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8/3/2019 Consumer Markets A Global View of Mergers and Acquisitions
1/16
Retail IndustryExecutive Survey
kpmg.com
8/3/2019 Consumer Markets A Global View of Mergers and Acquisitions
2/16
KPMGsBusiness Pulse SurveyKPMG LLP, the audit, tax and advisory firm, surveyed C-suite and
other top-level executives in the retail industry during the second
quarter of 2011.
Participants were asked about business conditions in their sector,
the most significant revenue growth areas, and factors that wouldimpede or support their sectors recovery. They were also asked to
provide insights into their capital spending and investing plans as
well as any challenges or opportunities that may lie ahead.
Responses were compared to the findings of a similar survey
conducted among executives in the second quarter of 2010.
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Contents
Foreword 2
Key Findings from the KPMGs 2011 Retail Industry Pulse Survey 4Business Conditions 4
Revenues 6
Headcount 8
Timeline for U.S. Economic Recovery 8
Factors Hindering Retail Sector Recovery 9
On the Path toward Growth 9
Capital Spending and Investing 10
A Closer Look at Regulation and Risk 11
Conclusion 12
KPMG: A Leader in Serving the Retail Industry 13
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2 | Retail Industry Executive Survey
KPMG LLP (KPMG) is pleased to present the 2011 Retail Industry Executive Survey. This survey of 100 CEOs and other
C-level suite executives in the retail industry asked participants to assess business conditions, name the most significantgrowth areas for the sector, estimate a time line for full economic recovery, and identify the conditions that could help or
hinder economic recovery.
This survey was conducted during May and June 2011 and is a follow-up to the survey conducted in the second quarter
of 2010. In this publication, we share the findings of the survey and, where possible, compare them to those in the2010 survey.
This years survey found that industry leaders expect modest revenue growth and profitability improvement over thenext year. Executives indicated that the biggest drivers of revenue growth over the next one to three years will be
the retention and addition of customers, innovative merchandising strategies, market expansion, and increasedconsumer spending.
Retail executives anticipate gradual improvements in hiring, as they expect to keep headcount relatively thesame or to increase it slightly next year. However, one of out every five respondents indicated that they do not
think headcount will ever return to pre-recession levels.
Notably, the executives surveyed are not as confident of an economic rebound as they were a year ago. They
expect the economy to improve only moderately next year, and they do not anticipate a complete economicrecovery until 2013 2014 or later. However, more than half of the executives believe the retail sector will
recover ahead of the U.S. economy.
Despite this tempered outlook, these executives indicated that their companies have significant cash
on their balance sheets and they are investing it. They identified investing in organic growth, improvingoperational processes and related technology, and making changes to business models as their
top initiatives over the next two years. Almost half of the respondents plan to increase spending in
information technology (IT) over the next year.
Retail executives see high national unemployment and decreased consumer confidence assignificant problems. They have indicated that pricing pressures, lack of customer demand, andincreasing input costs are significant barriers to growth over the next year. They also indicated costs
of inputs and discounting as the greatest threats to profit margins.
We would like to thank those who participated in this survey and we hope the findings are usefulas you address the challenges and opportunities you face. We also welcome the opportunity todiscuss this study and its implications for your business in the year ahead.
Mark LarsonGlobal Sector Leader, RetailKPMG LLP
Foreword
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Retail Industry Executive Survey | 3
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Key Findings from KPMGsBusiness Pulse Survey
KPMGs survey reflects the responses of 100 retail
sector executives from large, U.S.-based companies
with $100 million+ annual revenue. The majority
of respondents (41%) work for companies with
annual revenues between $1 billion and $10 billion,
while 31% represent companies with annual
revenues of more than $10 billion, and 28% with
revenues in the $100 million to $1 billion range.
Seventy one-percent of these companies arepublicly-held versus 29% that are privately-held
companies.
Key findings from the survey included:
More than half of the executives surveyed expect moderateimprovement in economic conditions over the next year, but62% believe a full economic recovery will not occur until the
end of 2013 or later.
Retail executives see IT as a high priority investment area,
with 47% of respondents expecting to increase IT spendingover the next year.
Nearly 70% of survey respondents view data analytics as acore component of strategy and planning.
Forty-seven percent of respondents said their companyscurrent revenue is somewhat higher than last year, while 68%
anticipate a moderate revenue increase one year from now.
More than 50% of sector executives plan to add personnelin the next year, but nearly one quarter of respondentspredict that their companys U.S. headcount will never return
to pre-recession levels.
A significant majority of survey respondents (72%)
acknowledge that they have a great deal of cash on theirbalance sheets, and 44% say theyre already investing that
money or will before the year closes.
Business ConditionsEnthusiasm over the economic outlook has dwindled fromlast year. While more than half (59%) of retail sector executivesbelieve that the economy will improve over the next year, it isa marked difference from the prior year survey response of90%. Meanwhile, the number of executives who believe theeconomy will stay the same over the next year dramaticallyincreased to 33% in 2011, up from 8% a year ago.
Better next year About the same Worse next year
Key
2010 (Q2) 2011 (Q2)
90%
8%2%
59%
33%
8%
4 | Retail Industry Executive Survey
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Retail Industry Executive Survey | 5
A Modest Outlook for theYear Ahead
According to the retail industry executives surveyed,
business conditions are modestly improving but
at a slower rate anticipated by last years survey
participants. While this years respondents expect
moderate improvements to continue in revenue, the
economy, and hiring, they are fairly guarded in their
future outlook, believing a full economic recoveryis still several years away. Within the sector, pricing
pressures, lack of consumer demand, and increasing
merchandise costs continue as barriers to growth.
However, an expected increase in IT investment
over the next year may offer retailers the competitive
advantage they need to add new customers and
increase revenue from their existing customer base.
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RevenuesNearly half (47%) of respondents reported an increase inrevenues over the last year, while 36% said their revenues have
remained the same.
Increase in revenues About the same
Key
0
10
20
30
40
50
47%
36%
17%
Decrease in revenues
When asked to describe their revenue expectations a yearfrom now, 72% of this years survey respondents said they
believe revenues will increase, while 24% said they believerevenues will remain the same. This marks a drop from revenueexpectations in 2010, when 89% of respondents said they
believed revenues would increase over the next year and 11%said they believed revenues would remain the same.
Better next year Same next year Worse next year
Key
2010 (Q2) 2011 (Q2)
72%
24%
4%
89%
11%
6 | Retail Industry Executive Survey
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Customers Key to Revenue GrowthWhen it comes to driving revenue growth, its all about the
customers. Survey respondents cited retaining and addingcustomers as their companys top revenue growth driver
during the next three years. This marks a dramatic shift fromthe prior year, in which no survey respondents cited this as a
significant driver toward revenue growth over the next threeyears.
Biggest Drivers of Companys Revenue Growth:
Next 1 3 years
2010 (Q2) 2011 (Q2)
Product innovations
Focus on emerging markets
Merger and acquisition activity
Changed pricing strategies
Growth of green1
products/services
48%
38%
37%34%
29%
16%
14%
11%
8% 4%
Key
Retaining and adding customers
Innovative merchandising strategies
Expansion in core/new markets
Improving economic conditions
Increasing consumer spending
37%
5%
6%
29%
37%
11%
2%
5% 3%
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8 | Retail Industry Executive Survey
HeadcountForty percent of respondents noted an increase in headcountover the last year, while 31% acknowledged a decrease.
Retailers have higher hopes for the year ahead, with 52% ofsector executives expecting to add headcount and only 15%anticipating a decline during this time.
Increase About the same Decrease
Key
Headcount
within last year
Headcount
expected year ahead
52%
33%
15%
40%
29%
31%
Notably, almost a quarter (23%) of survey respondents expecttheir U.S. headcount will never return to pre-recession levels.
Headcount: Return to Pre-Recession Levels
Key
0
5
10
15
20
25
30
18%
25%
1%
16%17%
23%
Already at, or greater than, pre-recession level Second half of 2011
2012 2013 2014 or later Never
Time Line for U.S. Economic RecoveryRetail sector executives surveyed anticipate that the projectedtime line for an overall U.S. economic recovery is still a few
years away. More than half of respondents believe that theeconomic recovery will not occur until 2013 or later. This is adifference from the previous year, when 43% believed it would
take that long to achieve.
2011 2012 2013 or later
Key
2010 (Q2) 2011 (Q2)
2%
36%
62%
0%
57%
43%
Looking forward, retail sector executives view external factorsas a greater cause for concern than internal factors. Sixty-
nine percent of respondents admitted being more concernedabout the economy, competition, and the impact of regulatorychanges over their ability to compete or whether they have the
right strategic direction moving forward (31%).
Which Concerns You More About Your Companys Future?
Key
0
10
20
30
40
50
60
70
80
69%
31%
External factors (I am more concerned Internal factors (I am more concernedabout the economy, competition, and the about our ability to compete and whether
impact of potential regulatory changes) we have the right strategy going forward)
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Retail Industry Executive Survey | 9
Factors Hindering Retail Sector RecoveryMore than half of survey respondents view a loss of consumerconfidence (69%) coupled with continued high national
unemployment rate (58%) as the two leading factors hinderingthe retail sectors recovery. Other leading factors cited includethe distressed real estate market (28%) and tighter access to
consumer credit (16%). These responses are in line with theanswers provided by sector executives surveyed a year ago.
Retail Factors Hindering Recovery
2010 (Q2) 2011 (Q2)
Uncertainty in the credit markets
Instability overseas2
Decreased investor confidence
Competitive threats from countries3
Other4
69%
58%
11%
28%
16%
15%
11%
9%9%
8%
Key
Decreased consumer confidence
Continued high national unemployment
Distressed real estate market
Limited access to credit for consumers
Increased government regulation
Limited access to credit for businesses
64%
66%
17%
28%28%
23%
20%
7%
29%
22%
On the Path toward GrowthSurvey respondents cite pricing pressures and a lack of
consumer demand as the most significant barriers to growthover the next year.
Barriers to Growth
Key
0
10
20
30
40
50
Pricing pressures U.S. dollar strength
Lack of customer demand Access to and managing capital
Energy prices Staying on top of emerging technologies
Inflation Lack of qualified workforce
Labor costs Risk management issues
Volatile commodity/input prices Other (please specify):
Regulatory and legislative pressures Foreign competition
Increased taxation Exchange rate fluctuations
45%
42%
22%21% 20%
17%
10%9%8%
6% 6% 5% 5%3% 2% 1%
Despite such barriers, 76% of survey respondents expect the
retail industry to experience growth increases over the nextyear. Of that amount, 60% predict modest gains of about 5% or
less, while 14% expect increases in the 6 10% range, and 2%believe growth will increase by 11 20%.
Retail Industry Growth Rate
Key
0
10
20
30
40
50
60
70
80
76%
16%
8%
Increase over next year No change Decrease over next year
2Turmoil in the Middle East/North Africa and the crisis in Japan3 Threats to U.S. business from Asia and abroad4 Other 2010 categories included: uncertainty of government regulatory actions; lack of
government regulatory action; and increase in IT-related fraud.
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10 | Retail Industry Executive Survey
Threat to ProfitsDiscounting and other sales incentives, merchandise costs,
and decreasing sales volumes were widely seen by sectorexecutives as posing the greatest threats to profit margins overthe next 12 months.
Greatest Threats to Profit Margins
Key
0
10
20
30
40
50
Discounting and other
sales incentives
Costs of inputs or merchandise
Decreased sales volumes
Administrative and marketing costs
53%51%
49%
22%
18%
11%
8%
1%
Inventory carrying costs
Foreign exchange variability
Regulatory compliance
Other
Capital Spending and InvestingTechnology will be an integral component of many retailers
future strategies as evidenced by their capital spending plans.Overall, 55% of survey respondents predict that their companys
capital spending will increase in the next year while 28%expect it to stay the same. Much of this spending is expectedin the areas of IT (47%), geographic expansion (29%) and new
products and services (27%).
Increased Areas of Capital Spending Over the Next Year
Key
0
10
20
30
40
50
Information technology
Geographic expansion
New products or services
Acquisition of a business
Advertising and marketing
Expanding facilities
47%
29%
27%
22% 22%20%
17%15%
6%5% 5%
2%
Business model transformation
Employee compensation and training
Green/sustainability initiatives
Research and development
Regulation/control environment
Other
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Retail Industry Executive Survey | 11
Data analytics has core strategic roleCustomer data analytics is critical to many retail companies
decision-making processes. A large number (69%) of surveyrespondents believe that data analytics is a core component oftheir strategic planning.
Use of Data Analytics for Strategic Decisions and Planning
Key
0
10
20
30
40
50
60
70
Core component of strategy and planning
Considering using in strategy and planning
Not using in strategy and planning
Do not know
69%
22%
5% 4%
News reports continue to call attention to companies havinga great deal of cash on their balance sheet but lacking the
confidence to invest. Among the retail executives surveyed,72% believe their company has significant cash on itsbalance sheet, of which 31% acknowledge that investment is
significantly under way.
Investment Timeframe
Key
0
10
20
30
40
Investment is significantly under way Second half 2012
Second half of 2011 2013 and beyond
First half of 2012 Not likely to invest
31%
13%
25%
7%
13%11%
Expansion into new markets, technology, and marketing andcustomer programs are seen as the top three highest-priority
investment areas for their companies, according to surveyrespondents.
Investment Priorities
Key
0
10
20
30
Expansion into new markets Not likely to invest/dont know
Technology Strategic acquisition
Marketing/customer programs New facilities
31%
17%
13%
11%10% 10%
8%
A Closer Look at Regulation and Risk
Regulatory Impacts
A large majority (76%) of sector executives believe they areprepared to seize opportunities resulting from public policy and
regulatory changes, while 17% are unsure and 7% report beingunprepared. Interestingly, the exact types of opportunities that
will arise from such changes are still somewhat unclear, asnoted by 39% of the executives surveyed.
Key
0
10
20
30
40
Do not know Increased overseas expansion
Changing business structure More capital investment
Increased domestic expansion Increased mergers and
acquisitions activity
39%
28%
15%14%
12%
9%
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12 | Retail Industry Executive Survey
Risk PoliciesWhen asked what challenges existed within their organization
that might prevent establishing a formal risk policy, surveyrespondents cited culture and behavior (39%) as the biggest
obstacle, followed by process integration and operationalefficiency challenges.
ConclusionWhile the road to recovery seems to be on a slow path,
retail executives continue to forge ahead with modest
expectations for the year ahead. Industry executives
believe the economy, revenue, and hiring will see
moderate improvements in 2012, but remain guarded
longer term, not anticipating a complete economic
recovery until 2013 2014 or later. According to survey
respondents, a lack of consumer confidence and a high
unemployment rate continue to hinder the retail sectors
recovery, while pricing pressures and a low consumer
demand are seen as the most significant barriers to
growth over the next year. Sector executives say they will
spend the cash that has accumulated on their balance
sheets on IT to gain a competitive edge in attracting new
customers and growing revenue from existing customers.
As a result, data analytics is seen as a core component of
their strategic planning in the year ahead.
Key
0
10
20
30
40
Culture and behavior Dont know
Process integration/efficiency Shared resources across
of operations the organization
Clearly defined roles and responsibilities Governance framework
39%
31%30%
25%
15%
8%
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Retail Industry Executive Survey | 13
KPMG: A Leaderin Serving the
Retail IndustryThe retail sector continues to face a demanding market
environment that requires companies to adjust and
actively manage change that may impact sales and
performance.
Having the right professional services firmone with
the industry depth, knowledge and insight to help
clients address their most pressing issues and achievetheir goalsis critical. KPMGs Retail practice includes
professionals with the knowledge, experience, and
skills to help our clients address their most pressing
challenges, sort through todays complex business
problems, and achieve their goals.
Working with our international network of member firms,
we serve clients worldwide, developing insights into
major business trends and helping to enhance future
plans. Our long-term experience in retail enables us to
offer the company-specific guidance needed to help our
clients become or remain market leaders.
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KPMG LLP, the audit, tax and advisory firm, is the U.S. member of KPMG International Cooperative (KPMG International), a Swiss
entity, KPMG Internationals member firms have 138,000 professionals, including more than 7,900 partners, in 150 countries.
2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in the U.S.A.
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InterActionActivityCode: MTL10324
Key Contacts
Mark Larson
Global Sector Leader, Retail
T: 502-562-5680
Patrick Dolan
National Line of Business Leader
Consumer Markets
T: 312-665-2311
John Atkinson
National Audit Leader, Retail
T: 612-305-5459
Brian Campbell
National Tax Leader, Retail
T: 614-249-1879E: [email protected]
Ray Kansal
National Line of Business Director
Consumer Markets
T: 312-665-3623E: [email protected]
Jenna Stoneberg
National Marketing Director
Consumer Markets
T: 480-459-3628E: [email protected]
kpmg.com