Strong growth for top retailers

DESPITE headwinds, a majority of the world’s top 250 retailers continued to enjoy strong growth, notching up US$4.53 trillion in revenues in 2018, up 5.7% on last year. Online monolith Amazon climbed two spots to fourth place, recording over US$118 billion in sales – that is more than Australia’s top three retailers combined, according to Deloitte.

Deloitte’s annual Global Powers of Retailing report reveals retail revenues increased for just over 80% of the top 250 group. Currency-adjusted composite growth rate was 5.7%, significantly higher than the previous year’s 4.1%. 92% of the companies that disclosed their bottom-line results operated profitably.

The report also revealed three Australian retailers – Wesfarmers, Woolworths and JB HiFi – remain in the Top 250, after JB HiFi was added last year. Between them, they generated revenues of US$96.95 billion.

Wesfarmers and Woolworths maintained their position within the top 25, Wesfarmers stayed at 21 and Woolworths moved up one spot to 22. JB HiFi’s ranking sored, from 218 to 182 globally.

In total, 39 of the Top 250 operate in Australia, one more than last year.

Walmart remains number one with retail revenue of US$500.34 billion, significantly ahead of its top five competitors. Costco came in second place with US$129.02 billion followed by Kroger with US$118.98 billion – nipping at the heel is online retailer Amazon, which improved from sixth to fourth place with US$118.57 billion.

Deloitte said based on current growth rates, only Wal-Mart will be bigger than Amazon in two years’ time.

Four of the top five retailers are United States based, the only international group in that pack is Germany’s Schwarz Group with US$111.76 billion. The top 10 global retailers continue to be dominated by US companies.

Top 10 global retailers by revenue

Deloitte’s national leader David White said 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.

“Ongoing competitive challenges from both domestic and international retailers remain a perennial feature of the Australian landscape, and online retail continued its growth trajectory. 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.

“That said, the role of the physical store will remain 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,” he added.

“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.

White said whilst 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.

“We can certainly expect to see more investment and innovation on this front in 2019.

“Our local supermarket majors, Wesfarmers and Woolworths, continue to be ranked highly in the top 250, while JB Hi-Fi, has shot up the rankings, adding more than $1 billion of revenue on the prior year reflecting a full year’s impact of its acquisition of the Good Guys,” he continued.

During 2018, new global retailers continued to enter the Australian market, as existing retailers also expanded their operations. There were 11 movements in and out of the top 250, and while the Australian retailers remain unchanged, two non-store retail operators in the previously unrepresented Chinese geography – JD.com and Vipshop Holdings – have hit Australia’s shores. Major internationals like JD Sports and H&M continued their local growth through expanding their store footprints, while high profile exits from the Australian market included Gap, Toys “R” Us and Forever 21.

Retailers operating in Australia – movements in the Top 250

“China officially entered the local market this year in the form of JD.com and Vipshop. Despite Chinese businesses only commanding 5% of the Top 250 retailers operating in Australia, we expect this will increase over coming years, particularly with the rise of omni-channel marketplaces throughout Asia.

“Our growing Asian tourist demographic is driving a marked increase in luxury and specialist retailers investing in their Australian operations to compete for the Asian tourist dollar,” White said. “And demand for international luxury branded specialty goods has also seen diversified investment from the likes of Lotte Shopping Co., which acquired JR Duty Free in 2018 as it seeks to capitalise on the growing inbound Chinese and South East Asian market,” White said.

Looking ahead, there is widespread expectation that global growth will slow further in 2019.

“Australia’s retail environment was a tale of two halves during 2018. 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. Sales slowed through the year to produce a lean Christmas, and purchases of consumer durables starting to top out.

“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 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.

“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,”

In Australia, White said 2019 is shaping up to be yet another year of disruption.

“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.

“For retailers seeking new markets, Chinese ‘non-store’ marketplaces powered by mobile and digital represent a major area for growth. The growth in the Chinese middle class, combined with the demand for Australian products, presents significant untapped opportunity for many Australian retailers,”

White said for some time, retailers have been focused on reinventing the consumer relationship – moving from product and transaction-based interactions to deeper and more meaningful relationships that add value. The focus on creating new or adjacent services for competitive edge (and ultimate growth) is increasing, and 2019 should see greater collaboration and strategic partnerships as retailers continue to shift their strategies to understanding and owning more of the consumer and their everyday lifestyle.

Australian Property Journal