Supply Chain

Retail CFOs See More Good Times Ahead

Finance chiefs at retail companies forecast 3.9% sales growth this year, driven by lower fuel prices and unemployment.
David McCannFebruary 23, 2015
Retail CFOs See More Good Times Ahead

Judging by the opinions of CFOs at retail companies, this year promises to be a healthy one for consumer spending. They’re predicting a 3.9% increase in overall sales and 3.7% growth in comparable-store sales, according to a survey of 100 such finance chiefs by BDO USA.

Those thresholds would continue the strong performance retailers have registered in recent years, including 2014, when a strong holiday season propelled sales 3.5% higher than the prior year, according to the National Retail Federation (NRF).

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BDO retail tableExcept for last year, when retail CFOs made an aberrationally high forecast (see table), their early-year predictions in BDO’s annual survey have generally panned out fairly close to actual results, says Doug Hart, a partner in the firm’s consumer business practice. Indeed, the NRF’s 2015 forecast, which calls for sales to rise by 4.1%, is much in line with that of the surveyed CFOs.

The implications of a strong forecast apply not only to retail companies themselves, which are at the front end of the supply chain, but to manufacturers and distributors as well, Hart notes.

Over the past few years high-end retailers have tended to be more optimistic than discounters, likely because of the growing disparity in income levels across the consumer population, says Hart. That’s offset right now by the decline in fuel prices, which allows low-wage workers to bump up their discretionary spending, and by the falling unemployment rate, he observes. So optimism is spread more evenly across the retail segment than has typically been the case.

The lower fuel prices are particularly interesting, in that while they stimulate consumer spending they simultaneously tend to act as a drag on the stock market. In general, greater sales and profits should be expected to positively influence stock prices, all else being equal, but in retail that correlation historically was weak, according to Hart. Lately, though, the correlation has strengthened, he adds.

Along with the lower cost of fuel comes some welcome flexibility for retailers. That is, they’re able to make decisions about moving goods to optimal locations that couldn’t have been made when fuel was at a higher price point, says Dede Wakefield, CFO of GT Nexus, a provider of cloud-based supply chain software that has several hundred retail customers among its 25,000-plus total clients.

Also helping the retail segment is that it tends to be somewhat less global than many others, so the geopolitical and currency volatility that is vexing cross-border corporations poses a relatively lower risk for retailers, Hart notes.

Still, whatever volume of offshore business a retailer does have is subject to factors that may counter some of the current advantages, Wakefield points out. Plus, even those retailers that are mostly domestic may have significant offshore supply-chain operations.

One large GT Nexus customer, she says, has developed an app that links currency fluctuations to accounts payable so that payments go out at the most opportune times, currency-wise.

Overall, after experiencing several consecutive years of sales growth, retail finance chiefs have probably shed a hangover from the recession that left them generally even more pessimistic than usual for awhile.

“CFOs tend to be more realistic — or, you could say, more ‘glass-half-empty’— than many corporate executives,” says Hart. Retail finance chiefs in particular “weren’t very optimistic coming out of the recession, because they hadn’t seen sales declines like they had then. It took them awhile to adjust and conclude that a ‘double dip’ probably wouldn’t happen.”