Risks for Retailers: A New Top 10

Consumer confidence falls out of retailers' top concerns, while worries over strategy escalate.
Sarah JohnsonMay 31, 2011

Retailers are less worried about consumer spending these days, suggesting that their confidence level has risen from the doldrums, according to a recent review of regulatory filings by BDO USA.

The accounting firm found that concern over consumer confidence and spending has fallen out of retailers’ 10 most-cited risks, from 5th in 2010 to 11th this year. But concern about the state of the economy still tops the list, as it has for the past two years. BDO ranked top risk factors after looking at the most recent 10-Ks of the 100 largest (by revenue) publicly traded retailers.

The firm’s latest evaluation suggests retailers no longer have to fret about slashing prices and inventories as they did during the recession, when consumer spending plummeted. They can instead refocus on winning shoppers from the competition, such as by expanding their offerings and improving the quality of the items they sell.

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“Retailers had been questioning whether consumers’ balance sheets, if you will, were sufficient and would allow consumers to spend,” says Doug Hart, a partner at BDO USA. “This year, retailers are asking, how can we get our fair share of consumers’ pocketbooks?”

In turn, retailers now worry more about the success of their business strategy — the risk of their inability to implement it properly entered the top 10 in BDO’s tabulation, up from the 19th ranking last year and 20th spot in 2009 (see chart below). In a similar review BDO did of technology companies’ most recent 10-Ks, the firm found that 93 out of the 100 evaluated are concerned over being able to execute their corporate strategy, compared with just 27 that noted it as a risk factor in 2009.

Indeed, strategic risks are more of a worry for executives across industries these days, according to research firm Corporate Executive Board. Says CEB executive director Michael Griffin: “Sixty-nine percent of the risks that cause the most significant harm to corporations are strategic risks. Only 31% are legal, compliance, or operational risks.”

The CEB has been recommending that companies put strategic risk at the top of their priority lists, and it is also suggesting that internal-audit teams get involved. The firm has seen “a substantial increase” in companies expecting their auditors to provide assurance around their strategic risks.

Top 10 Retail Risks