Survey: Retail industry capital spending to rise 16% in 2011

NEW YORK — Capital spending for the retail industry is expected to increase 16% in 2011 to $42.5 billion, with all sub-segments projecting double-digit percentage increases (except for mass merchants, whose growth is projected to rise 9%), according to a survey by Equity Research.

Although capital spending will be up, it remains well below 2007’s peak of $56 billion. Also, unlike these peak years when a significant portion of spending was dedicated to new store growth, the emphasis will be on maintenance, infrastructure upgrades, e-commerce, and remodels.

“Overall, we believe a more rational capital strategy in terms of growth continues to be the right approach at this stage of the maturity curve for the industry,” the report said. “The key will be in managing the fixed asset base to further improve returns.”

In other findings:

  • In 2010, retail industry cash capital spending decreased 0.3% to $36.7 billion, as measured by Equity’s survey of 76 companies, compared with a 23.4% decrease in ’09, which was the largest decrease in the history of the survey, which dates back to 1991).

  • Food & drug retail led the decline in 2010, spending 24% less on a year-over-year basis. However, all other retailers actually increased spending year over year spending.  Softlines increased spending by (+32%), followed by mass merchants (+7%), hardlines (+5%), and mall anchors (+4%).

  • Total inventory turnover for the industry improved for the 5th consecutive year and payables as a % of inventory fell 115 basis points to 67.7% in 2010.

  • Spending on merger and acquisitions increased 170% year over year to $1.4 billion in 2010, a dramatic rise in percentage terms, but absolute spending remained lower than at any other point in the survey’s history, besides the $515 million seen in 2009.