Global retail predictions highlight growth strategy

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By: Wise Marketer Staff |

Posted on February 12, 2007

Global retail predictions highlight growth strategy

Turbulent business times and fierce competition are giving retail CEOs cause for concern: with traditional growth models and the rollout of more stores failing to boost profits, retailers will need fresh growth strategies to navigate global trends, according to Deloitte Touche Tohmatsu.

The annual Global Powers of Retailing study, completed in conjunction with Stores magazine, ranks the largest 250 retailers worldwide by revenue as well as the fifty fastest growers in the world, and examines the hurdles retailers face as they try to grow sales and profits in an increasingly challenging environment.

Key findings Among the report's main conclusions:

  1. Retailers will be forced to part with their stash of cash Anxious about the future, many retail CEOs are unwilling to part with business funds which have been stockpiled over the years. Given the host of challenges, including rising oil prices, consumer finances, and pandemics, it is easy to see why. But banking the money is hurting global retailers.

    According to Dr Ira Kalish, consumer business director at Deloitte Services LLP's Deloitte Research in the US: "Asset turnover has slowed and return on net worth has fallen for the world's top 250 global retailers. The decline of the top 250's financial muscle means it is unlikely that the dramatic rise in retailer shareholder value achieved over the last five years will be sustained. It appears retailers will come under intense pressure to use their money to improve shareholder value in the future. The upshot will be increased M&A activity, further consolidation, and the need for more debt reduction."  

  2. Globalisation backlash The explosion of free trade around the world has improved access to goods made in developing countries such as India and Vietnam. Retailers have benefited significantly over the last 15 years by importing lower cost goods to sell in their stores. China, Mexico, Brazil, India and Vietnam are some of the world's biggest exporters of goods to countries such as the UK and US. But changing business and political sentiments suggests things are set to change.

    Kalish says: "Political and economic forces could increase the cost of imports in the future and this will put retailers off. It is expected there will be reduced access to imported goods into countries such as US, Japan and Europe. If it becomes more difficult and more expensive to source goods from other countries, retailers are likely to search for alternative but costlier domestic sources in the longer term."  

  3. The changing face of retail workers Over the last ten years the age mix of the global population has been very favourable for retailers. It has helped to keep retail labour costs down and has boosted retail spending. In the next ten years, however, significant changes will take place that could signal troubled times ahead.

    First, the population between the ages of 50 and 70 in mature markets will explode, shifting consumer spending even further from goods and more toward experiences and services. Second, modest growth in the population between the ages of 20 and 35 will make it difficult to hire entry level workers. At the same time, the decline in population between the ages of 35 and 50 will make holding on to middle and upper management challenging.

    Lawrence Hutter, Partner, Deloitte MCS Ltd and Global Consumer Business Lead, says: "In contrast to the developed world, retailers in developing markets will have few problems finding a workforce. The demographic shift in the next few years will produce strong developing economies that are more dynamic and risk taking, and as such will grow much faster than their developed-world counterparts."  

  4. Keeping the business clean, green and ethically sound Web sites such as YouTube present a quick and easy way of communicating ideas and messages to a growing global audience. The video blogs featured are popular among consumers who have both positive and negative messages to share.

    According to Hutter: "Retailers have often lagged other industries in moving corporate responsibility onto the board room agenda, but this new transparency will bring about a tide of change. Activists and Non Government Organisations could potentially use - and in some cases are already using - these new forms of communication to broadcast bad news or questionable behaviour. The message to retailers is loud and clear: consumers are increasingly aware of retailers' social responsibilities and retailers can't afford to be in the spotlight for the wrong reasons."

The report has been made available for download from Deloitte's web site - click here.

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