Consumer confidence, another key economic health indicator, is following along this path. Over the past several months, consumer confidence has experienced highs and lows, reaching a nearly five-year high in November 2012 before plummeting to a 14-month low in January 2013. However, since February, confidence has been stabilizing and carefully inching upward as other sectors of the economy experience their own recovery. March 2013 consumer confidence increased to 61.9, according to the Conference Board, and April’s index rose to 68.1—the highest level since November 2012.

Several factors underlie this upward trajectory. First, consumer spending is beginning to level out as shoppers feel more removed from the political wrangling over the fiscal cliff. Though much of the country’s fiscal situation remains unresolved, and many lawmakers are pushing for austerity measures, consumers’ most immediate concerns about income tax hikes are fading. Consumers have even adjusted to the new normal of higher payroll taxes as a result of January’s fiscal cliff debates. While the end of the tax holiday and tax increases for high-income consumers were credited with lower retail sales in Q1, the concern is no longer quite as pressing as it once was.

Second, unemployment is slowly improving. The unemployment rate hit a 4-year low of 7.5 percent in April, and the economy added an estimated 165,000 jobs. March’s numbers, initially reported as a dismal 88,000 jobs added, have been upwardly revised to 138,000 jobs added. Nevertheless, unemployment may continue to dampen consumer confidence to some extent, with many new jobs entailing only part-time hours while some workers drop out of the labor force altogether.

Consumers are also feeling better about the housing market and energy costs as we head into the summer. Housing prices are on the rise as consumers take advantage of low interest rates, while gasoline prices have also fallen, freeing up some discretionary income for shoppers.

Overall, retailers have reason to feel cautiously optimistic about consumer confidence over the next several months.  Now, we will see how that confidence translates into purchases over the busy summer and back-to-school seasons.

What are your expectations for consumer confidence in the coming quarter?

Overall, it seems that retail sales this year have been slow to pick up, and industry hiring is waning following the end of the holiday season. Retailers may have been right in moderating their expectations for this year. Take a look at our infographic below to see what else CFOs think the year has in store for their industry:

(click to enlarge)

• Sustainable Foods. Customers are increasingly concerned with knowing where their food comes from. Using locally-grown vegetables and produce (in some cases, even as close as a restaurant’s own backyard) or organic ingredients that are grown without the use of chemicals, such as pesticides and hormones, are a big draw for many customers. The term “farm-to-table” is becoming commonplace as more restaurants develop close relationships with specifically-named farms. Customers are also becoming more conscious of ensuring that the seafood or meat they consume is responsibly sourced. Waitstaff should to be prepared to answer questions about whether the chicken served is free-range, the beef is grass-fed or the fish is farmed or wild.
• Water and Energy Efficiency. Although it takes upfront investment and research, usingEnergy Star-qualified appliances, such as dishwashers or refrigerators, are not only better for the environment but also saves on utility costs. Many state and local initiatives offer those who implement such efficiencies various incentives and credits.
• Reducing Waste and Recycling. One way to reduce waste is to actively compost and save grease, which can later be converted into energy or biodiesel. Using packaging made of recycled material or using biodegradable utensils for to-go customers is another way of going green. Many coffee shops have begun providing small savings to customers in order to encourage them to bring their own reusable cups.
• Sustainable Design. If your restaurant is being renovated or you are looking to replace old furniture, consider using materials or buying furniture that is made of recycled content. Installing solar panels or designing space so that it maximizes daylight flowing in from the windows will also help with energy savings. Using automatic faucets and hand dryers in restrooms or low-flow plumbing fixtures in the kitchen also help with saving water and reducing waste.

Once you have successfully implemented many of the above initiatives, obtaining LEED (Leadership in Energy and Environmental Design) certification may not be too far out of reach. The list of LEED-certified restaurants continues to grow each day, with restaurants including Chipotle and Olive Garden opening certified locations nationwide. Yours could be next.

What are some of the green initiatives that your restaurant has implemented?

Even so, deal makers do not expect a sudden boom in investment activity in the retail sector anytime soon. According to the fourth annual BDO PErspective Private Equity Study, only 3 percent of fund managers believe the retail and distribution industry will provide the greatest opportunities for new investments during 2013. That’s a slightly less optimistic outlook for the sector than was reported last year, when 6 percent of fund managers identified retail and distribution as the sector that would provide the greatest opportunities for new investments in 2012.

When it comes to pricing considerations, 24 percent of fund managers indicated that the retail and distribution sector is the most likely to experience decreasing valuations in the next 24 months. That’s compared to only 3 percent of fund managers who think the sector is the most likely to experience increasing valuations during that timeframe. With payroll tax increases hitting shoppers who were already battling tough economic conditions, retailers may have to continue to cut costs, which will increase pressure on margins and impact private equity investment activity.

PErspective in Retail & Consumer Products is a quarterly feature examining the role of private equity in the retail and consumer products industry. For more information, please contact Lee Duran, partner and leader of the Private Equity practice at BDO USA.

M&A agreements often contain an adjustment to the purchase price that occurs post-closing, which reflects changes in the balance sheet of the company being sold from the date a deal is negotiated to the date the transaction closes. While the metrics for adjustment vary from one agreement to the next, a common adjustment is based on the change in a business’s Net Working Capital. Disputes often arise because the Buyer and Seller have different opinions regarding the amounts that should be included on the Closing Date Balance Sheet. These disputes often focus on generally accepted accounting principles (“GAAP”) and their application within the context of the terms of the M&A agreement.

For example, M&A agreements may contain language that requires the Closing Date Balance Sheet to be prepared in accordance with GAAP and consistent with a company’s past policies, practices and procedures.  Post-closing purchase price adjustment disputes often arise when a company’s past practice was not in accordance with GAAP because the M&A agreement is silent on which should prevail—past practice or GAAP.  CFOs can help to minimize related disputes by suggesting that clarifying language be included in the agreement which specifies which prevails.

When drafting an M&A agreement, parties often believe that the “GAAP consistent with a company’s past policies, practices and procedures” language is sufficient to prepare the Closing Date Balance Sheet. As CFOs are aware, GAAP requires management to make certain judgments and estimates in order to prepare financial statements. However, the Buyer and Seller’s respective management teams may have differing estimates for the same balance sheet item, though they are both in accordance with GAAP. Another often-disputed item when determining the post-closing purchase price adjustment is the establishment of an appropriate reserve for excess and obsolete inventory on the Closing Date Balance Sheet. CFOs involved in an M&A transaction may want to suggest the inclusion of language in the agreement that removes the subjective nature of the estimate for the reserve for excess and obsolete inventory. For example, the parties involved in the transaction can agree on a formula based on the age of the inventory to determine the amount of the excess and obsolete inventory to be recorded on the Closing Date Balance Sheet.

CFOs serve as a valuable resource to the attorneys throughout the process of drafting the M&A agreement. An understanding that M&A agreements are subject to interpretation and disagreement between the Buyer and Seller often helps to minimize post-acquisition disputes, allowing CFOs to focus on their businesses.

Jeffrey M. Katz is a partner in the New York office of BDO Consulting, leading the Post-Acquisition Disputes and Economic Damages practice. He can be reached at jkatz@bdo.com.

• R&D Tax Incentives – Cash for Fashion & Apparel Retailers
• 2013 Retail IPO Outlook
• How Can Flash Sale Sites Thrive in 2013?
• Top Trends for Restaurants in 2013
• How Restaurants Can Use Data to Improve Customer Relationships and Sales – Part II

You can access the survey report online HERE. Additionally, we encourage you to take a look at some of our recent blog posts that examine the survey’s results.

You can access the full newsletter HERE.

Supermarketnews.com – The Industry’s Weekly Newspaper

Headlines have also heralded the rise of e-commerce at the expense of brick-and-mortar, but our survey data suggests a more nuanced picture: While the opportunities in e-commerce are clear, the retail storefront isn’t poised to disappear anytime soon. In fact, retail executives still believe that U.S. stores are a core part of the business, with 26 percent of CFOs saying they will invest the most capital in redesigning/remodeling their stores. Shoppers have come to expect convenience and options, and improving the in-store experience and integrating it with the online and mobile experience have become more important than ever. Even online retailers, such as Bonobos and Warby Parker, recognize that a number of their consumers seek the opportunity to touch and test the merchandise before they buy, and in response have begun opening storefronts.

Amid plans to open new stores, fine-tune merchandise and expand online channels, many retailers will be looking to add staff in stores and their corporate offices. According to the NRF, the retail industry already supports one in four U.S. jobs, and over one-third of CFOs (34 percent) say the number of employees at their company will increase this year. Another 57 percent say the number of employees will stay about the same.

Of course, attracting and retaining strong leaders is also paramount to the success of these strategies. As a result, 30 percent of CFOs expect their management’s compensation to increase this year, and only 5 percent forecast a decrease, despite continued scrutiny around pay packages. Still, a majority of retailers (66 percent) say their company’s leaders have an incentive plan to tie pay to performance, and 71 percent say that a profitability-based metric is the primary measure.

For more results from our 2013 Compass Survey of Retail CFOs, read our press release here.