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Retail sales grow despite recession, Wal-Mart leads

Despite one of the sharpest economic contractions in decades, the world’s largest retailers were able to increase sales by 5.5% in fiscal year 2008 (encompasses fiscal years ended through June 2009), with total retail sales equaling around $3.8 trillion. However, a new report, 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 percent in fiscal 2007 to 2.4 percent in 2008.

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 the table of Top 10).

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: “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.”

“As the Czech Republic there is no reason to expect that the bottom lines of retail companies would not be impacted in the similar manner,” says Martin Tesař, Partner Deloitte Czech Republic, “especially when we take into account the continuous price battles for customers which we have witnessed during the last year.”

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. “Social networking will increase transparency in the retail industry, giving consumers greater access to information about retailers, their products and pricing.”

“When it comes to the social networking in the Czech Republic, we continuously see that it’s also firmly planted in our latitude. As such it is only a question of time when retail companies in segments favoured by the social networking group will appreciate the potential benefits and drawbacks and will adjust their strategy,” says Bronislav Pánek, Partner Deloitte Czech Republic.

To download a copy of the 2010 Global Powers of Retailing go to:
www.deloitte.com/consumerbusiness

And what to do in the near future?  Retailers will find themselves operating in a new, more competitive landscape, consumers most likely will remain restrained. Despite it, the other study of Deloitte After the storm – Planning for the retail recovery, shows some new challenges and opportunities:

Pragmatic, cautious customers
Customer values are going through both a cyclical change and a longer-term permanent shift. They  are demonstrating a taste for longer-term value and are integrating considerations such as sustainability into their purchasing decisions.

The slow thaw of credit
The criteria for access to reasonable credit and financing will likely continue to be more restricted in the future. It is a critical time for retailers to examine the financing cycle and refinancing requirements in the context of future business plans.

Volatility—the new “normal”
Post-recession, retailers will need to continue to manage in an environment that has increased potential for game-changing uncertainty. Major shifts in relative currency values, interest rates, and energy costs will affect operating incomes and cash flow.

Energy
It seems inevitable that the cost of oil and other geologically-based sources of energy will continue to rise with extraordinary short-term volatility. Because transportation is an increasing component of product costs, it is important for retailers to understand the effect of energy on their supply chain strategies and sourcing decisions.

Emerging economies
The recession has demonstrated in very real terms the interdependent nature of the global economy—and it is clear that emerging economies will play an increasingly important role in the economic future of the planet. Companies with a global footprint who can demonstrate their ability to succeed across borders and cultures will have distinct advantages as they make investments

Think strategy, not survival
It is perhaps hardest to recognize opportunities in the midst of a recession when people are surrounded by uncertainty and fear. But this can also be the time for retailers to reset their thinking and plan and develop strategy without being driven purely by financial reporting requirements or an annual cycle.

Understanding customers
Retailers’ success post-recession will be hugely influenced by how well they really do understand consumers—and how well they are able to leverage that understanding in proposition development. Now more than ever retailers need to understand and monitor the leading economic indicators that are aligned with their target customer.

Deflation and inflation
Economists are still divided on whether inflation or deflation will be a factor in the near term, but each has important implications for how retailers manage their business going forward.

Sustainability
Retailers should consider the strategies and incentives available to them to mitigate future energy needs, explore the emerging alternatives, and aggressively and visibly pursue green alternatives that also reduce operating costs.

Shrink and loss
Recessionary periods often increase the level of desperation. Internal and external theft likely to increase significantly and the methods used growing increasingly sophisticated. Retailers will need to defend both their physical assets and information assets vigorously as well as seek new strategies and tools to combat cyber-crime.

Innovation
Retailers should take advantage of a startling array of new technologies available that can improve the customer experience.

Supply chain strategy
Inventory management in the near-term and the future is going to present some of the greatest business challenges for retailers. Retailers and their vendor partners will need to place big bets on inventory position and timing through the transition back to growth.

Tax incentives
There are an unprecedented number of tax incentives, rebates, and credits available these days to stimulate spending and investment in the private sector and to save and create jobs. But the window of opportunity to capture some of these tax benefits may expire within the next few years.

To download a copy of the After the storm – Planning for the detail recovery go to:
http://www.deloitte.com/view/en_GX/global/industries/consumer-business-transportation/retail/article/276a1b90e4095210VgnVCM100000ba42f00aRCRD.htm