Global Retail Report

Global Retail Report

What to Watch?

  • Margin erosion despite rising volumes boosted by higher purchasing power (thanks to cheap oil)
  • Inflation might pick-up beyond expectations for 2016 (USA +1.7%, China +1.8%) and put pressure on disposable incomes  
  • The tide of M&A activity will not abate in 2016 (after +7% deal count in 2015) triggering more group restructuring and business repositioning
  • Possible arrival of yet more disruptive technologies / players 

Retail Sector Value:
7,294bn USD

Retail Sector Risk Rating

Sector-Risk-medium
Last reviewed: 02/02/16

Retail id card

Fragmentation
Fragmentation-4 
Internationalization
Internationalisation-1 
Capital Intensity
Capital-intensity-1 
Profitability
Profitability-2 

Sector risk map: Retail

MORE RESTRUCTURING AS RETAILERS RETHINK BUSINESS MODELS 

Rising consumer spending, supported by ongoing low oil prices, hasn’t saved retail from a slowdown  in revenue growth - a mere +2% increase was recorded in 2015. The reason: a fierce battle for market supremacy between traditional and online players. If nothing else, companies protected their margins, and reported steady operating profits. 
This may not prove feasible again in 2016. No surge in consumer spending is foreseen with +3% and +2% increases in the U.S. and EU respectively, and +8% in China. Economies such as Brazil – where retailers massively invested a decade ago – are struggling.  As a result, Euler Hermes forecasts retailers’ revenues to rise by only +1% in 2016 and profits to decline by -1%. The less-than-auspicious situation forces a business model reshuffle between physical stores and online sales, or omni-channeling.
When the current business environment hampers investment in new capabilities (knowledge or market share), retailers massively resort to mergers & acquisitions. The global number of deals increased by +7% in 2015 and should exceed USD200bn in value in 2016. However, it also implies a higher threat of restructuring and divestments for the sector, and along the supply chain.

Key Players 

Country

Role

Sector Risk

UNITED-STATES #1 Exporter
#1 Importer
#2 Producer
Dot-Risk-Medium
China #2 Importer
#3 Exporter

Dot-Risk-Low
Japan #1 Producer
#3 Importer
Dot-Risk-medium

Strengths

  • Well established players, with efficient pricing power relative to suppliers limiting financial default risk 
  • Brick and mortar still the preferred shopping format for purchasing of goods
  • Long term growth in disposable incomes thanks to rising middle-class

Weaknesses

  • Race-for-volumes model reaching its limits with no clear alternative ‘winning’ strategy. Going fully on-line, for example, has its limitations
  • High indebtedness stemming from massive development in emerging economies coupled with a slowdown in some important markets

Retail Subsectors insights 

The boundary between Grocery (Food and Beverages, Home appliances) and Non-grocery retailers (furniture, sporting goods, office supply, etc.) has become increasingly blurred. It is the result of relentless product range diversification by groceries. 
This trend stems from the race for revenues and is emphasized by the rise of omni-channel sales. The latter tends also to blur the usual distinction between Grocers and Shops that can compete online on an (almost) equal footing

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