Global retail picture isnt much rosier
I know Ive talked extensively about the recession throughout this column in the first half of 2009, but working in an industry thats at the sharp end of the economy, its difficult not to. By Helen DickinsonBut this week, rather than looking at what's going on at home I thought I'd take a look at the situation a little further afield.
Unfortunately the global retail picture isn't much rosier. According to the Economist Intelligence Unit, global retail sales grew by 9.8 percent in 2008, down from 10.7 percent in 2007. But the outlook is much worse in 2009 with sales expected to contract an alarming 7.1 percent this year. Emerging economies such as India arestill likely to show double-digit growth, albeit at a significantly reduced rate.
Of course, the inevitable effect of this global problem is that retailers are forced to take corrective steps, such as closing branches and laying off staff or, for the healthier retailers, shelving plans for expansion.
There are plenty of examples of this across the globe, even from what we traditionally consider to be strong performers. In the US, examples include job cuts by Home Depot and Macy's and the closure by Best Buy of seven of its Magnolia stores earlier this year. And there have been high profile retail insolvencies overseas with notable examples including US retailers Circuit City, KB Toys Inc and Linen 'n Things.
But it's not just a case of the world's retailers cutting staff and shutting branches while they wait and see what happens.
Companies across the globe have been forced to come up with initiatives to counter declining sales, using innovative strategies to capture whatever small amount consumers are spending.
Interestingly, a survey in the US by AMR Research and the National Retail Federation, found that retailers had raised their overall IT budget by some eight percent in 2008, compared with two percent in the previous year, and many of those surveyed had invested in new systems or upgrades to customer relationship management.
Pricing is also an important tactic as consumers feel the pinch and in the US high-end retailers have been offering discounts of up to 70 percent to get consumers through the door.
Private label products have been coming into their own too. In the US supermarkets have been offering ranges of private label goods, from value to premium lines and we've seen that happening here in the UK. And “tertiary” brands - those which have only descriptors and are not registered brand names - have been finding a place on supermarket shelves.
All this change leads me to wonder what retailers across the globe might look like post-recession.
Perhaps one of the most inevitable outcomes is that emerging economies are expected to fuel the growth of the sector, with China, India and Russia leading the way.
But in established economies it's likely there will be a real change in the dynamics of the sector, with a greater amount of consolidation as stronger retailers with available liquidity take out weaker competitors.
In terms of how retailers operate, we could also see more pushing of online operations, as the channel offers an easier and cheaper means of processing transactions, while the renewed focus on price by consumers is also expected to result in the growth of internet retailing overall.
Value-based offerings - discounted and private label goods - are expected to benefit retailers with a strong “value” perception. According to IGD Retail, the discount channel is expected to account for approximately 20 percent of total grocery spend in Europe by 2012, up some three percentage points since 2007.
Although it's often said that there's a long way to go until retail is truly global, it seems that the issues the sector is experiencing are pretty much the same the world over.
Helen Dickinson is Head of Retail at KPMG
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