Mumbai: Despite one of the sharpest economic contractions in decades, the world's largest retailers were able to increase sales by 5.5 per cent in fiscal year 2008 (encompasses fiscal years ended through June 2009), with total retail sales equaling around $3.8 trillion.
However, a new report, 2010 Global Powers of Retailing, from Deloitte, 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 per cent in fiscal 2007 to 2.4 per cent in 2008.
Two-thirds of the 184 retailers who disclosed their bottom-line results saw their net profit margin decline in 2008, with 30 reporting an operating at a loss.
This trend affected almost every geographical area and retail category.
- Retailers in Europe saw their profitability fall from 4.1 per cent in 2007 to 2.7 per cent in 2008
- In North America profits fell from 3.6 per cent to 2.4 per cent
- Only in Africa and the Middle East did retailers se increased profitability
Hardlines and leisure goods retailers saw their profit margin fall by more than half to 3.1 per cent from 6.8 per cent. Sales growth for fashion retailers fell into negative territory and profits were cut in half to 4.1 per cent.
Even the fast- moving consumer goods (FMCG) sector, which includes supermarkets and other food retailers, saw profits fall from 3 per cent to 2.2 per cent, despite seeing higher sales growth than the other groups at 8.6 per cent.
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.''
Indian sales resilient
"India's growth story has been fuelled by domestic consumption and despite the economic slowdown experienced globally, consumption growth in India has been relatively resilient," said Shanto Ghosh, senior director, Deloitte.
Ghosh said, "The Indian retail market, which is the fifth largest retail destination globally, has been ranked as the most attractive emerging market for investment in the retail sector by AT Kearney's eighth annual Global Retail Development Index (GRDI), in 2009. There is continued optimism regarding the future growth prospects of the Indian retail sector and the positive outlook for the economy's growth rate will complement the growth of the Indian retail sector. While bulk of the growth in the retail sector has so far been restricted to the urban Tier I and II cities, experts predict that the next phase of growth will include the rural sector in a big way''.
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.
Some key findings from this report include:
Most retailers have yet to make online push as social networking sites start to make an impact: Multi-channel 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 per cent 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 per cent.
''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 capitalise 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 US 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 per cent|
|Wal-Mart ||US ||1 ||401244 ||9.4|
|Carrefour ||France ||2 ||127958 ||4.3|
|Metro ||Germany ||3 ||99004 ||4.8|
|Tesco ||UK ||4 ||96210 ||12|
|Schwarz Unternehmens Treuhand KG ||Germany ||5 ||79924 ||12.3|
|The Kroger Co. ||US ||6 ||76000 ||7.2|
|The Home Depot, Inc. ||US ||7 ||71288 ||1.9|
|Costco Wholesale Corporation ||US ||8 ||70977 ||11.2|
|Aldi GmbH & Co. ||Germany ||9 ||66063 ||5.1|
|Target Corp. ||US ||10 ||62884 ||6.1|