Global and diversified retailers enjoy strongest growth

Global retailers and those with a range of formats were the star performers in 2008, according to a new report on the top 250 global retailers from Deloitte Touche Tohmatsu.

Its 2010 Global Powers of Retailing study, produced in conjunction with Stores Media, found retailers with a more global base of operations performed better than those with no international operations in 2008.

Among the Top 250, 100 retailers were single-country operators, while 50 operated in 10 or more countries, it says. The retailers operating in 10-plus countries grew sales a full percentage point faster than the single-country operators in 2008. Their return on sales was also more than double that of the retailers, which operated exclusively in their home country.

In order to maintain an aggressive growth trajectory, most of the world's largest retailers have developed multiple sales formats, reports Deloitte.

In 2008, 131 of the top 250 operated with some level of format diversification, compared with 119 single-format operators.

Multi-format companies grew sales much faster than their single-format competitors in 2008, unlike 2007 when the opposite was true.

By format, supermarkets made a comeback in 2008, according to the report. Of the 24 newcomers to the top 250 league, 14 retailers operated supermarkets including nine where it was the dominant format. And, although the supermarket has been displaced in recent years by the hypermarket, hard discount format and convenience store, it remains the most common store format - operated by 103 of the top 250 retailers.

Nine of the new entrants to the top 250 ranking are Japanese retailers, although this is primarily due to the strength of the yen relative to the dollar during the 2008 fiscal year.

Kwik Trip, the US-based convenience and forecourt retailer, is the only c-store to enter the league in 2008, ranked 216th.

From the UK, Iceland and The Game Group, a PC and video games retailer, are new entrants.

Convenience stores feature in the list of fastest-growing retailers between 2003 and 2008 too. Wesfarmers, the Australian conglomerate, which acquired Coles in November 2007, is the second fastest grower with a CAGR of 62.7%.

OJSC Magnit, the largest food retailer in Russia in terms of number of stores, is growing quickly too with the expansion of its discount convenience store concept and Magnit hypermarkets.

China Resources Enterprise, a Hong Kong-based business, and Canada's Alimentation Couche-Tard are other top convenience store growers.

Other key findings of the Deloitte report include:

• The world's largest retailers increased sales by 5.5% in fiscal year 2008 (encompasses years ended through June 2009), with total retail sales equaling around $3.8 trillion
• Profitability at the largest 250 retailers in the world fell from 3.7% in fiscal 2007 to 2.4% 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
• Retailers in Europe saw their profitability fall from 4.1% in 2007 to 2.7 % in 2008, while those in North America fell from 3.6% to 2.4%
• The fast-moving consumer goods (FMCG) sector, which includes supermarkets and other food retailers, saw profits fall from 3% to 2.2%, despite seeing higher sales growth than the other groups at 8.6%

Ira Kalish, report author and director of consumer business for Deloitte Research in the US, said: "This 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% of the total retail sales of the top 250 retailers.

Wal-Mart remained the world's largest retailer, ahead of Carrefour. Despite Tesco's better sales growth rate (Tesco's retail sales actually grew three times faster than Metro's in fiscal 2008), relative currency strength against the US dollar enabled Metro to climb above Tesco, back into third place.

 

 

Tesco, the world's fourth largest retailer, has global operations and diverse formats (pictured top to bottom are Tesco Malaysia, Tesco Express in Japan and Tesco Express Hungary)

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% 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%.

"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."

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