New Karabus survey reveals key steps retail CFOs are taking to succeed in
today's new retail reality

TORONTO, Dec. 16 /CNW/ - Following last year's holiday season defined by significant sales declines, excessive inventory and deep markdowns, a new study from Karabus Management, a subsidiary of PricewaterhouseCoopers LLP (PwC) in Canada, examines the efforts retailers have taken to improve business and financial performance this holiday season and into 2010.

The second annual survey of 26 U.S. and Canadian national retail chains in the specialty and department store sectors examined four key areas: Real Estate, Marketing/Advertising, E-commerce and Inventory Management, and found:

    1. Real Estate - Retailers are leveraging the environment to secure
       better terms on real estate leases

    2. Marketing/Advertising - Retailers are working hard to improve
       advertising effectiveness and productivity of spend

    3. E-Commerce - Retailers continue to benefit from the growing importance
       of an online business strategy

    4. Inventory Management - CFOs are examining additional methods to
       tightly manage inventory

"Retailers are operating much differently than ever before, having materially restructured their operations to reduce their fixed costs and lowered the top-line revenue required to generate profits," said Antony Karabus, CEO of Karabus Management. "CFOs are carefully scrutinizing all capital expenditures, heightening the focus on performance and raising the bar for spending approval - examining sales forecasts more stringently as they are becoming the key foundational issue driving decisions regarding cost and inventory levels."

Following excessive inventory levels and heavy markdowns at the end of 2008 and beginning of 2009, retailers quickly recognized the need and took action to significantly reduce their inventory. Karabus noted that the study found that in aggregate retailers are now operating at leaner operating levels and planned holiday 2009 at -7% comparative inventory as compared with an average sales expectation of -1% comparative sales. Mr. Karabus commented, "Retailers acknowledge that the risk of owning too much inventory and realizing lower margins and reduced profits from increased markdowns outweighs the risk of failing to getting that extra sale due to leaner inventory levels and corresponding out of stocks."


    1. Retailers are leveraging the environment to secure better terms on
       real estate leases

According to Karabus, several of the CFOs surveyed said that while they were not getting substantial rent reductions, they were getting more favorable co-tenancy and "kick out" clauses, more tenant allowances and better lease terms. They felt the days of big rent reductions are over unless landlords really feel it is crucial to have a particular retail brand in their malls as landlords now have much better access to financing than they did a year ago and don't feel as compelled especially in the "A" malls where there is still competition for the space.

    - Over the past year, 35% of those retailers surveyed said their efforts
      to renegotiate leases in the past year have resulted in modest savings
      in occupancy that had some effect on their operating performance.

    - 22% of retailers surveyed said they did not make any efforts to
      renegotiate leases.

    - 17% of retailers surveyed said their efforts to renegotiate leases in
      the past year had produced substantial savings in occupancy costs.

    - Efforts by those retailers surveyed to renegotiate leases in the past
      year produced 3-5% reduction in their real estate costs.

    - 32% of survey participants used co-tenancy clauses as a negotiation

    - 60% of retailers surveyed said they did not defer new store openings
      for 2009/10; 40% of participants deferred new store openings for
      2009/10 by an average of 55%.

    2. Retailers are working hard to improve advertising effectiveness and
       productivity of spend

Retailers are working hard to improve advertising effectiveness and productivity of spend, as 40% of the retailers surveyed moved from traditional broad based advertising towards more targeted promotions to existing customers. In fact, according to Mr. Karabus, "there is a trend towards introducing science into circular and catalogue distribution to effectively target customers and maximize the ROI from their advertising investment."

    -  50% of retailers surveyed said that due to savings offered by their
       media and marketing partners, they were able to reduce their
       expenditures without materially affecting their customer outreach

    -  None of the respondents reduced the amount of advertising as they felt
       it was crucial to mitigate the effect of reduced customer traffic and

    -  40% of retailers that reduced their advertising and marketing
       expenditures compensated for it with initiatives involving CRM,
       customer-specific promotions, etc.

    -  Only 5% of those surveyed increased their advertising and marketing
       expenditures in order to gain market share and felt it had been a
       successful tool.

    -  On average, retailers re-allocated about 6% of spend to e-commerce.

    3. E-Commerce - retailers continue to benefit from the growing importance
       of an online business strategy

Retailers see the direct channel as an opportunity for growth and an avenue to more frequently connect and communicate with their customers while helping to offset the decline in revenue being experienced in their brick and mortar stores.

    -  Nearly half of the retailers surveyed are seeing better sales online,
       as approximately 44% said their e-commerce sales were growing faster
       than their overall sales.

    -  Surprisingly, 17% of the retailers surveyed didn't have a fully
       operational and transactional e-commerce site but were planning on
       enhancing its functionality in the near future.

    -  On average, retailers surveyed have been selling over the internet for
       five and a half years now, with e-commerce sales accounting for 6% of
       their total company sales.

    4. CFOs are examining additional methods to tightly manage inventory

According to Mr. Karabus, "It was evident that retailers had worked hard to minimize inventory and working capital risk as 70% of them had reduced inventory levels at a greater rate than their sales declines."

    Of those surveyed:

    - Retailers are taking a broader approach to inventory management,
      looking beyond merely cutting orders, with 36% of the CFOs surveyed
      saying that flowing goods closer to sales was the most important
      factor in reducing inventory levels this fall compared with last year.

    - Reduction of open to buy quantities ranked second with 28% of retailers
      surveyed stating it as their top priority.

    - Assortment and vendor editing ranked third, with 16% of retailers
      surveyed saying it was the most important factor. As retailers trimmed
      inventories, they looked to shed entire brands or categories that were
      less relevant to their customers as opposed to taking modest, across
      the board reductions from their entire assortment.

    2009 holiday priorities for CFOs:

With many experts predicting a flat 2009 holiday season versus last year, CFOs rank their top three key priorities for 2009 holiday season:

    - 40% of retailers surveyed said cash flow management was their top
      priority. As the cost of accessing even short-term capital has
      increased dramatically, retailers are managing their cash carefully to
      avoid increasing borrowings and, where possible, have re-negotiated
      credit terms. Unlike previous years, many avoided a premature build-up
      of inventory (and corresponding cash outlays) and flowed purchases
      closer to actual needs.

    - 24% of retailers noted that tighter inventory management was their top
      priority. The increased focus on cash combined with a greater
      organizational focus on "profitable sales" resulted in lower
      inventories and a view that this year, it would be better to run the
      risk of selling out at higher margins rather than accept the risk that
      owning too much inventory might drive unwanted markdowns.

    - 16% of retailers surveyed ranked additional cost savings as their top

    - A minority of retailers surveyed were focusing on driving initial mark
      up percent through sourcing initiatives.

Mr. Karabus noted, "The CFOs surveyed are focused on the right priorities - you never go out of business for having too much cash. Further, tighter control over inventory levels is prudent given the need to mitigate gross margin risk in the face of more conservative sales forecasts this year. While you can not cost-cut your way to greatness, it is an imperative to keep hunting for efficiencies and to target overhead investments in only the most crucial areas which drive sales, margins and customer service."

"However, we continue to see significant opportunities to drive productivity out of the merchandise planning function to increase gross margin return on investment (GMROI). We see this as a critical tool to improve sales and gross margin dollars in an essentially flat comparative sales environment."

"As we approach 2010, retailers today are much better positioned than they were a year ago, with streamlined operations, leaner inventory levels and more stable debt positions. While the answer of when the consumer will return is still unclear, retailers need to remain focused on driving efficiencies across their operations to best position themselves for survival and success when the consumer returns. This is a new reality we're living in, and the way retailers operate has fundamentally changed for the long-term," concluded Mr. Karabus.

    Notes on Survey Methodology and Analysis

Karabus Management surveyed 26 leading national retail chains in the specialty (80%) including apparel, jewelry and footwear, and department store (20%) sectors, with annual sales ranging from $140 million to more than $9 billion to understand the steps retail CFOs have taken to prepare for the 2009 holiday season and 2010. 46% of retailers surveyed are public companies and 54% are private. As part of the study, Karabus examined how retailers are allocating capital and impacting earnings through cost cutting, improving inventory control and margins in four key areas: real estate, marketing/advertising, e-commerce and inventory management.

The survey findings provided by Karabus Management are solely intended for informational purposes. Any actual application of leading practices to a particular organization requires consideration of many organizational specific issues such as quality of leadership and talent, culture, strategy and organizational lifecycles. In addition, the statements above speak as of the date of this release. Factors could arise after this date that could affect the outcomes and forecasts set forth above. Karabus Management shall have no liability to any party for any action taken or not taken, or results obtained, in reliance on this information.

    About Karabus Management Inc.

Karabus Management Inc., a subsidiary of PricewaterhouseCoopers LLP, an Ontario limited liability partnership, is a leading North American retail advisory firm that helps retailers significantly improve their operational and financial performance. The firm's more than 50 dedicated retail consultants work with many of North America's leading retailers. For more information, please visit the company's website at

    About PricewaterhouseCoopers LLP

PricewaterhouseCoopers ( provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 163,000 people in 151 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice. In Canada, PricewaterhouseCoopers LLP ( and its related entities have more than 5,300 partners and staff in offices across the country.

"PricewaterhouseCoopers" refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership, or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate legal entity.


For further information: For further information: Carolyn Forest, PricewaterhouseCoopers LLP, (416) 814-5730,; Jessica Liddell/Melissa Jaffin, Berns Communications Group, (212) 994-4660,

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