through credit card transactions, loyalty programs, online shopping and social media,” said Doug Hart, partner in the Retail and Consumer Products practice at BDO USA, LLP. “Further, the increasing reliance on cloud computing solutions to process and store this data adds another dimension to this security and privacy risk.”

The following chart highlights the top 20 risk factors cited by the 100 largest U.S. retail companies:

2013 Rank					2013			2012			2011			2010			2009
1.			General Economic Conditions		100	%		99	%		97	%		96	%		96	%
2.			Federal, State and/or Local Regulations		97	%		85	%		92	%		72	%		66	%
3.			U.S. and Foreign Supplier/Vendor Concerns		95	%		97	%		95	%		86	%		86	%
4.			Competition & Consolidation in Retail Sector		94	%		94	%		95	%		85	%		87	%
5.			Implementation & Maintenance of IT Systems		89	%		83	%		73	%		64	%		61	%
6.			Labor (health coverage, union concerns, staffing)		86	%		78	%		84	%		70	%		74	%
6t.			Credit Markets/Availability of Financing and Company Indebtedness		86	%		82	%		86	%		84	%		93	%
8			Privacy Concerns Related to Security Breach		85	%		72	%		55	%		51	%		46	%
8t.			Dependency on Consumer Trends		85	%		83	%		87	%		63	%		63	%
10.			Consumer Confidence and Spending		84	%		81	%		77	%		83	%		74	%
11.			Natural Disasters, Terrorism and Geo-Political Events		83	%		84	%		83	%		70	%		64	%
12.			Failure to Properly Execute Business Strategy		79	%		68	%		80	%		43	%		32	%
13.			Legal Proceedings		78	%		73	%		84	%		62	%		47	%
14.			International Operations		76	%		68	%		70	%		55	%		47	%
15.			Changes to Accounting Standards and Regulations		69	%		58	%		72	%		58	%		44	%
16.			Loss of Key Management/New Management		68	%		63	%		73	%		49	%		48	%
17.			Insurance Costs & Uninsured Liabilities		63	%		46	%		53	%		40	%		36	%
18.			Consumer Credit and/or Debt Levels		61	%		59	%		65	%		69	%		49	%
19.			Environmental Laws, Regulations & Liability		57	%		42	%		43	%		23	%		15	%
20.			Impediments to Further U.S. Expansion and Growth		56	%		46	%		67	%		57	%		50	%
*t indicates a tie in the risk factor ranking

Further findings:

• Labor Concerns Rise Amid Increased Competition & Costs. The number of retailers citing risks related to labor increased 10 percent this year, making it the sixth most cited risk. Two critical external factors are likely contributing to the jump. Given the large retail workforce, retailers are wary of the increases to the cost of labor that the Affordable Care Act will impose when it enters into full force in 2014. The number of retailers noting healthcare costs as a risk more than doubled this year (43 percent to 20 percent). At the same time, a slightly-improved job market means that competition for qualified employees is rising.
• Supply Chain & International Risks Remain Prevalent. After ranking second for the past three years, supply chain risks fell slightly to the third most cited concern among retailers. This is partly due to decreased concerns over commodity costs, as 72 percent of those who disclosed supply chain risks cited commodity costs as a risk this year, down from 81 percent in 2012 and 84 percent in 2011. But despite stabilizing costs, increasingly global retail supply chains are causing an uptick in international operations risks (cited by 76 percent of retailers, up from 68 percent in 2012). Moreover, growing international operations expose retailers to volatile foreign currency exchange rates, which were noted by 40 percent of retailers as a risk.
• Hurricane Sandy Brings Insurance Risks into Focus. After Hurricane Sandy disrupted Northeast retail operations and shipping, more retailers are focusing on their business interruption plans and insurance coverage. A vast majority of retailers (83 percent) note concerns over natural disasters, and this year 37 percent more retailers specifically point to the cost and reliability of insurance to cover potential losses.
• Omnichannel Growth Impacts Strategic Growth Risks. A vast majority of retailers (85 percent) note concern over their ability to respond to changing consumer interests and demand. Customer preferences are driving the growing focus on omnichannel strategy, leading many retailers to expand their online and mobile channels. Concerns over executing business strategy (79 percent) and U.S. expansion plans (56 percent) remain high, but expansion risks have declined since 2010 and 2011 when many retailers began to transition away from rapidly adding new stores as their primary growth strategy. For some brands, building out e-commerce and mobile capabilities may be a more efficient investment, as it can be less capital-intensive.

Source BDO through SportsOneSource