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U.S. retailers, suppliers remain cautiously optimistic

Amid continued trepidation about the health of our nation’s economy, retailers and suppliers believe consumer spending is better than last year and gradually making a comeback. According to the second annual retail outlook study released today by CIT Group Inc. (NYSE: CIT), a provider of financing to small businesses and middle market companies, 65% of retailers and 69% of suppliers believe consumer spending may return to 2007 levels by the end of 2011.

The research report, “U.S. Small Business and Middle Market Outlook 2010: Retailers and their Suppliers—Smarter. Leaner. Cautiously Optimistic,” prepared in association with Forbes Insights, examines how middle market retailers (those with annual revenues of $25 million to $1 billion), as well as suppliers and manufacturers (those with annual revenues from $2 million to $1 billion), have weathered the recession and gauges their outlook of the future.

“While the majority of retailers are cautiously optimistic about their future, more than two-thirds expect revenues to grow over the next 12 months,” said Burt Feinberg, managing director and industry group head of Retail Finance at CIT. “The general consensus is that, having weathered the economic downturn, most retailers are in better shape today than in 2009 and have positioned themselves well to meet future consumer demand when it returns.”

Since the market downturn, retailers and their suppliers have had to work smarter and operate more efficiently. They continue to maintain a conservative approach along the entire supply chain by conserving cash, paring down inventories, and keeping staff levels lean.  

“Some valuable lessons have been learned from the economic crisis and many suppliers believe they are better positioned for strong and sustained growth once the economy turns,” said Jon Lucas, Executive Vice President and Chief Sales Officer of Trade Finance at CIT. “This study reveals an industry that is transforming, top to bottom.”

Retailers also had a positive view of the upcoming holiday season, with more than two-thirds (68%) of retailers planning to hire more seasonal workers than in 2009. In addition, 57% expect to stock more inventory than in 2009 and 69% say they will advertise more aggressively. However, 72% expect they will discount more this year than last.

Key findings from the report:

  • Middle market retailers remain cautiously optimistic and guarded in their outlook. Sixty percent of retailers say that, over the last 12 months, their revenues have grown (55%) or grown significantly (5%) and two-thirds expect revenues to be higher still in the coming 12 months. However, sales expectations may still be below the levels seen prior to the economic downturn.
  • Retail inventory levels are rising, but retailers are proceeding cautiously. Nearly 60% say their current inventory is higher than it was a year ago. At the same time, they’re quick to reduce prices to speed their inventory turns, and they’re using technology to track demand and purchasing more closely.
  • Retailers’ capital spending will concentrate on technology. Over the next 12 months, 83% of retailers expect investments in their Web sites to increase; 69% say they will increase investments in mobile applications; and 66% will increase spending for integration of in-store and technology-enabled channels.
  • Small and middle market suppliers show a similarly positive, but cautious, outlook. Seventy-four percent of suppliers anticipate growth over the next 12 months. Fifty-five percent will achieve and support this growth through new investment in product development, while 51% will put greater focus on operating efficiencies.
  • Suppliers continue to look for ways to manage their cash flow more effectively. While one-third say it is easier to manage their cash flow today than it was a year ago, 39% say it is harder. The number of suppliers indicating that they have begun to use factoring or credit insurance rose from 23% in 2009 to 35% in 2010. 
  • Financing conditions for suppliers appear to be getting better. Two-thirds (67%) of survey participants say their ability to secure financing has improved over the past year. Additionally, nearly two-thirds of suppliers and manufacturers say they expect their financing needs to grow (40%) or significantly grow (23%) over the next 12 months.

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