Global retail companies expect improved financial performance in 2011, as a result of increasing consumer demand, but many indicate they will have difficulty raising prices, sustaining profit margins: KPMG

Graziela Medina Shepnick

NEW YORK , May 11, 2011 (PRNewswire) – Senior financial executives of global retail companies expect improved financial performance in 2011, as a result of increasing consumer demand, but many indicate that their companies will have difficulty raising prices and sustaining profit margins, according to a survey by KPMG International.

In the KPMG global survey of 152 retail executives, 24 percent expect "significant increases" in financial performance over last year and 51 percent are expecting "some increase." Only nine percent expect a decline in performance.  This optimistic view is a result of seeing an increase in consumer demand.  In fact, 18 percent said they've already seen a sustained increase in demand for their company's products and services since the economic slowdown, while 54 percent expect sustained demand in 2011, and 24 percent in 2012 or later.

Despite the growth in demand, 58 percent of the KPMG survey respondents said that their companies will have difficulty raising prices in 2011 and 41 percent said that their firms will have difficulty sustaining profit margins. In identifying the greatest threats to margins, 56 percent pointed to costs of inputs or merchandise and 47 percent to discounting and other sales incentives.

"Retail executives are seeing strong top line growth, but in order to generate growth and success in the years ahead, their companies will need to reconsider and often recast their understanding of customers, markets, and their means of serving them, as well as the level of investment that it will take to succeed going forward," said Mark Larson, KPMG's Global Head of Retail.  

"With consumer behavior, spending, and demographic profiles changing rapidly," Larson said, "a key to success will be investing in technology to harness the vast amounts of data that reside in a company.  That data can derive the insights that lead to the new markets, new strategies and new operating models that will ultimately generate growth and profitability," Larson said.

As to how they believe their firms can increase market share, 46 percent said primarily through organic growth initiatives, 22 percent said through a mix of organic growth and M&A, and 22 percent primarily through M&A.

Forty-four percent of the retail executives in the KPMG survey believe that it is "very likely" that their companies will enter new geographic markets in 2011 and 30 percent said "somewhat likely".  In expressing how they will  expand, 53 percent said by opening new stores, 39 percent said through additional distribution channels (including online), and 21 percent said through mergers and acquisitions.

Asia (49 percent) and the United States (48 percent) were identified as the global regions where the retail executives expect the greatest growth in company sales.  The next two regions were Latin America (44 percent) and India (40 percent).

KPMG's Larson believes that, "We're witnessing the beginnings of a cost-to-growth agenda in retail characterized by a renewed focus on growth, while preserving margins, and investing in IT.  The sector has learned the hard way that it can't take its eye off the ball of cost management."

In fact, according to executives surveyed by KPMG, retailers will pursue major investment in customer relationship management systems, business intelligence systems, and enterprise resource systems for transaction processing.

In improving supply chain efficiency and costs over the next two years, the retail execs, in order of priority, see enhancing distribution structure, investing in production or distribution technology, decreasing inventory levels, and consolidating suppliers as the greatest priorities.

KPMG conducted its survey in the first quarter of this year and conducted another phase in April to gauge how crisis in the Middle East and Japan in April may have impacted operations.  Sixty-four percent reported little or no impact on their business operations, while 31 percent reported moderate impact, with five percent seeing a dramatic impact. When presented with an array of issues, 61 percent said they expect "energy, input, and merchandise prices" will be most affected, followed by 35 percent who said "availability of goods and services from my company's suppliers."

About KPMG

KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 150 countries and have 138,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

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