EXCERPTS OF RECENT MEDIA COVERAGE
CONSUMER BUSINESS
PRACTICE
A SAMPLING OF BDO THOUGHT LEADERSHIP
IN THE MEDIA FOR Q3 2015
WOMEN’S WEAR DAILY
RETAILERS, BRANDS
FACE PENNY-PINCHING
SHOPPERS
By Arthur Zaczkiewicz
J. Crew is the latest retailer to accept
the reality of the new, penny-pinching
consumer, revealing plans to launch J. Crew
Mercantile this fall…
But J. Crew and Gap are in no ways alone.
The growth of more value-driven chains
is on top of the expansion of traditional
outlets, which both of those retailers
continue to operate as do brands from
Ralph Lauren to Michael Kors…
But why, when the U.S. economy is once
again the world’s engine, are retailers
focusing on low- and off-price formats? …
Traumatized by the Great Recession,
consumers — spearheaded by the valuesavvy Millennial shopper — have embraced
“smart shopping” that centers on bargainhunting tactics, researching products prior
to purchase and perusing off-price stores
and consignment shops for fashion finds
while also occasionally splurging for an inseason shoe, dress or handbag…
Retailers and brands may want to consider
further meditation on this nuance of
consumer behavior and “code words.”
Moreover, maybe “frugal” has a slightly
negative connotation.
Natalie Kotlyar,
partner in the
consumer business
practice at BDO,
suggests instead of
categorizing today’s
savvy shopper as
frugal, “I’d say they are an educated, dealsearching consumer.” …
“During the recession, consumers who
weren’t already became more costconscious and relied heavily on available
deals and promotions and utilized various
tools to compare prices and seek out these
deals and promotions — and that routine
has stuck,” Kotlyar said. “The idea that
the educated consumer will hold off on
making purchases until a sale or promotion
becomes available is certainly a challenge
facing retailers today.”
CHAIN STORE AGE
CAPEX SPENDING GROWS
MORE COMPLEX
BDO has been a valued business
advisor to consumer business
companies for more than 100
years. The Consumer Business
Practice of BDO works with
a wide variety of retail and
consumer-oriented clients,
ranging from multinational
Fortune 500 corporations
to more entrepreneurial
businesses, providing a myriad
of accounting, tax and other
financial services.
By Debra Hazel
E-commerce infrastructure and
cybersecurity initiatives. HVAC equipment
upgrades and energy management systems.
These days, retail CFOs must allocate
capital expenditures to an ever-growing
list of components — not all visible to the
public but critical to corporate health.
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MEDIA COVERAGE OF THE BDO CONSUMER BUSINESS PRACTICE
And while the role of the retail CFO has
broadened considerably in recent years,
becoming more strategic and more
integral to business decision-making,
capex spending remains a top item on
their agenda…
A growing share is being invested in areas
related to technology (a broad area to be
sure), according to BDO USA’s 2015 survey
of retail CFOs. The business areas in which
the respondents said they planned to invest
the most capital in 2015 were IT systems
and technology, followed by e-commerce
and the mobile channel, advertising
and marketing.
“It really boils down
to the fact that people
are doing everything
on their phones,” said
Jennifer Di Giovanni,
audit partner-retail
consumer products
practice of BDO,
Los Angeles. “If your IT infrastructure is not
in place, that could be a loss in revenue.”
This is not just a financial reporting
function, Di Giovanni noted. Information
technology, cybersecurity and whether to
invest in physical equipment or cloud-based
services have become yet another area that
the CFO must become an expert in, rather
than delegating to others, observers say.
“CFOs really can’t leave it to the IT
department,” given that a lack of proper
infrastructure can affect revenues, Di
Giovanni said, and this is particularly true
given that technology is a merchandising
technique used to engage the customer.
STORES
TOSSING AND TURNING
By Len Lewis
Retailers are always mired in a good news/
bad news scenario shaped by forces both
in and beyond their control — everything
from capital investment to natural disasters
and terrorism. But what are the big issues
keeping them up at night?
Many answers to this question can be found
in the 2015 BDO Retail RiskFactor Report,
which analyzes and ranks risk factors in the
10-K reports filed with the Securities and
Exchange Commission by the 100 largest
publicly traded U.S. retailers.
“Going forward we see
a couple of trends,” says
Doug Hart, a partner
in the consumer
business practice at
BDO. “We’ve been
doing the survey for
about eight years and
noticed that in difficult times retailers
were more concerned about consumer
confidence. Now it’s all about executing on
their business plan while uncertainty about
return on capital investments is bubbling
just below the surface.”
Reinvesting capital in new store openings
had been a predictable model, but
no longer. “Companies are looking at
investment in things like e-commerce
which don’t have a predictable” return on
investment, he says…
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Nearly all retailers (99 percent) expressed
concerns about privacy due to the rising
number of data breaches. That compares
with 91 percent a year ago and only
72 percent in 2012. “Although IBM has
calculated that the number of cyber
breaches against retailers declined in 2014,
the high legal, operational and reputational
costs associated with point-of-sale
intrusions and web application attacks
still have retailers up at night,” the report
states, “especially as they expand their
digital offerings and become increasingly
cloud-based.” Some 56 percent of retailers
are proactively investing more into their
cybersecurity measures in 2015.
Due to a tightening workforce, concerns
about the labor market remain high at 96
percent. “Retailers … are struggling to hire
and retain qualified store associates and
distribution center employees,” the report
noted. “Retail behemoths like Walmart and
Target have begun to offer more benefits
and higher wages in an effort to attract and
keep the best workers.”
COMPLIANCE WEEK
LEASE MODIFICATIONS
TRIGGER NEW HEADACHES
By Tammy Whitehouse
Accountants are noticing an uptick in
lease modifications, and they’re warning
companies to be mindful of the accounting
and financial reporting consequences…
Walmart provided a plain reminder in
recent Form 8-K and 10-Q filings that
existing accounting rules around lease
accounting can be tricky, when it disclosed
a material weakness in controls around
lease accounting. The company said it
found mistakes in its application of lease
rules for the purchase of certain structural
components for leased properties, most
notably HVAC systems.
Accounting rules call for an analysis of
when such payments indicate ownership,
which would suggest such costs should
be capitalized on the balance sheet,
the company said. “Generally, in these
situations, the company has not accounted
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MEDIA COVERAGE OF THE BDO CONSUMER BUSINESS PRACTICE
for the total project costs of the lessor
as owned assets,” Walmart wrote in
its 8-K, which was filed on Aug. 18. In
its more recent 10-Q, Walmart said its
assessment so far reveals the adjustments
will be “immaterial for all periods” and
will be reflected in its third-quarter
financial statements…
Al Ferrara, a partner
in the retail practice
at BDO USA,
says the market is
correcting as some
retailers are missing
sales targets. “We’re
seeing companies
that are getting close to the expiration
point negotiating lease terms with their
landlords,” he says.
Many, he says, are looking to shed terms
that set a minimum rent with percentage
increases as certain sales thresholds are
met. “They are negotiating to play flat
out with no minimums,” he says. “The big
players are able to negotiate terms closer to
what the economics should be. The smaller
guys don’t have as much leverage.”
FRANCHISE TIMES
which only sell goods like candy and
costumes for a couple of months and then
disappear until the following autumn.
However, pop-up shops have recently
been grabbing the attention of all sorts of
retailers with goods
to sell all year long.
David Berliner, a
partner at BDO
Consulting in New
York, has seen the
number of pop-ups
increase for the last 10
years. And he sees them being used by a
wide range of companies...
Pop-up shops are becoming increasingly
familiar in retail but they still feel new to
consumers, says Berliner, because “there’s
something typically different from what you
can usually get.”...
Pop-up events serve as great opportunities
for publicity in and of themselves. “You’re
going to get a lot more attention doing
something outside of the box,” advises
Weaver. Berliner also sees a pop-up store
as a chance to create buzz rather than
make money. He often sees retailers of
all sizes using pop-ups “more for branding
than selling.”
CONTACT:
DAVID BERLINER, New York
212-885-8347 / [email protected]
PAUL BROCATO, Chicago
312-616-4639 / [email protected]
AL FERRARA, New York
212-885-8000 / [email protected]
RANDY FRISCHER, New York
212-885-8445 / [email protected]
DOUGLAS HART, San Francisco
415-397-7900 / [email protected]
NATALIE KOTLYAR, New York
212-885-8035 / [email protected]
ISSY KOTTON, Los Angeles
310-557-0300 / [email protected]
MIKE METZ, Minneapolis
952-656-2612 / [email protected]
RICK SCHREIBER, Nashville
615-493-5641 / [email protected]
ALAN SELLITTI, New York
212-885-8599 / [email protected]
TED VAUGHAN, Dallas
214-969-7007 / [email protected]
POP-UP SHOPS ARE HERE
TODAY, GONE TOMORROW
By Alexandra Norvet
Pop-up shops are any retail spots designed
to be temporary locations. They can be
open from a few hours to a few months.
Such pop-ups were once dominated
by holiday-related franchises, such as
Halloween Express or Spirit Halloween,
Material discussed in this article is meant to provide general information and should not be acted on without professional advice tailored to your firm’s individual needs.
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