Cautious consumers put the brakes on retail sales growth, but profits increase

More than one-third of world's largest retailers suffer declining sales. Fewer retailers in the red; profitability shows marked improvement. Delhaize Group first Belgian retailer on 32nd place.
10 Feb 2011

Brussels, 10 February 2011 – More than one-third of the world's 250 largest retailers suffered a decline in sales in fiscal year 2009 (encompasses June 2009 through June 2010). However, the 2011 Global Powers of Retailing report from Deloitte reveals that the efforts of many companies to cut costs and adjust their inventory levels have paid off, with net profit across the top 250 retailers increasing from 2.4 percent in 2008 to 3.1 percent in 2009.

While approximately one-third of the 188 retailers that disclosed their bottom-line results saw their net profit decline in 2009, this is a significant improvement compared with 2008, when two-thirds experienced falling profits. In 2009, only 13 companies operated at a loss—less than half the number of unprofitable companies in 2008. Profitability improved in every product sector, with fashion retailers showing a particularly strong performance, increasing their profit margin from 4.1 percent to 7.6 percent against overall sales growth of just 0.7 percent. Even the bottom line for the historically low margin Fast Moving Consumer Goods sector improved, increasing 0.3 percent year-on-year.

Top 250 Retailers; Delhaize Group as first Belgian retailer

The composition of the Top 10 retailers in the world remained the same in fiscal 2009. However, sales declined for four top 10 retailers – Carrefour S.A., Metro AG, Costco Wholesale Corporation (Costco), and The Home Depot, Inc. (Home Depot). Another three saw sales grow 1 percent or less. Tesco plc and hard discounters Schwarz Unternehmens Treuhand KG (Lidl) and Aldi GmbH & Co. (Aldi) were the only companies among the Top 10 whose sales growth outpaced the Top 250 average.

Company Country of Origin Rank 2009 Retail Sales
(US$mil)
Annual growth
2004-2009 (%)
Wal-Mart US 1 405,046 7.3
Carrefour France 2 119,887 3.4
Metro Germany 3 90,850 3.0
Tesco UK 4 90,435 10.9
Schwarz (Lidl) Germany 5 77,221 9.8
The Kroger Co. US 6 76,733 6.3
Costco US 7 69,889 8.2
Aldi Germany 8 67,709 6.3
Home Depot US 9 66,176 -2.0
Target Corp. US 10 63,435 6.8

Delhaize Group is the first Belgian player in the ranking, and features on the 32nd place, going up one place compared to last year. Other Belgian retailers are Louis Delhaize S.A. (Cora, Match - 51st place – moving up 2 places), C&A Europe (94th place, on the 99th spot last year), and Colruyt features on the 121st place, and has gone down 2 places in the ranking compared to last year.

Regional differences

Every region suffered a decline in sales growth, but all regions saw an increase in profitability, with the exception of Africa and the Middle East. The biggest increase was in Latin America, with the profit margin increasing from 1.4 percent to 3.3 percent. Retailers in the U.S. saw profitability increase by slightly more than 1 percent to 3.4 percent in fiscal 2009.

As a region, European retailers demonstrated superior sales growth in 2009. Nevertheless, the number of European companies in the Top 250 slipped from 96 in 2008 to 92 in 2009, and they accounted for a smaller share of total Top 250 retail sales. With the exception of France, where composite sales declined 1.9 percent, this outcome is primarily due to the U.S. dollar's stronger average exchange rate in 2009 relative to the euro and pound.

Koen De Staercke, Partner at Deloitte Belgium, said: "These figures demonstrate the efforts of retailers around the world to improve the net profit. Just a year ago we reported falling profits for retailers as consumers cut back, and bloated inventories led to deep discounting. Retailers have acted quickly to identify where savings were possible and are now reaping the benefits. It will be harder for retailers to continue to boost profits through these measures, and instead they will be hoping economic recovery can put sales growth back on track. However, as 2011 begins, retailers worry about inadequate demand in developed countries and possible overheating in emerging countries. They also face concerns about exchange rate volatility, changing fiscal policy and the sustainability of recovery in some markets."

A new age of retail globalization?

For the first time since Deloitte began tracking the level of globalization among the Global Powers of Retailing in 2005, foreign operations as a share of Top 250 retail sales declined. However, this was a small drop—from 22.9 percent in 2008 to 22.2 percent in 2009—and it comes in a year in which 38 retailers began operations in a new country for the first time, with a combined total of 57 new market entries involving 42 countries.

As success in developed markets becomes more challenging, the emerging world becomes more compelling. In 2009, the Top 250 continued to increase their global coverage by entering new markets. 38 retailers began operations in a new country for the first time, with a combined total of 57 new market entries involving 42 countries located in 11 of the 12 sub-regions. Nearly half the time, in 27 of the 57 market entries recorded, the new country was located either in Middle East (13 times— particularly Kuwait and the United Arab Emirates) or in Central Europe (14 times— particularly Bulgaria and Albania). This shows that retailers continue to expect a disproportionate share of consumer spending growth will take place in emerging markets in the years ahead.

As Belgium is a mature retail market, it will be interesting to see how Colruyt and Delhaize, the two largest Belgian food distributors, will try to further expand their network beyond the borders of Belgium. Recent media coverage points out Delhaize is actively looking for a possible further expansion specifically in Central Europe.

Within this framework, it's also relevant to highlight the differences between retailers in Europe and in the United States. While European retailers, active in mature domestic markets, have already taken steps towards an international expansion, retailers in the United States stayed quite limited in their expansion activities. Koen De Staercke: "Since the growth potential of the American Wal-Mart is decreasing, there's a pressure for United States retailers to look for international expansion opportunities."

The experiences of some global players have taught the industry valuable lessons, most notably that it is not sufficient simply to enter a promising market; there has to be a strategy. Koen De Staercke; "It is also key that global retailers make the most of local knowledge: understanding local tastes and culture, using mostly local managerial talent, and developing local relationships. Retailers embarking on a period of globalization should be prepared to make significant investments for the long-term, helping to convince local suppliers and vendors that the retailer is there to stay and build a following among consumers. They should also not be afraid to make mistakes, sometimes big ones. While it will never be easy, many more companies are now ready to take the plunge: we may be on the precipice of a new age of retail globalization".