Strong growth for world’s top retailers

Challenges for local retailers.

Deloitte’s annual Global Powers of Retailing report reveals that the world’s Top 250 retailers generated US$4.53 trillion in revenues in FY18, up 5.7% year-on-year.  On the local retailer front, JB Hi-Fi’s ranking  moved up from 218 to 182, adding  more than $1 billion of revenue on the prior year reflecting a full year’s impact of its acquisition of The Good Guys. Wesfarmers and Woolworths maintained their placings at 21 and 22.

But just as 2018 saw several highs and lows for Australian retailers, 2019 is shaping up to be yet another year of disruption with the retail environment a tale of two halves during 2018.

Ongoing competitive challenges from both domestic and international retailers remain a perennial feature of the Australian landscape, as online retail continued its growth trajectory, according to Deloitte Retail Group Performance national leader, David White.

“Although total online sales remain lower than many other developed retail markets, local retailers are starting to reap the rewards from earlier digital investments, and we can expect digital sales to be increasingly important to local performance,” he said.

However,according to White, the role of the physical store  remains critical, with digital integration and the creation of a meaningful customer experiences using innovative store formats, new in-store technologies and personalised customer service, key to a successful strategy.

“Performance was strong earlier in the year as cheap credit and rising asset prices fuelled confidence to spend, however by year’s end we saw significant declines in household wealth through both falling house prices and share market declines.This weighed on the retail sector as sales slowed through the year to produce a lean Christmas as purchases of consumer durables starting to top out,” he said.

Amazon closing in

The top 10 global retailers continue to be dominated by US companies, with Amazon jumping two places in the rankings, to become the world’s fourth largest retailer. And based on current growth rates, only Wal-Mart will be bigger than Amazon in two years’ time.

“This is an extraordinary feat considering Amazon only entered the top 10 two years ago and remains a strong pointer for local retailers,” White said. And there is more to come.

In White’s words the apocalyptic impact some expected Amazon to have on the Australian retail market might not have materialised just yet, but the giant’s subscription-based Prime delivery service is priced at more than half its US equivalent here, and its frictionless omni-channel delivery experience is increasingly challenging the speed of Australian retailer’s fulfilment models.  “So we can certainly expect to see more investment and innovation on this front in 2019.”

There is widespread expectation that global growth will slow further in 2019, and for global retailers, market conditions will mean slower consumer spending growth and potentially disrupted global supply chains.  Retail sales volumes are expected to grow as stronger labour market conditions offset declines in wealth, but the early part of 2019 may be challenging.

Retailers’ heavy reliance on imports has many closely watching the value of the Australian dollar. Any major decline in the currency could result in significant cost pressures at a time when there is little room to increase consumer prices, White said.

“Consumer spending for the year ahead will be largely driven by wage growth as consumer wealth declines and the willingness to forgo savings for spending diminishes. Constant change remains a pervasive influence, but disrupted markets can also create opportunity, and we see a number of these for retailers operating in Australia in 2019.”

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