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Headline Verdana BoldGlobal Powers of Retailing 2017

Highlights

2© 2017. For information, contact Deloitte Touche Tohmatsu Limited.

Global Powers of Retailing 2017

3Copyright © 2016 Deloitte Development LLC. All rights reserved.

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

Top 10 retailers

e: Estimate

#1

#2

#3

#4

#5

#6

#7

Costco Wholesale Corporation

The Kroger Co.

Schwarz Unternehmenstreuhand KG

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

The Home Depot, Inc.

Carrefour S.A.

Wal-Mart Stores Inc.

Aldi Einkauf GmbH & Co. oHG

Tesco PLC

Amazon.com, Inc.

#8

#9

#10

US

US

US

Germany

US

US

France

Germany

UK

US

$ 482.1

$ 116.2

$ 109.8

$ 94.4

$ 89.6

$ 88.5

$ 84.9

$ 82.2 e

$ 81.0

$ 79.3

+5

+3

-1

-1

-4

+2

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

10

Walgreens moves up leader board and

Amazon joins top 10

Germany’s Metro Group fell out of the top

10 as the company’s transformation

process accelerated

FY2015 Retail revenue (US$ billions)Country of origin Change in rank#: FY2015 Top 250 rank


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

Geographic breakdown

North America

47.6%

Europe

35.0%

Latin America

1.6%

Asia Pacific

14.4%

Africa/Middle East

1.4%

US

45.6%

China/Hong

Kong

3.7%

Japan

6.5%

Other Asia

Pacific

4.3%

France

8.2%

Germany

9.8%

UK

5.8%

Other

Europe

11.2%


Product sector breakdown

9.8%

Apparel and accessories

Fast-moving consumer goods

(FMCG)

66.6%

Hardlines and leisure goods

16.4%

Diversified

7.2%%Share of revenue

TOP 250

45

133

Companies by sector

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

50

22

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

Percentage share of top 250 revenue by primary product sector


FY2010-FY2015

Top 10 fastest-growing retailers

e: Estimate

#1

#2

#3

#4

#5

#6

#7

JD.com, Inc.

Albertsons Companies, Inc.

Axel Johnson AB / Axfood, Axstores

Sprouts Farmers Market, Inc.

Steinhoff International Holdings N.V.

Southeastern Grocers, LLC

Vipshop Holdings Limited

OJSC Dixy Group

PJSC "Magnit"

Grandvision N.V.

#8

#9

#10

Key highlights

From 2010 through 2015, the

composite retail revenue for the 50

fastest-growing retailers increased

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

FY2015 Retail revenue (US$ billions)Country of origin FY2010-15 Retail revenue CAGR#: Growth rank * Revenue includes wholesale

and retail sales

China

China

US

Sweden

US

South Africa

US

Russia

Russia

Netherlands

$ 6.1

$ 27.0

$ 58.7

$ 5.8 *

$ 3.6

$ 13.2

$ 11.1 e

$ 4.5

$ 15.7

$ 3.6 *

184.6%

81.3%

74.1%

49.2%

47.4%

44.5%

34.6%

33.5%

32.0%

29.1%

157

36

17

164

242

72

84

198

61

244

Top 250 rank


FY2015

Top 10 e-retailers

#1

#2

#3

#4

#5

#6

#7

JD.com, Inc.

Apple Inc.

Wal-Mart Stores, Inc.

Suning Commerce Group Co., Ltd.

Otto (GmbH & Co KG)

Tesco PLC

Amazon.com, Inc.

Vipshop Holdings Limited

Liberty Interactive Corporation

Macy's, Inc.

#8

#9

#10

US

China

US

US

China

Germany

UK

China

US

US

$ 79.3

$ 27.0

$ 24.4 e

$ 13.7

$ 8.1 e

$ 7.2

$ 6.5 e

$ 6.1

$ 5.1

$ 4.9 e

13.1%

54.5%

18.2%

12.3%

95.0%

0.5%

9.0%

64.4%

1.0%

n/a

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

overall revenue

10

36

33

1

46

92

9

157

97

35

Top 250 rank

e: EstimateFY2015 e-commerce retail sales (in US$ billions)

#: FY2015 e-50 rank * Revenue includes wholesale

and retail salesFY2015 e-commerce growth rateCountry of origin


13 retailers appear in the top 250 for the first time

Newcomers to the Top 250

PETCO Animal Supplies, Inc.

Smart & Final Stores, Inc.

BGFretail Co., Ltd.

Hobby Lobby Stores, Inc.

Nojima Corporation

Ulta Salon, Cosmetics & Fragrance, Inc.

Homeplus Co., Ltd.

PT Indomarco Prismatama (Indomaret)

HSN, Inc.

PT Sumber Alfaria Trijaya Tbk (Alfamart)

FY2015 retail revenue growth (%)Country of origin

Savola Group/Panda Retail Company

Sprouts Farmers Market, Inc.

American Eagle Outfitters, Inc.

Top 250 rank

163

208

222

227

229

231

234

235

236

239

240

242

247

Hypermarket/Supercenter/Superstore

Other Specialty

Cash & Carry/Warehouse Club

Convenience/Forecourt Store

Other Specialty

Electronics Specialty

Other Specialty


Non-Store


Hypermarket/Supercenter/Superstore

Supermarket

Apparel/Footwear Specialty

ne

5.1%

12.4%

28.7%

2.7%

86.5%

21.2%

20.1%

2.9%

15.5%

10.9%

21.1%

7.3%

S. Korea

US

US

S. Korea

US

Japan

US

Indonesia

US

Indonesia

Saudi Arabia

US

US

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


Retail trends

The art and science of customers


“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.

Changing preferences

Less is more

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.


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.

Changing preferences

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.

“Following” economy


“Retailization” of the world

Changing formats

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.


On-demand shopping and fulfillment

Changing formats

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.

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.


Changing expectations

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.

Exponential living

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.


Global economic outlook


United StatesWhat to expect from the Trump Administration

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

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



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

Spending and deficits • Boost spending on infrastructure, military

• Will not cut entitlements

• Pay for increased spending by borrowing

Regulation • Less regulation of environment, energy, labor, financial services

• Impose parental leave requirement

• Exit Paris accord on climate



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.


• 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

Asset marketsRising bond yields


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

Asset marketsCeiling on oil prices


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

CurrenciesDollars, Euros, Pounds


• 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

CurrenciesRenminbi


United StatesEconomic conditions

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

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2001 2003 2005 2007 2009 2011 2013 2015

Job openings rate‏

Payroll employment growth‏

Source: US Federal Reserve


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




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

Debt service/disposable income‏

Source: US Federal Reserve


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

ChinaTransitioning


• 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

Growth of working age population

ChinaDemographics


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

EurozoneGrowth outlook


• 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

United KingdomBrexit and beyond


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

JapanGrowth outlook


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

Emerging market debt/GDP‏

Emerging marketsGrowth outlook

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© 2017. For information, contact Deloitte Touche Tohmatsu Limited.

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