Fewer Retailers in the Red; Profitability Shows Marked Improvement

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) as the global economic downturn led to more cautious consumer behavior and a drying-up of available credit. However, the 2011 Global Powers of Retailing report from Deloitte Touche Tohmatsu Limited (DTTL), in conjunction with STORES Media, 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.

 

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, while those in the UK had the highest profit margin of any country at 3.5 percent (up from 2.5 percent in 2008) and also one of the highest growth rates (7.1 percent).

 

Dr. Ira Kalish, Director of Consumer Business for Deloitte Research, part of Deloitte Services LP in the United States, said: “These figures demonstrate the efforts of retailers around the world to manage the bottom line. 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 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 overheating in emerging countries. They also face concerns about exchange rate volatility, changing fiscal policy and the sustainability of recovery in some markets,” he said.

 

Eric Tang, National Leader for Consumer Business & Transportation of Deloitte China, said China's retail market has shrugged off the impact from the financial turmoil and the growth momentum is likely to continue, helped by China's effort to transition away from export dependence. One of the examples of strong growth is that the Top 250 list included eight Chinese companies this year and they were the same companies as last year, with most of them having an improvement in ranking. For the first time, Bailian Group made the list of the top 10 Asia/Pacific retailers, entering the list at number eight.

 

 

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