A brave new worldThe retail profitability challenge
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Average profit margins
2010-11
2014-15
6.1%
4% 2.1% decline
A six fold increase in e-commerce in the last decade has squeezed profits and rendered many retailers with larger store portfolios than required. Due to a number of key negative cost pressures, operating margins could fall a further 3-5% in 2017.
Contacts
Dan ButtersUK Lead PartnerRetail Restructuring Services+44 (0) 113 292 [email protected]
Rob HardingUK Lead PartnerSpecial Situations M&A+44 (0) 20 7007 [email protected]
Hugo ClarkDirectorReal Estate+44 20 7007 [email protected]
Fiona KaufmanDirectorRestructuring Services+44 (0) 20 7007 [email protected]
Three year average profit margins have fallen between 2010-11 and 2014-15
As a consequence, it is likely that we will see greater differentiation in the market. Retailers are already responding to these challenges but the question is – are they moving fast enough in the digital age?
1.
EQUIVALENT TO C.6% RENTAL INCREASE
IN LONDON
BUSINESS RATES
INCREASES IN DEFICITS EXPECTED TO
CONTINUE INTO 2017
PENSION COSTS
IMF PROJECTS 10% COMMODITY PRICE INCREASE IN 2017
COMMODITY PRICES
GBP DOWN C. 15% AGAINST USD AND C. 10% AGAINST EUR
FX EQUIVALENT TO BETWEEN 2-4%
INCREASE IN TOTAL WAGE BILL
NATIONAL LIVING WAGE
Perfect storm of cost pressures present potential for a 3-5 percentage point fall in operating margins
4.
Rising importance of e-commerce requires ongoing investment to stay relevant
The rapid growth of e-commerceOnline sales as a percentage of total retail sales
Source: Deloitte/Office for National Statistics (ONS)
2.
Nov 2006
Nov 2016
2.8%
16%
Top line pressure as prices fall for past five years
Deflation in retailBritish Retail Consortium Shop Price Index 2012-16
Deloitte analysis shows that in the run-up to Xmas 2016 discounting across the retail market reached 43% – a record level
Source: Deloitte/BRC
3.
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2012
Jan Jun Nov
2014
Feb Jul Dec
2015
May Oct
2016
Mar Aug
2013
Apr Sep
Working with our market leading Deloitte Digital practice, we can assist retailers in restructuring situations (and more broadly) in ensuring their real estate footprint is future proofed, margins are maximised and their online offering is compelling.
Our innovative retail analytical tools are potential game changers:
• L3. At the touch of a button, drawing on public information, our data driven analysis tool can tell you what your optimal real estate portfolio should look like.
• Pricing Analytics. Our specialist ‘retail margin maximisation’ software can markedly improve the outcome in mark down situations , typically realising 7–10% of margin improvement.
Source: Deloitte Analysis
