BDO: Top ’17 Retail Risks are Economic Conditions, Regulations, Security

Even as retailers face a variety of threats in 2017, the one that ranks highest is “general economic conditions,” which was also the threat of most concern to retailers in 2016 and 2015, according to professional services firm BDO.

The Chicago-based firm ranked retailer risk factors based on the risks the 100 largest US publicly traded retailers cited in their most recent annual reports. Along with “general economic conditions,” retailers this year are also most concerned about “security breaches” and government regulations, either at the federal, state, or local level.

Other top risks retailers are watching for 2017 include:

• Industry competition and consolidation
• Suppliers and vendors
• Labor
• Natural disasters, terrorism, and geopolitical events
• Legal proceedings, litigation
• Implementation and maintenance of IT systems
• Credit markets, availability of financing, and company debt levels

“Retailers’ top risks show their eyes are wide open to the new wave of emerging and evolving risks, from widespread store closures and bankruptcies, to uncertain regulatory changes and mass digital disruption and its associated security threats,” said Jennifer Valdivia, partner in BDO’s consumer business practice. “While awareness is a key first step, retailers’ proactive responses to these vulnerabilities will ultimately determine their fate.”

Retailers are keeping an eye on general economic conditions, considering that the state of the economy is key to discretionary consumer spending. Although consumer confidence remains high, retailers are keeping a watch for anything that could upset the trend, with 90% seeing consumer confidence and spending concerns as a risk factor.

The Trump administration’s policies are of concern to 16% of these retailers, with 44% citing a potential border tax, and others watching for any regulatory and compliance requirements. Potential changes to accounting rules, internal controls, and financial reporting risks are of concern to 76% of the retailers. And 36% cite the Foreign Corrupt Practices Act as a risk factor.

And with retailers being at the receiving end of some major hacking attempts, and regulators looking to hold them more accountable for maintaining the privacy of consumer data, retailers are also aware of the potential for more cybersecurity regulatory efforts. They see risks associated with regulations tied to data privacy and security, with 78% of retailers voicing this concern. Standards on payment cards, and EMV card standards compliance, rank as a risk for 30% of the retailers. 

Also, as e-commerce continues to gain ground, retailers voice concerns about too much capacity in their real estate portfolios. That’s why 69% of them see risks from owning and leasing real estate, compared to 54% for 2016. A lack of investment in new stores or projects poses a risk, according to 63%. . Competition for top-flight real estate, and risks associated with mall traffic, are a concern for 44% of these retailers.

US retailers are also exposed to international risk, whether it be from their physical store locations overseas or supply chain and e-commerce exposure. Retailers are wary of any fallout around Brexit, or changes to US trade policy. That’s why 89% of retailers see international operations as a risk, compared to 73% a year ago.

Labor is another issue the retailers are concerned about, with the loss of retail jobs gaining as more stores shut down physical outlets. Increases in the minimum wage are also a concern for 49% of these retailers, and 26% cite pension costs. Also, more retailers, at 85%, are concerned about departures of key executives, compared to 73% for 2016. Another 58% voice concerns about healthcare reforms and benefits risks.