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Fewer retailers in the red: Deloitte

The efforts of many companies to cut costs and adjust their inventory levels have paid off, with net profit across the top 250 retailers in the world increasing from 2.4% in 2008 to 3.1% in 2009, according to a report out on Thursday from Deloitte Touche Tohmatsu (DTTL).

"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," said Dr Ira Kalish, director of consumer business for Deloitte Research, part of Deloitte Services in the US.

2009 decline

The report, in conjunction with STORES Media, revealed that more than one-third of the world's 250 largest retailers suffered a decline in sales in fiscal 2009 as the global economic downturn led to more cautious consumer behaviour and a drying-up of available credit.

"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," said Kalish.

While about 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.

Future concerns

"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," said Kalish.

In 2009, only 13 companies operated at a loss - less than half the number of unprofitable companies in 2008.

The report also said that 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, Metro, Costco and Home Depot.

Meanwhile, three retailers saw sales grow 1% or less.

Above average

"Tesco, Schwarz and Aldi were the only companies among the top 10 whose sales growth outpaced the top 250 average," the report said.

Profitability improved in every product sector, with fashion retailers showing a particularly strong performance, increasing their profit margin from 4.1% to 7.6% against overall sales growth of just 0.7%.

Even the bottom line for the historically low-margin fast-moving consumer-goods sector improved, increasing 0.3% year on year.

According to Deloitte, 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.

Greatest growth

"The biggest increase was in Latin America, with the profit margin increasing from 1.4% to 3.3% and retailers in the US saw profitability increase by slightly more than 1% to 3.4% in fiscal 2009, while those in the UK had the highest profit margin of any country at 3.5%, up from 2.5% in 2008 and also one of the highest growth rates - 7.1%," the report said.

For the first time since Deloitte Touche Tohmatsu began tracking the level of globalisation 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% in 2008 to 22.2% in 2009 - and it comes in a year in which 38 retailers began operations in new countries for the first time, with a combined total of 57 new market entries involving 42 countries.

Source: I-Net Bridge

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