Despite one of the sharpest economic contractions in decades, the world’s largest retailers were able to increase sales by 5.5 percent in fiscal year 2008 (encompasses years ended through June 2009), with total retail sales equaling around USD3.8 trillion. However, a new report, 2010 Global powers of retailing, from Deloitte Touche Tohmatsu, in conjunction with STORES Media, shows that the global recession affected retailers’ bottom line. Profitability at the largest 250 retailers in the world fell from 3.7 percent in fiscal 2007 to 2.4 percent in 2008.
Two-thirds of the 184 retailers that disclosed their bottom-line results saw their net profit margin decline in 2008, with 30 retailers operating at a loss. This trend affected almost every geography and category. Retailers in Europe saw their profitability fall from 4.1 percent in 2007 to 2.7 percent in 2008, while those in North America fell from 3.6 percent to 2.4 percent. Only those in Africa and the Middle East saw increased profitability.
Hardlines and leisure goods retailers saw their profit margin fall by more than half to 3.1 percent from 6.8 percent. Sales growth for fashion retailers fell into negative territory and profits were cut in half to 4.1 percent. Even the fast- moving consumer goods (FMCG) sector, which includes supermarkets and other food retailers, saw profits fall from 3 percent to 2.2 percent, despite seeing higher sales growth than the other groups at 8.6 percent.
Dr. Ira Kalish, Director of Consumer Business for Deloitte Research in the United States said: “2008 has been a tumultuous year for the global retail industry. Sales growth slowed and profitability fell, sharply for some. Many retailers ‘bought’ sales with heavy promotions which hit the bottom line hard. However, we are already seeing evidence that as economic recovery takes hold around the world retailers should be able to return to a path of improving profitability.”
The composition of the Top 10 retailers in the world remained the same this year. This group now accounts for over 30 percent of the total retail sales of the Top 250 retailers. Wal-Mart Stores, Inc. (Wal-Mart) remained the world’s largest retailer, ahead of Carrefour Group (Carrefour). Despite Tesco plc’s (Tesco) better sales growth rate, relative currency strength against the US dollar enabled Metro AG (Metro) to climb above Tesco, back into third place. (Please see notes to editors for table of Top 10)
Some key findings from this report include:
Most retailers have yet to make online push as social networking sites start to make an impact
Multichannel retailing continues to grow as more companies develop an e-commerce capability. However, online still accounts for a small percentage of sales. On average, online sales account for 6.6 percent of total sales for the top 100 retailers in the world. FMCG retailers seem yet to have embraced e-commerce with online sales accounting for only 0.9 percent.
“The internet is going to pose an ever-greater challenge and opportunity for retail in the next decade,” said Kalish. “Retailers need to ensure their multichannel strategy is in place to capitalize on web-savvy shoppers migrating to the net. Secondly, we are starting to see retailers launch targeted marketing campaigns online by offering special deals or discounts through their website or social networking sites.
“Social networking will increase transparency in the retail industry, giving consumers greater access to information about retailers, their products and pricing. This has the potential to undermine margins by lowering prices to the level of the most desperate seller. There are great opportunities too, as new touch points open up for retailers to communicate with their customers.”
Emerging market retailers set to take on established players
“Many emerging market retailers are rapidly becoming world-class players in their own right,” said Kalish. “Not only are they well-equipped to compete with the global giants in their home markets, some are becoming competitive in other markets too. The next step will be investments into developed markets and some of this is starting to take place. These are typically specialty players rather than food or mass merchandise retailers. The global playing field of retailing is becoming more level.”
Global growth bounces back but economic rebalancing is taking place
“Countries that borrowed heavily to finance excessive consumer spending may experience slower consumer spending growth as households struggle to de-leverage, repair tattered balance sheets and accumulate wealth,” said Kalish. “More of the economic growth of these countries will be driven by exports, business investment and government spending.
“Conversely, those countries whose growth was fueled by exporting to borrowing countries will no longer be able to depend on such markets and will likely shift away from export-oriented growth toward growth driven by consumer spending. Retail spending growth in markets such as the U.S. and UK is likely to be slower over the next decade, while a larger share of the growth will take place in countries with large surpluses, especially the big emerging markets.”
Top 10 retailers:
|Company||Country of Origin||Rank||2008 Retail Sales (US$mil)||CAGR 2003-2008 (%)|
|Schwarz Unternehmens Treuhand KG||Germany||5||79,924||12.3|
|The Kroger Co.||US||6||76,000||7.2|
|The Home Depot, Inc.||US||7||71,288||1.9|
|Costco Wholesale Corporation||US||8||70,977||11.2|
|Aldi GmbH & Co.||Germany||9||66,063||5.1|
To download a copy of the Deloitte and STORES Media 2010 Global powers of retailing go to: Deloitte Report.