It’s safe to say that the last few years have been marked by a fair bit of uncertainty in the retail industry. And it is also safe to say that the main cause of that uncertainty stems from trade. To go from early 2018—when the United States had a lower average tariff on imports than all other G7 countries except Canada—to now—when the United States has the highest in the G7 and higher than China, India, and Russia—is disorienting to say the least.
But it’s not the actual tariffs that’s the problem—that impact is still to come. Rather it’s the back-and-forthing—the waxing and waning of trade tensions. Will they or won’t they impose tariffs? When will they kick in? How large will they be?
Retail on an even keel
With all this indecision, business planning has been in a near-perpetual state of limbo. Retailers that rely on supply chains and foreign operations would seem especially vulnerable. And yet, against the odds, retail has been holding steady, according to Deloitte’s Global Powers of Retailing 2020, which ranks the world’s top 250 retailers. Consider the following:
Since FY2013, year-over-year retail revenue growth, net profit margin, and internationalization for the top 250 retailers fluctuated no more than two percentage points.
Of the top 10 retailers, 5 held the same rank as the year before—and none of the retailers listed in the top 10 changed.
The average retail revenue for companies in the top 250 reached US$19.0 billion, 2.8 percent higher than the year before.
Overall, the top 250 retailers had a healthy 5% increase in revenues over the past five years. And in FY2018, the average size of retail revenue of the top 250 grew to an impressive US$19.0 billion. That’s the good news.
The bad news is growth was slower—4.1% versus the previous year’s 5.7%. And the fast-moving consumer goods product sector—the main revenue generator in the top 250—recorded the lowest profitability among product sectors. Price wars and rising wages contributed to an already tough environment of intensified competition between high-volume retailers.
Trends we’ve seen
While low inflation and interest rates played a role in retail’s stability over the past five years, a few key trends have emerged that have also had an impact, including:
Operating globally: Among the top 10 retailers, only one was without foreign operations—with one entry earning more than 65% of its revenue outside of its home country. Indeed, more than half of the top 250 had operations in more than 10 countries and 37 achieved more than half of their revenues from foreign operations. This is something retailers in such expanding markets as those in Asia Pacific— where 50 percent are single-country operators—should keep in mind.
Merging and divesting: Retailers often help improve or hold on to their standings in the top 250 via acquisitions, in some cases acquiring major competitors or cementing a regional presence in others. Still others use acquisitions to get a foothold in a diversified and/or up-and-coming segment, as evidenced by the proliferation of health care and pharmacy-related buys. But divesting has served nearly as important a role as acquiring, with several top 10 retailers selling off under performers and pulling out of challenging markets.
Building online-offline options: With the rise of online retailing giants, many brick-and-mortar enterprises have followed suit with their own online presence, with various levels of success. But brick-and-mortars have discovered a way to out-compete online retailers by stepping up their “buy online, pick up in-store” options. This has paid off for several retailers. So much so, that some top online retailers are now developing—and have opened—their own physical retail spaces.
What’s to come?
While hardly a satisfying answer, uncertainty is still sure to reign in the coming year. New trade deals could be unpredictable in their actual execution and the impact of tariffs should they finally arrive. Growth in 2020, while positive, will be subdued, with lower growth in consumer spending expected. Just as in the past five years, it’s not all good news and it’s not all bad—and retailers will have to find a way to continue on their steady course.
To learn more about the Global Powers of Retailing 2020 report and the top 250 retailers, visit Deloitte.com.
Vicky is the former Global Retail, Wholesale & Distribution Sector Leader within Deloitte's Consumer industry. She has more than 20 years’ experience in strategy and operations consulting, helping global brands get closer to their consumers. Vicky frequently speaks at trade shows and universities, and sits on the board of several charities.