Retailers in the U.S. and South Jersey retail space markets are finding themselves in a struggle to strike a balance between online expansion and new store openings to fuel future growth, a new retail market analysis concludes.
In the new world of retail marketing in the U.S., retailers concerns about how to fund their growth are running high, according to BDO USA’s ninth annual analysis of risk factors noted by the 100 largest U.S. retailers in their most recent annual reports. This concern comes in the face of solid year-over-year industry performance, positive sales projections, strong consumer confidence and other positive economic indicators.
BDO reported that 92 percent of U.S. companies identified risks in domestic growth and expansion this year, up from 56 percent in 2013. Retailers in the U.S. and South Jersey retail space markets remain determined to steadfastly increase sales and strengthen store brands, they also understand that their customers want online shopping choices and the convenience of omnichannel platforms.
The focus of investing primarily in new store openings went by the wayside in 2008 when retailers saw their return on investment in new stores drop as more and more consumers turned to online shopping, BDO said. As a result, retailers slated a higher level of capital expenditures for future growth through online sales, supply chain networks and systems implementations, acknowledging that these new, unproven investment strategies carried a higher degree of risk.
In this challenging new world of retail marketing, retailers are at different stages of funding omnichannel growth.
Wal Mart Stores, which operates 4,500 stores in the U.S. and 2,120 others globally, spent nearly 40% ($5.1 billion) of its fiscal year 2014 capital expenditures ($13.1 billion) on new store expansions and store relocations. But that amount declined to $4.1 billion or about 34% for the fiscal year that ended January 31, 2015, BDO said. Meanwhile, the big box retailer’s capital investment in information systems, distribution, digital retail and other omnichannel expenses rose from $2.5 billion (20%) to $3.3 billion (27%) over the same time period.
Conversely, Macy’s Inc. — which operates 823 stores in 45 states, making it the nation’s biggest department store chain — is dealing with stumbling blocks as it introduces its new omnichannel marketing plan.
Macy’s invested about $1.1 billion in its last fiscal year primarily on new stores, store remodels, store maintenance and the continuing renovation of Macy’s Herald Square in New York, the company’s flagship store. And new stores remain an important segment of the retail giant’s growth strategy, with plans in place to open eight new Macy’s or Bloomingdale’s stores in the next four years in Hawaii, California, Connecticut, Florida and Puerto Rico.
Macy’s reported a drop in first quarter 2015 sales, down 0.7% from a year ago to $6.232 billion, while also noting an increase in expenses, up 1.2% over the past year. The company blamed some of the higher expenses on the ongoing launch of its major omnichannel initiatives that are meant to encourage sales growth and enhance consumers’ online, mobile and in-store shopping experiences.
Macy’s omnichannel marketing strategy remains a key corporate goal, but the company concedes the learning curve was “steeper than we had expected.”
Retailers in nationwide and South Jersey retail space markets have devoted major capital expenditures as well as significant amounts of time and energy to expand their omnichannel sales prospects. But only 16% of retailers are able to profit from fulfilling omnichannel demand, blaming the high cost of order fulfillment for reducing margins, a new survey conducted by PwC for JDA Software finds.
Nonetheless, retailers said omnichannel fulfillment was a high or top priority and have earmarked an average 29% of this year’s total capital expenditures on expanding omnichannel fulfillment operations.
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