Interest rates top retail’s concerns
In its eighth annual study of the risk factors cited in 10-K annual filings by the 100 largest publicly traded U.S. retailers, BDO USA found that interest rates jumped to the No. 1 economic risk for U.S. retailers.
Eight in 10 retailers mentioned interest rates as an economic concern, up from 50 percent in 2009. It was the first time in the study’s history that interest rates rated the top concern, overtaking fuel prices (74 percent) and unemployment (70 percent)
In a statement, BDO said that while the slowly improving job market bodes well for retailers, it is heightening concerns that the Federal Reserve may move to increase interest rates after five years of historic lows. In addition to the potential impact on consumer spending and sales, changes in interest rates could impact retailers’ debt financing and pension plan assets.
Other rising concerns:
Breaches: Since 2009, the number of retailers citing concerns over data security has more than doubled, and now nine-in-ten note it as a risk factor. BDO reported that Verizon found 467 security incidents in the retail industry in 2013, with point-of-sale intrusion and web application attacks being the most common threats. Growing concerns over litigation (91 percent) also appear to reflect potential liabilities around breaches.
International: Eight-in-ten retailers cited international operations risks, including managing a dispersed workforce and complying with international laws and regulations like the Foreign Corrupt Practices Act. That’s up from 70 percent in 2013 and 47 percent in 2009. The increase was said to be tied to international expansion by many chains over the past few years as well as retailers that source or sell internationally facing greater challenges. Currency exchange rate fluctuation risk was cited by 67 percent as an economic concern, up from 40 percent in 2013.
Regulation: This year, 87 percent of retailers noted concerns related to accounting standards and regulations, a significant increase from 2013 (69 percent) and the most in the report’s history. BDO traced the increase to discussions around data privacy and minimum wage legislation as well regulators place increasing scrutiny on internal controls.
Which of the four rising concerns mentioned in the BDO report — interest rates, breaches, international and regulation — should retailers be most concerned about? Is there another risk that should earn equal or greater attention?