Retailers more concerned over impact of rising gas prices versus unemployment

CHICAGO — Concern over rising fuel prices has eclipsed unemployment — the leading worry since 2009 — as the No. 1 factor that keeps retailers up at night, according to a study released by BDO USA on Monday, though the current uptick in consumer spending somewhat alleviates that concern. "Despite a dip in April, consumer spending has been improving, and retail executives feel that their strategy adjustments are on point," stated Doug Hart, partner in the Retail and Consumer Products Practice at BDO USA. "While retailers are also concerned about gas prices this summer, they are otherwise encouraged by consumer spending."



Positive sales results in the first quarter have left retailers feeling more confident about consumer spending. Concerns over consumer confidence still linger in 10-Ks for 81% of retailers, but are stabilizing following a peak in 2010. Risks associated with demand and the ability to stay up to date with consumer trends also are on the decline (83% versus 87% in 2011).



Of the 99% of retailers citing general economic conditions as a risk, 71% identified escalating fuel prices as a primary reason behind that concern, up from 58% last year. With tepid progress in job reports, 68% of retailers note lingering concerns over unemployment, but that risk is down from its peak in 2010 (70%).



The "2012 BDO Risk Factor Report for Retail Businesses" — which examines the risk factors listed in the most recent Securities and Exchange Commission 10-K filings of the largest 100 public U.S. retailers — also found that information-technology infrastructure and security risks have increased, partially due to growth of the mobile platform. This year, concerns over the maintenance of IT systems and operations leapt from the 12th most cited risk factor to the sixth. Following the significant data breach at Global Payments, security risks jumped 31% from the 19th most cited risk factor to the 12th.



And as retailers have more data than ever to protect and increasing endpoints due to the increased use of mobile devices, business interruption risks also are more worrisome. Retailers also reported heightened concerns over geopolitical events and natural disasters, which moved from the ninth most cited risk factor to the fifth, largely due to the Japanese tsunami and volatility in the Middle East, BDO reported.



Supply risks also remain a significant focus for retailers, according to the report. For the third year in a row, U.S. and foreign supplier and vendor concerns are the second most commonly cited risk factor. Rises in China sourcing costs and volatile foreign currency exchange rates contribute to these concerns. Among retailers who noted supply risks, 81% of companies specify pricing pressures as a key factor of their concern. For retailers sourcing internationally, currency risk also is a mounting issue, with 56% of retailers citing it as one of their top economic concerns. This marks a significant jump from 2011 (27%).



Risks associated with U.S. growth and expansion are at the lowest levels since the start of the study in 2006. Just 46% of retailers note concern over U.S. expansion, an indicator of softness in the retail real estate market and modest store expansion plans as commerce gradually shifts to the Internet. However, as the industry becomes increasingly global, international operations risks continue to be top of mind. A vast majority of retailers (68%) cite international risks as political turmoil and the European debt crisis impact sales, vendors and distribution channels.



And despite the election year, retailers are less concerned about government regulation. As the conversation in Congress shifts from corporate taxes to individual taxes, government regulation risks eased with 85% of retailers noting concern over regulations, down from 92% in 2011. Risks associated with accounting standards also tempered.