Over 50% of American Retailers Say They Are in Trouble
The retail apocalypse claims more and more traditional companies in the sector each year. Over half of the retailers left say they are “surviving” and barely breaking even. Some of these are likely to be claimed by bankruptcy or may need to shutter stores this year. They risk falling into the more than a dozen retailers that will close locations in 2019.
Consultancy BDO asked 300 executives in the industry how they were faring. The study titled the “2019 BDO Retail Rationalized Survey” says that “More than half (54 percent) of traditional retailers—including big box, department store, discount and specialty retailers—say they are just surviving headed into 2019.” The authors contrasted these with a group they labeled “thrivers” that said they entered the year both profitable and growing.
There was another key distinction between the two groups. The troubled group’s management are merely trying to keep pace with traditional retailers. The growing group said they are in the midst of investing in being unique from competitors and offering exclusive inventory and services. Natalie Kotlyar, national leader of BDO’s Retail and Consumer Products practice, said:
The majority of retailers are stuck in survival mode. Playing catch-up in perpetuity is preventing retailers from seizing new opportunities and leapfrogging the competition. It’s time for retailers to get rational: Scale with stability. Focus with foresight. Invest with intention.
With capital scarce and the debt loads some companies in the sector carry, this is not possible for many.
An even larger group (84%) of companies that are strictly in the e-commerce part of the industry say they are thriving. BDO believes this is because of their relatively low overhead, as they do not have to maintain stores.
The distinction between “survivors” and “thrivers” extends to their specific short-term plans. Half the companies run by management that think they are in good shape already have started to prepare for what they characterize as an “economic downturn,” and about the same percentage expect the industry will need to close more stores this year.
Among all retail management, there is a belief that customer convenience is driving people to shop online and that this trend will accelerate. BDO researchers believe that those that do not make investments in “digital initiatives” are inviting more trouble.
The primary goal of the research is to encourage more retailers to invest in initiatives that will bring them a better return on investment. Unfortunately, the industry is full of companies that are well beyond the point where this is possible.
While the study does not name the companies on each side of the divide, it is not hard to pick them out. Sears has already fallen into bankruptcy and may be liquidated. J.C. Penney’s fortunes may well be the same, as it is in the midst of shrinking and recently said it will no longer sell appliances. Among the retailers that are still growing, T.J. Maxx posted same-store sales growth of nearly 10% last quarter, a sign of thriving if there is one. It has been characterized as a retailer with unusually loyal customers.
The new BDO study is another marker of what industry observers and executives already know.