Marsh Finds Europe’s Retailers Fear Working Capital, Supply Chain Risks

August 28, 2009

New research by Marsh has found that senior executives at Europe’s leading retail and consumer brands businesses will be concerned by risks such as cash flow, credit risk and trade credit over the next 18 months.

An overwhelming 75 percent of respondents to Marsh’s survey expressed a high level of concern about cash flow over the next 18 months while credit risk was identified by many respondents as their top concern. Over half of respondents also identified a significant concern over customer-associated risks.

While respondents listed financial and macroeconomic risks as concerns, supply chain risk was identified as being the principle future strategic and operational risk. “Slowing or falling demand, coupled with the recession, has exacerbated significant concerns about the supply chain,” said Marsh. “The current level of risk associated with suppliers ranked high among 45 percent of participants. In a list of seven key industry-specific risks 68 percent of respondents ranked it as a significant near-term priority just behind cash flow and ahead of trade credit. Business continuity risk was also rated significant at 67 percent.”

Marsh’s research also found that the recession has increased risk awareness across the sector. Two-thirds of respondents indicated that “risk has become more important at board level and two-thirds of companies have reviewed their approach to risk. One-third of companies are anticipating increasing their risk management budget over the next 18 months, at a time when many are reducing other costs and budgets.”

However, Marsh pointed out that “increased risk awareness does not necessarily translate into a diminishing appetite for risk. While one-third of respondents (36 percent) have become more risk averse, the risk appetite in 41 percent of companies remains unchanged and 17 percent say they are actively seeking opportunities arising out of the recession.

Stephen Roberts, Leader of Marsh’s UK Strategic Risk Practice, added: “A commitment to developing more robust risk management and improved risk reporting on the part of senior management is to be welcomed. An enhanced understanding of how strategic risks affect their organization is more important during a downturn.

“In the current climate, it is also vital for companies to focus on managing their trade credit risks: reduced days of sales outstanding, increased cash flow or improved credit risk mitigation may be achieved with careful management.

“Through using risk profiling in a proactive way senior management groups within the retail and consumer brands sector are equipping themselves with quality information on which to make more effective and robust decisions about the business.”

Marsh described the report – New risk management insights for retailers and consumer brands – as “one of the most comprehensive risk management research studies in the European retail and consumer brands sector since the financial crisis began. Senior risk and insurance professionals in 119 firms across Europe with turnover greater than €100 million were interviewed to examine their attitudes towards risk management in the current economic downturn.”

Source: Marsh – www.mmc.com or www.marsh.com

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