Retailers Prioritize E-Comm, Omnichannel Even as ROI Remains Unclear

The retail industry is divided on the growth and operating strategies and capital spend required to transform their business models for today's retail environment, according to HRC Advisory (HRC), a strategic retail advisory firm based in Northbrook, Ill. The finding was revealed as part of HRC's latest retail industry study, which found that only 20 percent of retailers surveyed are investing in the right combination of growth strategies, while connecting their stores, e-commerce and fulfillment centers, with new capital to fund their growth.

"Disciplined capital allocation is one of the most important ways in which a CEO and CFO can influence a retail chain's profitable growth," said Antony Karabus, CEO of HRC Advisory. "Striking the right balance between different strategies to optimize the growth trajectories of a retailer's online and brick-and-mortar assets is crucial".

Key findings:
  • Access to external capital is key. Surprisingly, only 20 percent of retailers surveyed are spending on the right combination of growth strategies, including new stores, e-commerce, m-commerce, omni-channel and remodeling existing stores. Importantly, this same group (20 percent) is significantly increasing total capital spend (by up to 50 percent) in 2015/2016 to fund their growth and operating strategies, enabled by greater access to external capital. As a result, this group is able to most effectively connect their brick-and-mortar stores, e-commerce and fulfillment centers. The remaining 80 percent of the retailers are spending approximately the same amount of capital as in prior years, using internally-generated cash flow. Karabus noted, "2015/2016 is the high-water mark in total capital spending for this group of retailers."
  • Investing in e-commerce technology, but unclear which will bring ROI. Of the remaining 80 percent of retailers surveyed, where the vast majority of their total sales and profits are generated from brick-and-mortar stores, 40 percent are prioritizing e-commerce and omni-channel investments as their top capital spend, with another 40 percent prioritizing it as their number 2 capital spend category, and 20 percent prioritizing it as their number 3 category. However, many of the retailers expressed concern that the emergence of new e-commerce technology applications were moving so fast that they were unsure which digital investments would bring the most effective ROI.
  • Focusing on new stores rather than remodels. Of this group of 80 percent of the retailers surveyed, 40 percent are prioritizing new stores as their top total capital spend (representing the largest single focus for the group,) and an additional 20 percent are somewhat likely to add new stores. However, only 10 percent are prioritizing remodeling and refreshing existing stores as a key growth strategy to increase store sales productivity, with the remaining 90 percent treating remodels as "maintenance" only or spending remodel capital only when required by lease obligations. Further, of all the retailers surveyed, 85 percent do not plan to close stores other than those in the ordinary course upon lease expiry or relocation.
  • International expansion no longer a priority. Only 20 percent of the retailers surveyed are even considering international expansion as one of many growth strategies, yet it was one of the most important areas of focus identified in the 2011 growth strategy survey conducted by Karabus. The remaining 80 percent has no international expansion plans at all.
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