A year of two halves for world’s top retailers

The 2018 calendar year was a rollercoaster for many retailers in Australia. Strong growth in the first half gave way to a dismal second half, as falling house prices and share market declines crimped consumer confidence and spending.

But overall, 2018 was better than the last few months might have led you to believe. The top 250 retailers in the world generated combined revenues of US$4.53 trillion in FY18, up 5.7 per cent year-on-year. This is significantly higher than the previous year’s 4.1 per cent currency-adjusted composite growth rate.

“While the retail environment globally, as well as in Australia, continues to present challenges, the world’s top 250 retailers collectively still achieved strong growth in FY18,” David White, national leader of Deloitte’s retail, wholesale & distribution group, said.

Deloitte ranked the world’s biggest retailers by revenue in its annual Global Powers of Retailing report released on Monday. The report showed that 80 per cent of the top 250 retailers increased their revenue in FY18, and 92 per cent of those that disclosed bottom-line results operated profitably.

Three Australian retailers made the list again this year. Wesfarmers retained its ranking at 21; Woolworths moved up one spot to 22; and JB Hi-Fi, which appeared on the list for the first time last year, moved up from 218 to 182.

Between them, they generated US$96.95 billion in revenue in FY18. Coles is expected to join the list next year.

The one thing Aussie retailers don’t do well

The top 10 retailers on the list were dominated once again by US companies. Walmart was the world’s biggest retailer in FY18 with US$500.3 billion in revenue. Based on current growth rates, it is the only retailer that will be larger than Amazon in two years’ time.

Costco ranked second, followed by Kroger in third and Amazon in fourth, up from its sixth-place finish last year. Schwarz Group, which owns Kaufland, was in fifth place, followed by The Home Depot, Walgreens Boots Alliance and Aldi, which remained in position eight. CVS and Tesco rounded out the top 10.

Thirty-nine retailers on the list, including three of the top 10, operate in Australia. This is in contrast to Australian retailers, which aren’t as likely to operate outside the local market, despite the fact that their branding and sourcing are second to none, according to White.

“That is a challenge I would put to Australian retailers; to think about other markets outside Australia and New Zealand and take advantage of bigger opportunities,” he told IR.

Aussie retailers beginning to see return on digital

Traditionally, Australian retailers have also lagged their global counterparts in the digital space, but that is beginning to change. Whereas growth was previously driven by opening new bricks-and-mortar stores, it now comes from online sales, according to White.

“We’ve seen a big uptick in digital investment, including omnichannel platforms and online marketing, and we’re seeing a lot more growth coming from the digital side,” he said.

White attributes this traction to the arrival of Amazon, which has increasingly challenged the speed of Australian retailer’s fulfilment models. And he expects to see more investment and innovation on this front in 2019.

This will have permanent and complicated implications for retailers. For instance, White suggested that the recent collapse in shopping centre footfall in Australia last December had to do with the shift of holiday shopping online.

According to a survey Deloitte conducted last year, over 50 per cent of US households’ budget for Christmas is spent online.

“I think that’s the way we’re starting to go in Australia too, because the service is getting better and better,” he said.

Constant change is the new normal

But while White urged retailers to view constant change as an opportunity as much as a disruptive force, there is no doubt that retailers face several challenges in 2019, including slower consumer spending growth and potentially disrupted global supply chains.

“Retailers’ heavy reliance on imports has many watching the value of the Australian dollar closely. 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.

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