This reminds me of my baby boomer childhood, when a holiday visit by my grandparents would invariably end with grandma or grandpa pulling some coins out of their pockets – a dollar if we were lucky – for each of us seven kids.

Back then, cash was king and was used nearly 80 percent of the time. And it wasn’t that long ago that shoppers were asked “cash or check?” at the register. The broad acceptance of credit cards didn’t begin until the late 1960s, debit cards were first used mostly to get cash out of automated teller machines in the 1970s, and swiping a debit card to make a payment wasn’t widespread until the 1990s. But it’s the use of checks – not cash – that has dramatically fallen in response to the increased use of these new forms of payment.

The amount of cash still used seems high to those of us who routinely use our credit cards (baby boomers) and debit cards (Gen X and Gen Y) to make most purchases. You would think with the rise of plastic, electronic transfers and mobile payments that cash would be on the way out. That couldn’t be farther from the truth.

Americans use cash nearly one out of every two times that they make a purchase. Consumers especially prefer to use cash when they buy low-value items, with most opting for currency or coins for purchases of less than $10.

What’s interesting in this digital payments age is that the quantity of currency keeps growing. Since the beginning of the Great Recession in December 2007 and throughout the recovery, the volume of currency in circulation has more than doubled, and the total value of that cash has increased more than 40 percent to $1.2 trillion. Because the U.S. dollar is trusted by individuals abroad, it is estimated that more than half is held in foreign countries.

Why is currency on the rise?  

Several reasons: first, cash is easily carried and widely accepted. Currency also serves as a way to safely store wealth. While it doesn’t offer an investment return like stocks or bonds, it is viewed as low risk during periods of financial stress, especially as we experienced in the last five years. Uncertainty and fear have caused many individuals to sock away currency in a safety deposit box or hidden in their homes as a precaution against a financial collapse. Of course, the financial collapse was felt globally as individuals scrambled to safeguard their wealth by converting other nations’ currency into U.S. dollars during the crisis.

Another advantage of cash is that it is anonymous – you are not required to show an ID or provide a phone number or email when you use it. It is difficult to trace, thus making it attractive to unsavory characters and others who want their assets to be out of the view of authorities and governments.

Retail and cash

Retailers are always focusing on their customers and their costs, more so now during this slow economic recovery. Currency management – along with having the right product, inventory, technology and employees – are key factors in retail operations. Retailers have responded to consumer payment preferences in many ways over the last several decades, attempting to make purchases convenient and timely.

While taking cash out of the equation reduces risks of theft, and electronic payments are easier to track, this decision must be balanced against the fact that cash remains the most common method of payment for goods and services.

We are handling money quite differently than the way my Grandpa Hank did in the 1950s and 60s. But, the demand for cash is not going away anytime soon. Read more of my analysis on consumer spending and the economy in this month’s Monthly Economic Review.

“This is a debit card,” NRF Senior Vice President and General Counsel Mallory Duncan says in the video, holding up a card. “What you don’t know is that the card companies and the banks … have attached a swipe fee to it and the swipe fee is huge. It amounts to billions of dollars a year.”

The video explains how swipe fees account for $2 out of every $100 consumers spend. The fees have tripled over the past decade – to about $50 billion a year – and cost the average household an estimated $427 a year.

Legislation enacted last year could reduce debit card swipe fees charged by the nation’s largest banks an estimated 70 percent beginning this July. But a new bill being pushed by the banks would delay implementation for two years.

In the video, Duncan encourages consumers to contact Congress and oppose delay.

“Tell them you want swipe fee reform implemented now, not a year from now, not two years from now, not maybe never,” Duncan says. “Billions of dollars are at stake.”

As the name implies, the tax extenders bill deals with about four dozen widely assorted tax provisions that were originally passed on a “temporary” basis but have been renewed over and over again. So these tax breaks are already on the books – but could be lost if the extenders bill isn’t passed.

Go ahead and grab your accountant, then take a peek at the top three provisions that can help retail companies of all sizes soften the blow when Tax Day rolls around next year.

#3: Corporate charitable contributions

Does your company believe in giving back? Current tax extender legislation includes additional items that can be deducted, such as:

• Food. If you’re one of the many restaurants or other companies like 7-Eleven and Panera that donate products to local food banks, you might qualify.
• Books. Book retailers of all sizes, take note. Books donated to public schools may qualify for tax write-offs.
• Computer equipment. Is your company upgrading technology resources? Donate old computer equipment such as computer software, computers or peripheral equipment, and cables to local schools or public libraries to qualify for an enhanced tax deduction.

#2: Disaster relief provisions

Own a store in a federally-declared disaster area? You may be able to qualify for tax relief relating to:

• Qualified disaster expenses such as demolition, cleanup and repair of damaged property.
• Casualty losses which incurred in a disaster area could be “carried back” for an additional year.
• “Bonus depreciation” would let businesses in disaster areas write off half the value of new real and personal property in the first year rather than depreciating it over several years. Increases in small business expensing limits would also be renewed.

#1: Cost recovery for improvements to retail and restaurant space

Have you remodeled your store lately?

For many years, retailers had to depreciate remodeling and other improvements over 39 years – an eternity if you consider that most retailers remodel every 5-7 years. But in 2004, the period was reduced to 15 years for leased property and restaurants, and in 2008 it was expanded to also include owned stores and new restaurant construction.

Fifteen-year depreciation was among the tax rules that expired at the end of 2009, but it would be renewed for another year under the extenders bill. If Congress doesn’t act, it goes back to 39 years. (Read the letter we sent to members of Congress on the issue.)

Think this sounds like an arcane issue that could only get a CPA excited? Think again. This measure would provide billions of dollars in tax relief to retailers, restaurants and other eligible businesses over 10 years, according to congressional estimates.

If you’d like more information on policies currently before Congress that impact retailers, we’ve got the resources: sign up for policy updates from NRF’s Washington Retail Insight, or visit NRF’s Government Relations home page to learn more about where we stand on the issues.

In one of the final sessions of Retail’s BIG Show, Diane Paccione, CEO & President, Deb Shops, Inc. and Jim Bunn, Partner and Managing Director, Clear Thinking Group, talked with attendees about the importance of identifying process inefficiencies to reduce expenses. Conducting periodic reviews of processes can help companies improve the bottom line and ensure process and system changes are synergistic.

To jump-start their cost cutting effort, Deb Shops decided to conduct a five-week diagnostic of all operational areas. The goal was to identify process improvement opportunities and implement a road map for change. Complete buy-in at the C-level and the involvement of key associates were crucial to achieving optimal results.

Diagnostic Scope

• Store Operations (layaway, loss prevention, returns, staffing, merchandise receiving)
• Field Management (store visits, communications, administration)
• Information Systems (evaluating capability of systems)
• Supply Chain (productivity metrics, DC operations, inbound and outbound transportation)
• Merchandising (buying/sourcing, planning and allocation, gross margin analysis, sku profitability)

After conducting a thorough review of the above areas, key findings and initiatives were analyzed and the business case for each considered. A road map was created based on the duration and start date of the initiatives. Pilots were then conducted and some of the process improvements tweaked accordingly. Throughout the entire project, the team, management and store managers were in constant communication.

Some of the most interesting initiatives that came out of the diagnostic include:

• Store Operations: perform assumed receipts at the store level since all merchandise comes straight from the distribution center where a quality control team samples shipments. This saves labor hours since stores will no longer have to check in all merchandise.
• Store Operations: implement store scheduling patterns based on traffic (look at POS transactions to determine highs and lows).
• Store Operations: develop store labor standards. How long should it take to do this process? Could the process be improved?
• Field Management: evaluate current field structure and responsibilities. Determine if there are efficiencies based on geography.
• Supply Chain: investigate renegotiating freight costs.
• Merchandising: develop a formal planning program.
• Merchandising: develop a markdown management process and associated reporting

Out of all areas in scope, Deb Shops reported that improving efficiency in operations has provided the biggest savings to date…millions of dollars. The improvements have been embraced as part of the company culture and productivity continues to improve.

A true example of making lemonade out of lemons, by using the past year to take a hard look at their business, Deb Shops has put themselves in the best possible position for growth when consumers finally reopen their pocketbooks.

L.L. Bean’s Mark Fasold said the company has focused on tightening its supply chain and exploring social media. The retailer has found great success with customer reviews, YouTube, share features and Twitter. Social media is great, Fasold said, you just have to learn how to manage it. The company has actually increased the amount of money spent on employee development.

Saks’ Kimberly Grabel admitted that the retailer was slow to realize it was in the midst of a recession, which resulted in too much inventory and aggressively discounting to get rid of it. Now the company has re-focused, shedding bad habits and forming better strategies. Examples include trying to better understand what the customer wants in terms of pricing and brands and working with vendors to ensure all necessary price points are met. As far as managing talent goes, the company is flying all of its store managers in for a week to go through 2010 strategies and initiatives. The company also has focused more on localized marketing and smaller-group events.

Check out the report for more survey results and analysis about these key retail issues.

As any retailer can tell you, interchange is a fee averaging close to 2 percent that Visa and MasterCard banks charge merchants every time a credit or signature debit card is swiped to pay for a transaction. Visa and MasterCard effectively force merchants to pass the fees on to consumers by requiring them to be included in the advertised price of merchandise and making cash discounts difficult. The “swipe fees” are largely unknown to most consumers because Visa and MasterCard keep merchants from disclosing them on receipts and don’t disclose the fees on consumers’ monthly statements.

Interchange collections totaled $48 billion in 2008, up from $16.6 billion when NRF started tracking the fees in 2001. The higher prices that result from the fees cost the average household an estimated $427 last year, up from $159 in 2001.

The Times coverage comes as interchange is coming under new scrutiny by Congress and government agencies.

A Government Accountability Office study ordered by Congress as part of the Credit CARD Act signed into law last May concluded that interchange fees have been rising despite Visa and MasterCard claims to the contrary, that the fees drive up prices for consumers and that consumer prices could be lowered if the fees were lowered.

The GAO report and today’s Times stories should provide extra ammunition for passage of interchange legislation that’s pending in Congress. The Credit Card Fair Fee Act, sponsored by House Judiciary Committee Chairman John Conyers, D-Mich., (H.R. 2695) and Senate  Majority Whip Richard Durbin, D-Ill., (S. 1212) would require Visa and MasterCard banks to negotiate with merchants over interchange fees rather than continuing to impose them on a unilateral basis. Another bill, , the Credit Card Interchange Act, sponsored by Representative Peter Welch, D-Vt., (H.R. 2382) would require increased transparency and give the Federal Trade Commission authority to prohibit interchange practices that violate consumer protection or anti-competition laws.

NRF has testified in support of all three bills, and is hoping to see action in Congress this year.

In the event that you managed to get a few days off, or were too hunkered-down in holiday chaos to check out anything else, here’s a comprehensive list of what was hot in retail last month:

NRF information

• The most well-received piece of holiday-related research last month was RAMA’s survey of shoppers’ favorite holiday ads.  Other popular holiday information included NRF’s Black Friday and Cyber Monday surveys as well as our returns survey. All of these surveys were conducted by BIGresearch, our consumer research partner for the eighth straight year.
• People were interested in learning which companies are attending Retail’s BIG Show and viewed personal itineraries on how executives in specific areas of expertise can make the most of their time in New York. From the looks of website traffic, many people may be planning to stick around after the Convention ends for NRF’s popular store tours, from the sparkling new Gant to the buzz-worthy Uniqlo.
• NRF’s 4-5-4 calendar, featuring retail sales release dates for 2010
• The revised NRF member log-in page, which makes it easier for people at NRF member companies to find exclusive research, committee notes and policy updates. (Not sure if your company is a member or if you can receive the members-only data? The page makes it easier than ever to figure that out!)
• NRF’s Retail Sales Outlook, a document for NRF member companies featuring insights and expectations from our Chief Economist Rosalind Wells

Blog posts

• Retailers to receive $1 billion from Visa/MasterCard lawsuit
• Top ten holiday trends for 2009
• MasterCard revises assessment requirements for PCI compliance
• NRF says proposed Fed rules threaten instant credit
• Senate committee votes to ban python snake sales

Top retail news stories in NRF SmartBrief:

• 12 Macy’s stores will be open all night for the holidays
• “My Macy’s” merchandising plan is part of reinvention
• J.C. Penney halts presidential search, promotes 3 execs
• Early estimates see soaring Cyber Monday sales
• Target, Best Buy are bellwethers for retail recovery

Simply put, beginning in 2010, the new requirements would have prohibited many retailers from utilizing their own internal audit staffs to perform the PCI DSS assessment. Instead retailers would have been required to hire approved external QSAs at a higher cost to the company.

Many in the industry thought this demand unreasonable – retailers have invested heavily in their internal audit and IT audit executives, who work diligently to maintain independence. Those on staff performing the assessments have extensive technical expertise and training and possess an inherent knowledge of the company’s IT systems. Given the economic pressures that our industry and many others are facing, NRF failed to see the benefit of retailers incurring increased costs to hire an external QSA to perform the onsite assessment when highly qualified, fully competent individuals were already available in-house.

Over the past several months, NRF has voiced the retail industry’s concerns to MasterCard about the changes to their SDP Program. NRF argued that retailers’ internal audit executives are in a much better position than an outside firm to understand their organization’s unique business processes and have been trained to maintain objectivity. As an industry, we already do an outstanding job of using internal resources to comply with governmental regulations, such as Sarbanes-Oxley, Gramm-Leach-Bliley and HIPAA.

Late last week, MasterCard backed off their initial June 2009 announcement. The latest MasterCard revision will allow retailers to perform their own assessments, with one caveat: that those performing the assessment pass an annual PCI SSC certification program. Our members feel this is a reasonable approach. NRF has contacted the PCI Council to better understand the parameters of this program and will communicate those requirements to retailers. However, since retailers are tasked with protecting an antiquated payment system and forced to store credit card data, it is NRF’s belief that this certification should come at no cost to the merchant.

CIT is important to the retail industry because it provides specialized “factor” financing to about 2,000 suppliers who furnish goods sold at about 300,000 retailers across the country. Factoring lets suppliers get immediate cash for just-delivered orders so they can proceed with work on their next order while waiting for retailers to pay, typically in 60 days. CIT is the largest firm that does this, and credit-crunched suppliers have few backups.

When CIT appeared to be on the verge of collapse in July, retailers panicked. Our industry was in the middle of the back-to-school season and the all-important holiday season was fast approaching. NRF immediately asked the Treasury Department and FDIC to step in, but the agencies refused to provide financial assistance. The news from CIT was on a roller coaster through the remainder of the summer, with bankruptcy imminent one moment and a deal with creditors being worked out the next.

The nature of factor financing is that it affects merchandise due to arrive in anywhere from 30 to 90 days. So a CIT shutdown as recently as September could have created a hole in the retail supply chain big enough for Santa to drive his sleigh through. But at this point, most merchandise for the holiday season is already in retailers’ distribution centers if not on store shelves, with more goods sufficiently advanced in the pipeline that they will be here soon. If there is to be any holiday impact from CIT, it might come in terms of restocking.

Once retailers get past the holidays, we have the annual lull of January before the next big surge comes when spring merchandise begins to arrive. That gives some time for the dust to settle from the CIT bankruptcy and, if need be, for other lenders to step forward.

It’s also important to point out that this is a Chapter 11 reorganization bankruptcy, not Chapter 7 liquidation. And it’s a “prepackaged” plan where CIT expects to keep lending during the bankruptcy and will emerge at the end under the new ownership of its creditors. If the plan works and vendors can continue to receive financing, there might be little if any impact on retailers at all. That’s a big “if” but the situation is very different than if CIT had simply closed its doors.

We’ve dodged the bullet. Now we just have to watch out for ricochets.

Those in the finance and accounting world have known for years that the Financial Accounting Standards Board (FASB) was planning a big project on lease accounting. A working group was formed in 2006 and the project got underway as a joint effort with the International Accounting Standards Board (IASB), taking a step toward international accounting convergence. (NRF also provided feedback on the International Financial Reporting Standards in April.)

In March 2009, the FASB released the highly-anticipated Discussion Paper titled Leases: Preliminary Views. At 95 pages, this document addresses many areas in lease accounting and provides explanation on how the Boards arrived at certain views.

The Discussion Paper was released not as a final standard, but to solicit comment on the current proposal. The most notable – and controversial – change from present-day accounting is that most leases will be recorded on the balance sheet. Lessees will recognize the right to use a leased item as an asset and the corresponding obligation to pay rent as a liability. Currently, operating leases require rent to be recorded in the Income Statement as Rent Expense in the period that it is paid.

For the retail industry, this is huge. Our industry manages thousands of leases in the aggregate and any changes to lease accounting will require a great deal of effort by retail finance and accounting professionals. After soliciting feedback from our Financial Executives Council, NRF provided comment on the proposed lease accounting guidance to ensure that retailers’ voice is heard on this important issue. In its letter to FASB, NRF provides recommendations on short-term leases, lease renewal options, contingent rent and executory costs.