CFOs of retail companies have fairly tepid views on business prospects for 2016, following a poor year that was capped by disappointing holiday-season sales.

Among 100 retailer finance chiefs polled by BDO, three quarters said they expect sales to increase this year, but on average they pegged the increase at only 3.4%. That’s down from 3.9% in last year’s annual survey of such CFOs by the auditing and advisory firm, and 5.1% the year before that.

“That 3.4% is not a very strong outlook,” says Doug Hart, a partner in BDO’s consumer business practice. Historically — meaning, before the 2009-2010 recession — such forecasts routinely topped 4%, he notes.

Of course, forecasts and actual results often don’t match up. For example, despite the 3.9% sales gain that retail CFOs in BDO’s survey had predicted for 2015, actual growth turned out to be 2.1%, according to the Commerce Department. It was the poorest year-over-year performance since the sharp decline suffered in 2009.

BDO’s survey was taken just after New Year, when global markets were plunging. That probably influenced the relatively gloomy expectations. “We’ve seen an increasing correlation between stock market performance and consumer confidence,” Hart says.

Only 28% of the surveyed CFOs said they expected consumer confidence to increase this year, compared with 54% who said so a year ago about 2015.

retailRISKS2016v3Also dampening retail CFOs’ moods, holiday sales increases significantly trailed forecasts. With mall traffic down, sales in brick-and-mortar stores were flat during the holidays, and a bump-up for e-commerce and mobile commerce wasn’t strong enough to compensate for it, Hart notes.

Further, the current low price of gasoline has not spurred retail sales as much as had been hoped, and more of the same is expected for this year.

Still, retail CFOs are hardly are in a panic that the “sky is falling,” says Hart.

“They’ve been through their budgeting and planning season [for 2016], and they’re not going to have a knee-jerk reaction just because holiday sales were a bit off plan and there’s global market turbulence,” he says. “They’re still looking to the long term, and there’s a lot that can happen between now and next fall and the holiday season.”

In the short term, CFOs will adjust their capital expenditures and buying patterns to accommodate expected softness in sales. “Does that mean retail CFOs believe we’re headed toward a recession? No,” says Hart. On the other hand, “Does it look like consumers are going to bail out the rest of the economy? No. If it’s up to consumers, we’re probably going to have slow, modest growth.”

Asked to identify the single risk that concerns them the most for 2016, retail CFOs pointed most often to competition and consolidation in the retail sector. (See chart, above.)

Meanwhile, recently announced store closings by Wal-Mart, Macy’s, Gap, and other major retailers are a nod to sluggish brick-and-mortar sales. And at the stores that remain, competition among retailers for foot traffic is fierce.

“One thing that I have heard a lot about from the CFOs I talk to is the concept of getting customers engaged with merchandise assortment, technology, and window settings,” Hart says. “With mall traffic down, you really have to break away from your competitors to attract customers to stores. Even with lower overall sales, there will be winners and losers.”

But when asked what promotional strategy was least successful for retailers last year, more of the surveyed CFOs — 22% — pointed to in-store promotions than anything else. Cited most often as the most successful promotional strategy was social media and email promotions (31%).

Also on the minds of some retail-industry finance chiefs is the specter of the revised lease accounting standards slated to take effect in 2018. Under the new rules, companies will have to record leases — including existing ones — on their balance sheets.

“A large retailer might have a couple billion dollars in lease obligations that it has to pay over time,” says Hart. “Putting them on the balance sheet will make it look as if they own that property, and the lease payment obligations will look like bank-debt obligations. It will make retailers look more leveraged.”

Among the CFOs surveyed by BDO, 25% said they were very or somewhat concerned about the changes, and 18% said they were slightly concerned.

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