CHICAGO--(BUSINESS WIRE)--The retail industry is divided on the growth and operating strategies and capital spend required to transform their business models for today’s retail environment, according to HRC Advisory (HRC), a leading strategic retail advisory firm based in Northbrook, IL. The finding was revealed today as part of HRC’s latest retail industry study, which found that only 20% of retailers surveyed are investing in the right combination of growth strategies, while connecting their stores, e-commerce and fulfillment centers, with new capital to fund their growth.
“Disciplined capital allocation is one of the most important ways in which a CEO and CFO can influence a retail chain’s profitable growth,” said Antony Karabus, CEO of HRC Advisory. “Striking the right balance between different strategies to optimize the growth trajectories of a retailer’s online and brick-and-mortar assets is crucial”.
- Access to external capital is key. Surprisingly, only 20% of retailers surveyed are spending on the right combination of growth strategies, including new stores, e-commerce, m-commerce, omni-channel and remodeling existing stores. Importantly, this same group (20%) is significantly increasing total capital spend (by up to 50%) in 2015/2016 to fund their growth and operating strategies, enabled by greater access to external capital. As a result, this group is able to most effectively connect their brick-and-mortar stores, e-commerce and fulfillment centers. The remaining 80% of the retailers are spending approximately the same amount of capital as in prior years, using internally-generated cash flow. Karabus commented that, “2015/2016 is the high-water mark in total capital spending for this group of retailers.”
- Investing in e-commerce technology, but unclear which will bring ROI. Of the remaining 80% of retailers surveyed, where the vast majority of their total sales and profits are generated from brick-and-mortar stores, 40% are prioritizing e-commerce and omni-channel investments as their top capital spend, with another 40% prioritizing it as their number 2 capital spend category, and 20% prioritizing it as their number 3 category. However, many of the retailers expressed concern that the emergence of new e-commerce technology applications were moving so fast that they were unsure which digital investments would bring the most effective ROI.
- Focusing on new stores rather than remodels. Of this group of 80% of the retailers surveyed, 40% are prioritizing new stores as their top total capital spend (representing the largest single focus for the group,) and an additional 20% are somewhat likely to add new stores. However, only 10% are prioritizing remodeling and refreshing existing stores as a key growth strategy to increase store sales productivity, with the remaining 90% treating remodels as “maintenance” only or spending remodel capital only when required by lease obligations. Further, of all the retailers surveyed, 85% do not plan to close stores other than those in the ordinary course upon lease expiry or relocation.
- International expansion no longer a priority. Only 20% of the retailers surveyed are even considering international expansion as one of many growth strategies, yet it was one of the most important areas of focus identified in the 2011 growth strategy survey conducted by Karabus. The remaining 80% has no international expansion plans at all.
The study surveyed CEOs and CFOs of 20 chain retailers in the specialty sector (70%) (including apparel, accessories, home and footwear), department store sector (15%) and discount sectors (15%). The study was conducted by Antony Karabus, CEO, HRC Advisory during Spring 2015 and follows earlier studies done by Karabus between 2008 and 2011 with retail CEOs and CFOs on key related issues such as growth strategy. 60% of the participating retailers are private and 40% are public. 70% of the retailers are domestic U.S. companies, and 30% are Canadian. Annual Sales of retailers participating in this HRC Advisory study range from $300 million to $15 billion, with a median of $800 million.
About HRC Advisory
HRC Advisory is a leading strategic retail advisory firm based in Northbrook, IL that helps retailers unlock value across key operating functions: including helping retailers to develop cost-effective cost infrastructures to transform their businesses in this new economy, merchandise strategy, margin and inventory optimization, merchandise planning and allocation, store operations including labor management and creating efficient supply chains. For more information, visit www.HRCadvisory.com.