Reuters
By Jessica Wohl
Retail executives expect only a modest recovery in financial performance in the sector this year as consumers remain cautious and costs rise, according to new survey released on Wednesday.
Only 24 percent of retailers around the world expect significant improvement in their financial performance over 2010, according to a KPMG survey of 152 chief financial officers and other financial executives.
Fifty-one percent predicted some improvement in financial performance, and 9 percent forecast a decline.
The findings come as major retailers from Wal-Mart Stores Inc to Home Depot Inc prepare to report quarterly results and place their bets on consumer demand leading up to the winter holiday season, when most chains ring up the bulk of their sales.
"There is a feeling that there's going to be growth, but that growth will be muted," Mark Larson, KPMG's global head of retail, said in an interview.
Many retailers have found that spending habits changed after the economic downturn as unemployment and other concerns remain on the minds of shoppers, Larson said.
While 18 percent of those surveyed have seen a sustained increase in demand since the economic slowdown, 54 percent expect such a rebound this year and 24 percent do not expect sustained demand before 2012.
One retailer benefiting from increased demand is Macy's Inc, which posted a better-than-expected rise in quarterly profit on Wednesday and said this year's sales should be a bit stronger than it had originally projected. Its shares soared 9 percent in early trading.
Overall, executives expect the greatest sales growth in Asia this year, followed closely by the United States.
"There was optimism across the globe. There wasn't significant pessimism in any particular region," Larson said.
VOLATILE COSTS WEIGH
Retailer profits are expected to remain under pressure, in part due to higher costs. Fifty-eight percent of respondents said that their chains would have difficulty raising prices this year, while 41 percent said that it would be difficult to sustain profit margins.
Merchandise costs are the greatest threat to margins, followed by discounts and other sales incentives, KPMG found.
Input costs have been on the rise, led by recent high prices for commodities such as cotton. While some costs have come down, CFOs expect increased volatility in the future, which creates uncertainty for planning, Larson said.
Retailers said that they are investing in technology for everything from systems to help decipher customer data and improve supply chains to expansion in areas such as social media, mobile shopping and online to drive sales.
The survey of public and private companies was conducted during the first three months of 2011, with a follow-up in April to gauge the impact of events in the Middle East and Japan. Sixty-four percent of respondents said those crises had little to no impact on their operations, while 5 percent said they felt a dramatic impact.
