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

Significant portion will go to maintenance, etc.

NEW YORK — Capital spending for the retail industry is expected to increase 16% in 2011 to $42.5 billion, with all subsegments 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 2009, which was the largest decrease in the history of the survey, which dates back to 1991;

  • Food and drug retail led the decline in 2010, spending 24% less on a year-over-year basis. However, all other retailers actually increased spending on a year-over-year basis. 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 fifth consecutive year, and payables as a percent of inventory fell 115 basis points to 67.7% in 2010; and

  • 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.

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