Headline Verdana Bold Global Powers of Retailing 2017 Highlights

Global Powers of Retailing 2017

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Top 10 retailers Wal-Mart continued its long-held position as the world’s largest retailer

#1

Wal-Mart Stores Inc.

US

$ 482.1

#2

Costco Wholesale Corporation

US

$ 116.2

#3

The Kroger Co.

US

$ 109.8

#4

Schwarz Unternehmenstreuhand KG

Germany

$ 94.4

#5

Walgreens Boots Alliance, Inc. (formerly Walgreen Co.)

US

$ 89.6

+5

#6

The Home Depot, Inc.

US

$ 88.5

+3

#7

Carrefour S.A.

#8

Aldi Einkauf GmbH & Co. oHG

#9 #10 #: FY2015

Key highlights  The top 4 retailers maintained their positions on the leader board  Acquisitions, divestitures and exchange rate volatility shuffled the rest of the top

 Walgreens moves up leader board and Amazon joins top 10

France

$ 84.9

-1

Germany

$ 82.2 e

-1

Tesco PLC

UK

$ 81.0

-4

Amazon.com, Inc.

US

$ 79.3

+2

Top 250 rank

10

Country of origin

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 Germany’s Metro Group fell out of the top 10 as the company’s transformation process accelerated

FY2015 Retail revenue (US$ billions)

Change in rank

e: Estimate 3

Geographic breakdown Percentage share of top 250 revenue by region and by top countries

North America

Latin America

47.6%

1.6%

Europe

35.0%

Africa/ Middle East

Asia Pacific

1.4%

14.4%

China/Hong Kong

3.7%

US 45.6% France

Japan

8.2%

6.5%

Germany

Other Asia Pacific

9.8%

4.3%

UK

5.8% Other Europe

11.2%

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4

Product sector breakdown Percentage share of top 250 revenue by primary product sector

TOP 250

Companies by sector

% Share of revenue

Apparel and accessories

Fast-moving consumer goods (FMCG)

Hardlines and leisure goods

Diversified

9.8%

66.6%

16.4%

7.2%

45

50

133

22

Key highlights  Revenue growth for the apparel and accessories retailers outpaced the other product sectors, for the third year in a row  Retailers of FMCG are the largest companies and the most numerous among the top 250— with average retail revenue of US$21.6 billion

 The strong growth of e-commerce giants Amazon.com and JD.com gave the hardlines and leisure goods group’s composite revenue growth a big boost— offsetting negative growth among 13 of the sector’s 50 companies  The diversified group has experienced persistently slow growth—its composite revenue declined as two of the three largest diversified companies posted negative top-line results

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Top 10 fastest-growing retailers FY2010-FY2015 Top 250 rank

#1

Vipshop Holdings Limited

#2

157

China

$ 6.1

184.6%

JD.com, Inc.

36

China

$ 27.0

81.3%

#3

Albertsons Companies, Inc.

17

US

$ 58.7

74.1%

#4

Axel Johnson AB / Axfood, Axstores

164

Sweden

$ 5.8 *

49.2%

#5

Sprouts Farmers Market, Inc.

242

US

$ 3.6

47.4%

#6

Steinhoff International Holdings N.V.

72

South Africa

$ 13.2

44.5%

#7

Southeastern Grocers, LLC

84

US

$ 11.1 e

34.6%

#8

OJSC Dixy Group

198

Russia

$ 4.5

33.5%

61

Russia

$ 15.7

32.0%

244

Netherlands

$ 3.6 *

29.1%

 From 2010 through 2015, the composite retail revenue for the 50 fastest-growing retailers increased

#9

PJSC "Magnit"

#10 #: Growth

Key highlights

Grandvision N.V.

rank

Country of origin

FY2015 Retail revenue (US$ billions)

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at a CAGR of 22.2%—more than 4X times faster than the growth rate for the entire top 250 group

 34 of the fastest 50 companies were among the 50 fastest-growing retailers in FY2015  E-commerce and acquisitions are the key drivers for the fastest 50

FY2010-15 Retail revenue CAGR

e: Estimate

*

Revenue includes wholesale and retail sales

6

Top 10 e-retailers FY2015 Top 250 rank

#1

Amazon.com, Inc.

10

US

$ 79.3

13.1%

#2

JD.com, Inc.

36

China

$ 27.0

54.5%

#3

Apple Inc.

33

US

$ 24.4 e

18.2%

#4

Wal-Mart Stores, Inc.

1

US

$ 13.7

12.3%

#5

Suning Commerce Group Co., Ltd.

46

China

$ 8.1 e

95.0%

#6

Otto (GmbH & Co KG)

92

Germany

$ 7.2

0.5%

#7

Tesco PLC

9

UK

$ 6.5 e

9.0%

#8

Vipshop Holdings Limited

157

China

$ 6.1

64.4%

#9

Liberty Interactive Corporation

97

US

$ 5.1

1.0%

Macy's, Inc.

35

US

$ 4.9 e

n/a

#10 #: FY2015

e-50 rank

Country of origin

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FY2015 e-commerce retail sales (in US$ billions)

FY2015 e-commerce growth rate

Key highlights  E-commerce is the major growth engine for many top 250 retailers  80% of the 50 largest e-retailers

are top 250 companies  The vast majority of the e-50 are based either in the US (26 companies) or Europe (19 companies)

 The pace of growth of online sales has decelerated for retailers engaged in e-commerce, but it

remains higher than the growth in

e: Estimate

overall revenue

*

Revenue includes wholesale and retail sales

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Newcomers to the Top 250 13 retailers appear in the top 250 for the first time Top 250 rank

Homeplus Co., Ltd.

163

S. Korea

Hypermarket/Supercenter/Superstore

ne

PETCO Animal Supplies, Inc.

208

US

Other Specialty

5.1%

Smart & Final Stores, Inc.

222

US

Cash & Carry/Warehouse Club

12.4%

BGFretail Co., Ltd.

227

S. Korea

Convenience/Forecourt Store

28.7%

Hobby Lobby Stores, Inc.

229

US

Other Specialty

2.7%

Nojima Corporation

231

Japan

Electronics Specialty

86.5%

Ulta Salon, Cosmetics & Fragrance, Inc.

234

US

Other Specialty

21.2%

PT Indomarco Prismatama (Indomaret)

235

Indonesia

Convenience/Forecourt Store

20.1%

HSN, Inc.

236

US

Non-Store

2.9%

PT Sumber Alfaria Trijaya Tbk (Alfamart)

239

Indonesia

Convenience/Forecourt Store

15.5%

Savola Group/Panda Retail Company

240

Saudi Arabia

Hypermarket/Supercenter/Superstore

10.9%

Sprouts Farmers Market, Inc.

242

US

Supermarket

21.1%

American Eagle Outfitters, Inc.

247

US

Apparel/Footwear Specialty

7.3%

Country of origin

Dominant format

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FY2015 retail revenue growth (%)

ne: not in existence (created by divesture or merger) 8

Retail trends The art and science of customers

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Changing preferences Less is more “Fewer, better things”. Customer preferences are shifting from rampant consumption to intentional consumption. Curated possessions and experiences have become more important than the number of things customers own. Consumption of ‘experiences’ has outpaced the consumption of ‘goods’ by a factor of three over the last two years. There is a movement away from the mass-produced toward the “bespoke.” There has been decreased share of wallet on non-durable and durable goods, and declining foot traffic at mass retailers and department stores. An increasing preference is seen toward environmentally friendly products.

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H&M Conscious Traditional fast-fashion retailer H&M is responding by launching programs like “H&M Conscious” which will debut a new Conscious Exclusive collection of high-end, environmentally friendly pieces each year. This is a shift away from fast fashion’s traditional business model, built on customers buying more frequently at a lower price.

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Changing preferences “Following” economy There is an increasing trend of customers “following” celebrities and brands on social media, and also building their own “following”. Customers are seeking experiences and products that reflect the personal brand they promote on social media. Hotel guests, particularly Millennials, value how their trips are perceived on social media as much as the actual quality of the real experience. Travel and tourism sector is striving to gain presence in customers’ social media space in the form of geotags, hashtags, and reviews. Retailers that can consistently deliver authentic, shareable experiences to customers will grow a fiercely loyal customer base.

Power of shareable retail experiences—Australia’s T2

For the last five years, T2’s coffee sales have outpaced tea sales in almost every country. T2 sought to change all that by bringing the “hip” back to tea. It designed packaging and in-store experiences that pop with vibrant colors and bold patterns, which make for pretty social media posts. T2 boasts a loyal social media following which helped it grow from one store in Melbourne in 1996 to a global brand, acquired by Unilever in 2013.

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Changing formats “Retailization” of the world The maker movement, the sharing economy, and other factors have made it increasingly difficult to define what a retailer is and does. In 2017 and beyond, market fragmentation in the retail space will continue to grow. Market volatility is attributed to explosive growth of non-traditional retailers developing new models to serve customer needs. Customers with increasing purchasing power in developing countries, are willing to rely on less traditional retail models for more purchases. Established markets are marked by less dramatic market penetration from alternative formats, but the level of sector blurring is unprecedented. There is a rise of subscription model based retailers such as Dollar Shave Club, Trunk Club, and Blue Apron.

Vipshop has grown by popularizing the flash-sale model E-commerce power-players Alibaba and Tmall have competition from Vipshop, which has grown by popularizing the flash-sale model. It sells mid-market clothing and accessory brands, using a time-limited discount model. 90 percent of Vipshop’s sales are outside of China’s Tier 1 cities.

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Changing formats On-demand shopping and fulfillment The on-demand fulfillment frontier is extending from apparel and hardline retailers to grocery, automotive, and services. Consumers expect speed, high-quality, and on-demand shopping experiences which includes real-time reviews and fresh products. Europe will likely continue to be the battleground for the future of grocery with AmazonFresh and Carrefour rolling out 1-hour delivery across cities. One trend likely to continue is traditional grocers partnering with technology and delivery companies to provide products for on-demand delivery; with grocers effectively almost becoming vendors to technology companies.

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Amazon – Altering customer expectation on fulfilment

This year, Amazon joined the list of top 10 global retailers for the first time. Amazon’s growth has been significantly driven by its prime service which attracts younger, higher income customers. While Amazon doesn’t disclose data on growth for its prime service, some estimate the number of worldwide members to be 80 million and growing at around 50 percent CAGR.

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Changing expectations Exponential living Use of artificial intelligence or robotics for self-service in stores is expected to continue. The impact of technology is not limited to the in-store experience. Exponentials are changing how we live and how we will shop. Un-manned cars will allow smaller or hyper-local retailers to afford personal, same-day deliveries.

Wide-scale adoption of augmented reality, 3D printing, holograms, and other technologies are expected to impact shopping experience. Ebay and Myer—World’s first VR department store EBay, in partnership with Australian retailer Myer, has created the world’s first virtual reality department store. Using eBay Sight Search, consumers can explore over 12,500 products from Myer, access real-time price and product information, and add selected items to their basket.

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Global economic outlook

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United States What to expect from the Trump Administration

Traditional Republicans

Trump Republicans

Tax cuts and reform

Restrict trade

Deregulation

Restrict immigration

Free trade and capital movements

Industrial policy (Carrier, Ford, GM, Boeing, Lockheed)

Encourage skilled immigrants

Infrastructure investment

Congress: •

Both houses of Congress controlled by Republicans

•

Republicans hold 52 of 100 Senate seats

•

Require 60 votes to break a filibuster

•

Trump must work with Chuck Schumer on many areas of legislation

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United States What to expect from the Trump Administration Topic

Policy

Trade

•

Wants to label China a currency manipulator, possibly impose tariffs

•

Will withdraw TPP, negative impact on Japan, empowers China

•

Wants to re-negotiate NAFTA, possibly impose tariffs on Mexico

•

Pressure companies not to shift resources to other countries

•

Boost spending on infrastructure, military

•

Will not cut entitlements

•

Pay for increased spending by borrowing

•

Less regulation of environment, energy, labor, financial services

•

Impose parental leave requirement

•

Exit Paris accord on climate

Spending and deficits

Regulation

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United States What to expect from the Trump Administration Economic and financial impact: •

Tax cuts and infrastructure spending boost supply of bonds, stimulate economy

•

Accelerates wage increases and boosts inflation

•

Boosts short term economic growth, but not necessarily longer term growth

•

Cutting corporate taxes brings cash home from overseas, boost value of dollar

•

Infrastructure spending and deregulation could boost longer term growth

•

Trade and immigration restrictions slow growth, boost inflation, increase risk of recession

•

Initial market reaction indicates that investors are not focused on trade, more focused on fiscal and regulatory measures. This could change.

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Asset markets Rising bond yields

•

Rising expectations of inflation in US and Europe

•

Expectations of bigger budget deficits in the US and UK

•

Investors expect stronger economic growth in US and Europe

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Asset markets Ceiling on oil prices Oil prices rebounded due to: •

Declining U.S. investment and production

•

OPEC decision to cut production, not likely well enforced

•

If production falls:

− Prices will rise. − Shale producers will return to the market − Boost production − Suppress prices. − A ceiling will be reached. •

Expect a prolonged period of relatively low oil prices

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Currencies Dollars, Euros, Pounds Currency

Influences

US dollar

•

Strengthened over last two years due to relatively strong growth, higher yields, expected tightening of monetary policy

•

Declined in past year due to revised expectations of Fed policy

•

Increasing now due to expectations of new fiscal policy

Euro

•

Downward pressure due to ECB policy, expected easing of policy, expected shift in US policy, pessimism about euro sustainability

Pound

•

Downward movement due to expected drop in inbound foreign investment

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Currencies Renminbi

•

Until two years ago, capital flowed into China, exerting upward pressure on currency, boosting reserves

•

Now, capital flows out due to: •

Weaker economy

•

More outbound investment

•

Rich Chinese moving funds out of the country

•

End result, downward pressure on currency, selling of reserves

•

Possible rapid depreciation before Trump takes office, could fuel conflict with US

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United States Economic conditions

Payroll employment growth ‫‏‬

Job market strong, mature:

•

Job growth slowing, but remains strong

•

Job openings rate historically high

•

Shortages reported, especially for those with specific skills

•

Economy at full employment

•

Participation stabilizing after long decline

Job openings rate ‫‏‬

4.0 3.5 3.0 2.5

2.0 1.5 1.0 2001 2003 2005 2007 2009 2011 2013 2015

Source: US Federal Reserve Copyright © 2016 Deloitte Development LLC. All rights reserved.

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United States Economic conditions

Declining male participation: •

Shifting demand for skills

•

Displacement from technology and trade

•

Hurts economic growth, but also hurts social stability

•

Contributes to income inequality

•

Contributes to populist politics

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United States Economic conditions Influences on the consumer: •

Rising employment

•

Wages begin to accelerate – especially at the lower end of the spectrum

•

Stronger cash flow, less debt, greater ability to borrow again

•

Persistent low energy prices

•

Improved financial market conditions

•

Rising income inequality slows consumer spending growth

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Debt service/disposable income ‫‏‬

Source: US Federal Reserve

25

China Transitioning

Slower growth, different growth: •

Slower growth due to weak exports and investment

•

Transition from low wage to higher wage manufacturing

•

Transition from manufacturing to services

•

Transition from exports to domestic demand

•

Excessive growth of state-sector, slow growth of private sector

•

Needed transition from investment to consumer spending

•

Transitions hampered by policy

•

Economy at risk from excessive debt

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China Demographics

•

Declining working age population boosts wages, hurts economic growth, hurts export competitiveness

•

Declining rural-urban migration hurts growth. Requires end of second-class status for migrants

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Growth of working age population

27

Eurozone Growth outlook

Mixed picture:

•

ECB policy has suppressed euro, suppressed borrowing costs, and boosted asset prices

•

Consumer spending weakening after good growth

•

Unemployment remains high

•

Investment remains weak

•

Strength in Spain, Ireland, Germany

•

Weakness in France, Italy

•

Inflation starts to accelerate

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United Kingdom Brexit and beyond •

UK economy surprisingly resilient

•

Investment and hiring could falter due to risk of new trade barriers

•

Cheaper pound will hurt consumer spending, economic growth

•

Government appears headed toward “hard Brexit” with subsidies for companies and industries

•

Potential impact on autos, financial services, pharma

•

Impact on rest of world muted

Source: IMF

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Japan Growth outlook

Persistent stagnation and deflation: •

Per capita GDP growth not bad

•

Despite Bank of Japan easing, including negative interest rates, deflation persists, credit creation falters

•

Economy intermittently stalls

•

Exports weaken as yen strengthens

•

US dollar strength could reverse upward pressure on yen

•

Prime Minister wants fiscal stimulus

•

Failure of TPP hurts

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Emerging markets Growth outlook Emerging market debt/GDP ‫‏‬

Recovering from a bad episode: •

Many EMs hit by perfect storm:

– Strong US dollar – Weak commodity prices – Led to high inflation – Led to tight monetary policy – Too much debt •

Russian and Brazil remain in recession

•

Rebound in activity as currencies and commodity prices stabilize

•

Longer term outlook still strong

•

Short term risks: – Stronger US dollar – US protectionism

– Decline in oil prices

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