Global Powers of Retailing 2009
Feeling the squeeze
Deloitte, in conjunction with STORES Magazine, is pleased to present the 12th annual Global Powers of Retailing . This report identifies the 250 largest retailers around the world based on publicly available data for the companies’ fiscal year 2007 (encompasses fiscal years ended through June 2008). The report also provides an outlook for the global economy; an analysis of market capitalization in the retail industry; and a discussion of 10 major trends affecting retailers.
Retail industry still riding high in 2007, but trouble brewing
During the 2007 fiscal period, there was a shift underway in the U.S. economy. It went from relatively strong growth, to deceleration, to a modest recession by early 2008. The proximate cause of this slowdown was the peak and then collapse of the U.S. housing market. Housing prices started to fall in late 2006. By the summer of 2007, the number of defaults and foreclosures on sub-prime mortgages had reached the point where they were having an impact on the value of mortgage-backed securities. The result was the beginning of the credit crunch in August 2007. The slowdown in housing market activity, followed by slower growth of consumer spending, led employment to stop growing by January 2008.
On a global level, the economy was still growing nicely in 2007. Only in early 2008 did the U.S. financial crisis begin to spill over into Western Europe. The impact was not felt in the Asia/Pacific region until mid-2008. As a result, consumer spending remained fairly robust in most of the world throughout fiscal 2007, the financial period covered in this report.
Total retail sales for the Top 250 Global Powers of Retailing climbed to $3.62 trillion in 2007, up 11.4 percent from the prior year’s Top 250 total of $3.25 trillion. Much of the increase reflected nominal sales growth. But part of the gain in the aggregate U.S. dollar-denominated sales figure reflected the impact of a weaker dollar against many major currencies during 2007. And part is simply due to a change in the composition of the Top 250 group itself. Looking only at this year’s list of companies and factoring out currency movement, retail sales still increased at a healthy composite rate of 7.6 percent in 2007.
The average Top 250 company generated $14.5 billion in retail sales in 2007, up from $13 billion for the 2006 group. To become a member of this elite list required fiscal 2007 retail sales of approximately $3 billion, up from $2.7 billion in 2006.
Top 10 European retailers, 2007
|Europe rank||Top 250 rank||Company||Retail sales*||Country of origin|
|*) in U.S.$ billions|
Top trends for retailers 2009
Retailers are likely to take a knife to operating costs by consolidating support functions and slashing payroll. In addition, they will examine their cost of goods more carefully. They will attempt to negotiate better deals with suppliers, taking advantage of the fact that a recessionary environment creates more of a buyer’s market.
Think risk management
Among the risks that will keep retailers awake will be disruptions to supply chains, currency volatility, natural disasters, man-made disasters, legal liability, and financial market disruption. The latter is probably of most immediate concern. The recent meltdown in credit markets demonstrated the importance of having sufficient cash on hand and having strong financial service and supplier relationships.
Think customer experience
Evidence abounds that customer experience can make a large difference in the performance of a retailer. There are countless examples of retailers who have re-designed their customer experience with positive results. The largest challenge, however, is not so much to design the correct experience but to execute that experience.
Think human capital management
The challenge going forward will be to spend more time and money on training, do more to engender employee loyalty to mitigate turnover, and improve employee productivity in order to justify higher compensation – the latter being critical to attracting the best people.
Going forward, the best retailers will be those that successfully use the Internet to seamlessly deliver information and products to consumers in conjunction with store experiences. As Internet shopping grows as a share of total shopping, failure to execute this strategy could spell trouble for retailers.
Think smaller stores
In the future, large retail chains will likely develop a combination of large and small stores, enabling them to satisfy different consumers on different occasions. This, combined with online selling, will offer consumers a variety of venues for interacting with a favored retailer.
Think market segmentation
In major developed nations, the mass market is rapidly disappearing. There has been a relative increase in the number of lower- and upper-income households with the middle class becoming a smaller share of the total. Consequently, retailers will increasingly focus on appealing to niche household segments.
The world’s biggest retailers, particularly those that focus on food, have already made substantial investments outside their home markets. In the coming years, we’re likely to see second-tier retailers as well as more non-food retailers take the plunge. In addition, we are also likely to see retailers based in emerging markets continue the path of investing in other emerging markets and even in some developed markets.
Re-think supply chains
Many companies are already starting to re-think their supply chains. While radical action is not likely, companies will likely shift the emphasis of their supply chains at the margin, similar to what is happening now with suppliers. Specifically, companies will seek to diversify supply chains, especially to take advantage of lower cost in locations other than China, and shift some sourcing closer to final markets to reduce transport costs.
You are a brand
In an era of slow growth, tight margins, and fickle consumers, the key to success is to differentiate. One critical element in successfully differentiating is communicating that difference to consumers. Hence, branding will require special attention from retailers who want to stand out from the crowd.
This report uses sales-weighted composites rather than simple arithmetic averages as the primary measure for understanding group financial results. Therefore, results of larger companies contribute more to the composite than do results of smaller companies. Because the data have been converted to U.S. dollars for ranking purposes and to facilitate comparison among groups, composite growth rates also have been adjusted to correct for currency movement. While these composite results generally behave in a similar fashion to arithmetic averages, they provide better representative values for benchmarking purposes. Composites and averages for each group are based only on companies with data. Not all data elements were available for all companies.
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