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Global powers of retailing
Retail Trends

2016 Top 250 Global Powers of Retailing

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This article was published in the January 2016 issue of STORES Magazine.

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Deloitte and STORES Media welcome you to the 2016 Global Powers of Retailing report. This 19th annual edition identifies the 250 largest retailers around the world based on publicly available data for fiscal 2014 (encompassing companies’ fiscal years ended through June 2015) and analyzes their performance based on geographic region, primary product sector, e-commerce activity and other factors. The report also provides a look at the world’s 50 largest e-retailers, an outlook for the global economy and an analysis of market capitalization in the retail industry, as well as an introduction to and executive summary of findings from the forthcoming Navigating the New Digital Divide: A global summary of findings from nine countries on digital influence in retail.

Global Economic Outlook
Navigating the new digital divide
Top 250 Highlights
Top 10
Geographic analysis
Product sector analysis
Fastest 50
Top 50 e-retailers
Q ratio analysis

Global economic outlook

In the world of retailing, much attention has lately been focused on the competitive threat to stores coming from online retailing, the challenge of cybersecurity, and the difficulty in deciphering the tastes and price sensitivities of an increasingly fragmented consumer market. Yet through all of these and other issues, one thing remains constant. That is the considerable impact on retailers of economic strength and weakness, of inflation and deflation, and of currency and asset price movements. In this section, we examine the current and anticipated economic environment, with the goal of distilling what it means for the world’s leading retailers and their suppliers.

Key economic issues that influence retailers

Currency movements

In the past year, the value of the U.S. dollar has risen strongly against most major currencies. This was driven by low oil prices, the relative strength of the U.S. economy, expectations of tighter U.S. monetary policy, and the easing of monetary policy in Europe and Japan. The result has been disinflationary pressure in the U.S., weakness in the U.S. manufacturing sector, weakness of U.S. corporate profits, stronger export growth in Europe and Japan, and serious challenges for emerging markets. As for the latter, the downward pressure on emerging market currencies has compelled local central banks to tighten monetary policy, the result being slower economic growth. Moreover, the rapid accumulation of dollar-denominated debt in emerging countries means that dollar appreciation boosts the risk of default. This could potentially hurt the financial sector in emerging markets. For retailers, the strength of the U.S. dollar has meant increased purchasing power for U.S. consumers and rising import prices for consumers in other locations — especially those in emerging markets.

Oil prices

In the past year, oil prices have plummeted. This resulted from a sharp increase in U.S. shale oil production, a decision by Saudi Arabia to boost output, and relatively weak demand in a variety of markets including Europe, Japan, and major emerging markets. The result has been disinflationary pressure in most countries, a sharp rise in the value of the dollar, and a boost to consumer spending power in major markets. Going forward, it seems likely that prices will stay in a relatively narrow band. Although capital spending by the energy sector has been dramatically cut, a sharp drop in output is unlikely. Moreover, even if production declines lead to a spike in prices, this would rapidly lead to increased investment in shale production, thereby causing an increase in output fairly quickly. Thus, there might effectively be a ceiling on global oil prices. For the world’s leading retailers, the weakness of oil prices has mostly been good news. Lower fuel costs have translated into increased purchasing power for consumers as well as reduced inflationary pressures. Indeed this has resulted in increased real (inflation-adjusted) wages in most major markets. On the other hand, the sharp decline in capital spending by energy companies has had a negative impact on business investment in the U.S., Canada, and other major oil producers. The result of low oil prices has been weak economic growth in a diverse range of oil-exporting countries including Canada, Russia, Venezuela, and Malaysia, to name a few.

Low inflation

In the developed world, as well as in China, inflation has been at historically low levels and this has persisted longer than many analysts had expected. Despite aggressive monetary policies aimed at boosting inflation, a disinflationary psychology has been established. Thus, monetary expansion tends to boost asset prices rather than the prices of goods and services. Why is inflation so low? There are several explanations. These include global excess capacity, declining commodity prices due to the Chinese slowdown, and financial market weakness. The latter means that monetary expansion does not necessarily lead to increased credit market activity. One problem with very low inflation is that there is a persistent risk of deflation. The latter has the danger of elevating real borrowing costs, and thereby hurting investment. Expectations of low inflation have rendered government bond yields exceptionally low. While this is good for government finances, it tends to relieve governments of the necessity of implementing painful reforms. Finally, very low inflation appears to have discouraged business investment. The result is a massive accumulation of cash by businesses in developed economies.

Major markets

US Map

United States

How one views the health of the U.S. economy depends on where one sits. For observers from outside the U.S., the view is impressive. The U.S. economy continues to grow faster than most other developed economies. Its strong domestic demand continues to fuel exports from the rest of the world. Moreover, the strength of its currency reflects confidence in its economic future. The relatively high yields on government bonds reflect expectations that a tight labor market will generate higher inflation. For those observing from within the U.S., however, the view is less optimistic. The economy has been growing far more slowly following the last recession than has historically been the case. That weakness has reflected several factors. First, it took a long time for the housing market to recover. Second, credit market activity was stymied for a long time following the financial crisis. Third, the U.S. has been hit by waves of negative events. These included the European recession in 2012, a fiscal contraction in 2013, and the rise of the dollar this past year.

Still, it now appears that the U.S. economy has hit its stride. Consumer spending and housing continue to grow at a healthy pace. The consumer has been helped by strong job growth, declining debt and debt service payments, rising wealth, an increasing willingness to take on new debt, nascent acceleration in wages, and lower energy prices. Housing has been helped by low interest rates, the anticipation of higher rates, and strong job growth. This, in turn, has contributed to strong demand for durable home goods. In addition, the rebound in housing has contributed to a rise in house prices which, in turn, has benefited the financial strength of banks. This has boosted the banks to extend credit, and has played a role in the economic recovery. The only negative factors in the U.S. economy are export weakness, the result of the strong dollar, and weak business investment, largely due to a sharp cutback in capital spending by energy companies.

Going forward, U.S. economic growth is likely to be around 3.0 percent in the coming year with continued low inflation. Growth will be disproportionately fueled by consumer spending. Although the Federal Reserve is likely to commence a gradual tightening of monetary policy, this should not have significant negative consequences for the U.S. economy. Moreover, global markets now expect a gradual tightening of monetary policy by the Federal Reserve. This has led to capital outflows from emerging markets.

China Map

China

The Chinese economy has slowed substantially in the past two years. After a period of growing at near double digit rates, the official figures suggest growth of only 7.0 percent. However, many private sector analysts believe that the economy has actually slowed much more. The slowdown has been due to two principal factors. First, a rise in the value of the renminbi against non-dollar currencies has hurt exports to Europe, Japan, and elsewhere. Second, excess capacity in industry and property have suppressed prices and margins and caused a slowdown in investment.

The Chinese slowdown has global implications, but they are unevenly distributed across the world. The slowdown in investment has caused a drop in commodity prices, thus hurting exporters such as Australia, Brazil, and South Africa. The drop in manufacturing activity and trade has hurt East Asian countries that are part of China’s manufacturing supply chain. This includes South Korea, Taiwan, and several countries in Southeast Asia. The impact of China’s slowdown on the U.S. and Europe, however, is likely to be more muted. Although China is the third largest export market for both the U.S. and Europe, even a sizable drop in exports to China would only cut U.S./European GDP growth by a few tenths of a percentage point.

China is unlikely to go into recession, especially given the relative strength of its domestic services sector. Rather, a significant slowdown in growth is likely. The duration will depend, in part, on the policy response. So far, the central bank has responded by easing monetary policy, with the goal of fueling more credit market activity. Yet this has mainly resulted in more borrowing by consumers to purchase equities and more borrowing by businesses to roll over existing debts. It has not fueled a significant increase in economic activity. Slower growth is the new normal for China. Going forward, the official rate of growth is likely to be under 7.0 percent, perhaps as low as 6.0 percent. Plus, the preponderance of growth is already shifting away from exports and investment toward consumer demand. The speed at which this transition takes place will depend on the degree to which the government implements reforms aimed at boosting the consumer sector.

Europe Map

Europe

The European economy has recovered from the doldrums of 2012-2014, largely due to the aggressive monetary policy of the European Central Bank (ECB), which involves massive purchases of government bonds, combined with the positive effect of low oil prices. The ECB policy has suppressed the value of the euro, thereby boosting export competitiveness; created inflation when there otherwise would have been deflation, thereby lowering real borrowing costs; boosted asset prices, thereby increasing wealth and stimulating consumer spending; and improved credit market conditions, thereby enabling small and medium-sized companies to regain access to capital. The result has been modest yet somewhat disappointing growth. Inflation remains extremely low, leading to increasing expectations that the ECB will boost the size of its asset purchasing program. This would have the effect of further lowering the value of the euro.

The ECB policy, combined with the low price of oil, has led to a revival in the growth of consumer spending, an improvement in credit market conditions, and renewed growth of employment as well as a decline in unemployment. It has also had a positive impact on export growth. Yet it has failed to significantly increase business investment. Within Europe, some countries are performing better than others. The star performers are Spain and Ireland, while Italy has (as of this writing) begun to show signs of revival. German domestic demand has been steady, but export growth has been stymied by troubles in emerging markets. Outside of the Eurozone, the British economy has been growing at an admirable pace, with a strong labor market helping to fuel steady growth of retail spending.

Despite Europe’s evident revival, risks remain. With ruinously high unemployment in many countries, Europe has seen the rise of many anti-euro and anti-EU parties, of both the left and right. As this process unfolds, it could create greater difficulties for Europe’s governments when they attempt to resolve imbalances and crises, and if they choose to attempt greater fiscal and financial integration. Indeed, the latter are probably necessary in order to create an architecture that would make the euro more sustainable.

Another risk concerns demographics. The population of Europe is aging and, in many countries, the working age population is in decline. This threatens growth and also makes it more difficult to provide adequate services to the elderly population. One solution is to allow more immigration. Yet this is fraught with political controversy and threatens social tension, as evidenced by the recent debate about welcoming Syrian refugees.

Japan Map

Japan

Japan’s economic activity declined in the second and third quarters of 2015. Two quarters of declining GDP is normally considered the definition of a recession. Yet almost all of the decline in the third quarter was due to a sharp drop in business inventories, which was essentially a one-off event. Excluding that, private sector demand was actually reasonably strong, especially consumer spending. Exports grew as well, driven by the positive impact of a declining yen.

Over the past two years, Japan has been engaged in a policy experiment that has not produced the desired results — in part because not all of the components of the planned experiment have been implemented. The experiment, known as “Abenomics,” which is named for Prime Minister Abe, was meant to involve monetary expansion, fiscal expansion, and structural reform. Only the monetary expansion, involving massive purchases of government bonds, has been undertaken. Fiscal policy has involved a tax increase rather than fiscal expansion, and the structural reform program has not gone very far. As for monetary policy, the aggressive policy of the Bank of Japan did lead to a sizable drop in the value of the yen, thus helping exports. It has also led to a 44 percent jump in tourist traffic in the past year as foreigners take advantage of low Japanese prices. The monetary policy also caused a modest rebound in inflation, but wages have lagged — thereby lowering real consumer spending power. And business investment has simply failed to respond to historically low borrowing costs, as business leaders evidently remain unconvinced that growth in demand is here to stay. Finally, as for structural reform, the completion of the Trans-Pacific Partnership, the free trade agreement between the U.S., Japan, and ten other Pacific Rim nations, ought to compel Japan to implement 10 reforms that will lead to more open markets.

It should be kept in mind that, with a declining population and a sharply declining working age population, it is not entirely surprising that Japanese economic growth continues to skirt negative territory. Yet if one looks at Japanese per capita GDP, it has actually been growing at a healthy albeit modest rate. Thus it may simply be the case that the size of the economy will not move much in the years to come. Nevertheless, Japan’s consumers remain relatively affluent.

Emerging markets

Following the global economic crisis in 1998, emerging markets did much to immunize their economies from global contagion. Governments reduced deficits and debt/GDP levels, accumulated vast foreign currency reserves, allowed their currency values to reflect market conditions, and improved the solvency and transparency of their banks. Still, they are not immune to global issues. That is evident by the massive accumulation of external debt by corporations in emerging countries. The problem is that much of this debt is denominated in U.S. dollars. The appreciation of the dollar and the slowdown in growth in emerging countries have conspired to hurt the ability of debtors to service their debts. This poses a risk to the health of financial institutions in emerging markets which, in turn, poses a risk to economic growth.

Meanwhile, many emerging markets have experienced capital outflows in anticipation of tightening U.S. monetary policy. This has put downward pressure on their currencies, compelling their central banks to raise interest rates in order to stabilize currency values. The end result has been a substantial slowdown in growth in many countries, with some dipping into recession. Brazil and Russia are now in recession. Slower growth is evident in such diverse emerging markets as Turkey, South Africa, Mexico, and Indonesia. The one bright spot appears to be India, where lower oil prices have allowed the central bank to ease policy, thus boosting growth.

Brazil Map

Brazil

Brazil fell into recession in 2015 and will likely remain in recession well into 2016. The country suffers from a perfect storm of problematic events. A sharp drop in commodity prices hurt Brazilian export revenue and also led to a decline in the value of the currency. This, in turn, fueled excessive inflation and compelled the central bank to tighten monetary policy. The result has been a sharp drop in investment. Moreover, in order to convince financial markets of its fiscal probity, the government has cut fuel subsidies. The result was a temporary surge of inflation, thereby limiting room for the central bank to ease monetary policy, even though the economy remains in recession. The outlook will depend critically on what the government does to improve fiscal discipline and to ease obstacles to the market economy. Yet political conflict has stymied reform and led to uncertainty. For the retail market, the weak economy has meant rising unemployment and declining real purchasing power.

GlobalPowers India Map

India

India’s economy is now growing faster than that of China. It is one of the few major emerging markets that have not suffered the consequences of declining commodity prices and a rising U.S. dollar. Rather, the drop in oil prices has reduced inflation, thereby boosting consumer spending power and allowing the central bank to ease monetary policy. Thus, India’s economy is in moderately good shape, despite considerable long-term problems. The outlook will depend on the degree to which the government can implement market opening reforms, many of which face significant obstacles in the Parliament.

GlobalPowers Russia Map

Russia

Russia suffered recession in 2015 due to the combination of a sharp drop in oil prices and the continuing Western sanctions on Russia due to the country’s policy in Ukraine. After initially easing monetary policy, the central bank has held interest rates high lest weak oil prices cause yet another sharp drop in the value of the currency. With inflation high, real consumer spending power has fallen, thus severely hurting the consumer sector. In addition, business investment has fallen sharply due to high capital costs and limited profitable opportunities. If oil prices bounce back in 2016, the economy should experience a modest recovery and an increase in the value of the currency. Yet the existence of sanctions will probably limit economic growth to a very modest level. Moreover, until inflation eases further, the central bank will likely keep policy relatively tight.

Navigating the new digital divide

Over three years ago, we set out to explore consumers’ digital preferences — how the use of digital devices impacts in-store shopping behavior. What began as a simple exercise has led us to believe that digital technology and easy access to digital information not only affects sales within digital channels, but also has a much broader impact on in-store sales and in-store consumer behavior — a concept we refer to as “digital influence.”

Year after year, we have collected data within the U.S. market that suggests the growing importance of digital and indicates a rapidly evolving retail landscape. Based on this evidence, we believe that we are accelerating toward a day where 100 percent of shoppers will be connected 100 percent of the time. Through our research, we believe this development is transformative in nature.

Beyond this, we found that the digital behaviors and expectations of consumers are evolving faster than retailers are delivering on those expectations, a gap we refer to as the “new digital divide.” Our first study debunked the idea of “showrooming,” a popular belief at the time that consumers using digital devices in the store were overwhelmingly shopping or “window-shopping” in a physical store only to make their purchases from cheaper, online competitors. We found that, in fact, customers using digital devices in-store were actually more likely to make a purchase in the store, not less.

Over the past several months, we have expanded our study to include key retail markets globally. Our experience and comprehensive worldwide data give us a unique perspective on global digital influence and show us that even some of the biggest players in retail are still reluctant or slow to capitalize on the nature of this behavior.

We surveyed thousands of consumers in nine different worldwide markets resulting in millions of comparative points of data. We looked at both mature markets and markets emerging technologically, and while we found natural cultural and economic differences, we also found virtually complete alignment with our understanding of digital influence on in-store behavior and how retailers continue to dramatically underestimate the impact the onslaught of digital is having on the industry.

We swiftly expanded the scope of our study under the belief that digital influence is a universal trend regardless of geography. Our most recent data supports the hypothesis that digital is fundamentally influencing in-store customer behavior across the board, but at different rates of impact and through slightly different mechanisms, depending on the country. We see that some consumers already use digital devices to help them shop — at varying levels — but we see that many more want or expect to use them in the future.

Our global data suggest that there is already a gap between consumers’ digital behaviors and expectations and their local retailers’ ability to deliver the desired experiences. We refer to this gap as “the new digital divide,” and it poses a critical challenge to retailers. In order to stay relevant in today’s marketplace, retailers must understand the evolving digital needs of their customers and improve their ability to anticipate and shape the needs of tomorrow. With more shoppers — both in the developed and developing worlds — embracing cultural trends and gaining access to technology that will allow them to be “connected” 100 percent of the time, retailers worldwide need to advance their own offerings to fit the behaviors of this new consumer.

Executive summary of key findings

Overall, we found that digital influences consumer behavior across all countries evaluated, but the detail behind this influence varies based on country and by micro-characteristics within the market. Customers around the world are using digital access to tailor the way that they shop. As such, comparisons at all levels — across countries, age groups, and product categories — prove to be insightful in understanding the true digital needs of today’s consumer and ultimately, the investment opportunities for retailers.

The data also reinforces the reality that retailers are underestimating — or at least under-delivering on — the consumer’s evolving desire and ability to incorporate digital into their in-store shopping journeys. The trends we identified related to the impact digital is having on in-store shopping around the globe coalesced into three core hypotheses:

There is no single path toward digital adoption or optimization.

While all countries studied are heading in the direction of increased digital adoption and usage, the progression is taking place at a considerably different pace depending on the starting point. The developing world will not necessarily follow in the footsteps of the most digitally developed countries today. In some cases, emerging markets digitally developed appear to skip adoption stages experienced previously by developed markets, and therefore may come up the adoption curve more quickly. Therefore, the “lift and shift” playbook is likely not appropriate for global expansion.

One digital “size” does not fit all customers within a given market.

Even within the context of a market, digital behavior varies based on personal context — who the consumer is, what stage in the process he or she is in and what he or she is looking to buy. Demographic factors like age he or she is in and income play a role in shaping shopping habits within each market. In addition, categories matter — consumers clearly use digital tools very differently based on the product type for which they are shopping.

Across the world, consumers are demanding digital tools and features to execute their own shopping journeys.

Irrespective of culture, digital has a significant impact on in-store retail, and in fact is dramatically more valuable than viewing digital through the lens of online revenue. Ultimately, these tools and channels can help extend the retailer’s reach beyond the traditional shopping trip, and generate incremental revenue and profit in the store and across all channels. However, customers are still left unsatisfied and underserved by retailers’ current digital offerings, minimizing retailers’ own potential for capturing sales.

For more information, including results from individual markets, please see the forthcoming Navigating the New Digital Divide: A global summary of findings from nine countries on digital influence in retail, to be published in February 2016.

Definitions

The New Digital Divide

The gap between consumers’ digital behaviors and expectations and retailers’ ability to deliver the desired experiences.

Digital influence factor

The percentage of in-store retail sales influenced by the shopper’s use of any digital device, including: desktop computers, laptop computers or netbooks, tablets, smartphones, wearable devices, in-store devices (i.e., kiosk, mobile payment device).

Mobile influence factor

The percentage of in-store retail sales influenced by the shopper’s use of a web-enabled mobile device, including smartphones.

Global economy a mixed bag for retailers in 2014

Plummeting oil prices created economic winners and losers in 2014. In many oil importing countries, including the United States, members of the European Union, Japan, India and China, the result was a boost to consumer purchasing power. The drop in oil prices also had a deflationary impact and helped to offset the inflation in emerging markets that stemmed from declining currency values. Meanwhile, in energy exporting nations, falling prices led to significant revenue shortfalls.

The U.S. dollar soared during this fiscal period, which led to lower import prices and increased consumer spending power in the United States. However, the strong dollar hurt U.S. exports, becoming a drag on U.S. economic growth. In Europe and Japan, the dollar’s surge boosted exports, while in emerging countries it added to the cost of servicing dollar-denominated debts, thus creating financial market stress. Also, the rise in the dollar suppressed the dollar value of non-U.S. retail sales.

The U.S. economy generally performed well during fiscal 2014, with consumer spending growing at a healthy pace, driven by rising employment and lower energy prices. The European economy revived but grew slowly. The aggressive monetary policy of the European Central Bank was effective in suppressing the euro, thereby leading to a surge in exports. Consumer spending grew modestly as unemployment remained high. Still, lower energy prices had a positive impact.

The Chinese economy slowed considerably during this time, mainly due to weak exports and weakening investment. Nevertheless, consumer spending held up fairly well, although the luxury sector faltered. The Japanese economy sputtered, failing to respond adequately to aggressive monetary policy. This was largely due to the decision by the government to impose a consumption tax increase early in 2014. Japanese retailers are still feeling the negative consequences in terms of consumer willingness to spend. 

Most emerging markets suffered as capital outflows put downward pressure on currencies. This led central banks to raise interest rates, thereby dampening growth. During this period, Brazil and Russia fell into recession. However, India’s economy accelerated, helped by lower energy prices and an easing of monetary policy. 

Against this bumpy economic backdrop, sales-weighted, currency-adjusted retail revenue grew 4.3 percent in 2014 for the Top 250 Global Powers of Retailing. This is on par with the prior year’s 4.1 percent growth but down from the gains posted in 2010 through 2012. Retailers based in North America and the Africa/Middle East region enjoyed accelerating growth on a composite basis. In Asia/Pacific, Europe and Latin America, composite growth decelerated. More than half of Top 250 retailers struggled with top-line performance as revenue declined in 2014 for a quarter of these companies and the rate of growth slowed but remained positive for nearly a third.

Bottom-line performance was also uneven across the geographic regions, but the overall direction was down. The Top 250 as a whole posted a composite net profit margin of 2.8 percent in 2014, compared with 3.4 percent the year before. As a result, composite return on assets fell to 4.3 percent from 5.3 percent in 2013. Note: Comparisons with prior year Top 250 results should be interpreted with caution due to changes in the composition of the Top 250 group over time. Net income/loss figures were available for 198 of the Top 250 companies in 2014. More than 90 percent (180 of the reporting companies) were profitable. However, almost half (93 companies) generated a lower, although still positive, level of profitability.

Retail revenue for the Top 250 Global Powers of Retailing totaled almost $4.5 trillion in fiscal 2014, an average size of nearly $18 billion per company. Four retailers generated retail revenue of more than $100 billion (see Top 10 retailers chart below). Including the top four, 20 companies exceeded $50 billion in retail revenue. On the other hand, retail revenue for more than one-quarter of the Top 250 (65 companies) was less than $5 billion. To be included among the Top 250 in 2014 required retail revenue of at least $3.65 billion.

Top 250 Quick Stats
Top 10 Retailers Worldwide

Top 10

Kroger, Walgreens on the move

Kroger’s January 2014 acquisition of rival Harris Teeter Supermarkets, followed by the purchase of online vitamin and supplement retailer Vitacost.com in August 2014, propelled the supermarket chain from sixth place to third among the world’s largest retailers in 2014. In November 2015, Kroger announced plans to add to its supermarket roster, having reached an agreement to acquire Wisconsin-based Roundy’s. The transaction was expected to close by the end of 2015. Despite another difficult year, Tesco moved ahead of Carrefour in the ranking purely on the basis of a slightly stronger British pound in 2014 compared with the euro in the dollar-denominated ranking. Along with Kroger, Schwarz surpassed $100 billion in retail revenue in 2014, maintaining its fourth place position.

Aging Baby Boomers and newly insured customers helped boost Walgreens’ sales in 2014, moving the world’s largest drug store retailer into 10th place ahead of Target (number 10 in 2013). Walgreens, which has held a 45 percent investment interest in health and beauty group Alliance Boots since 2012, acquired the remaining 55 percent in December 2014, creating another $100+ billion behemoth in 2015. In October 2015, Walgreens Boots Alliance, as the company is now called, agreed to buy rival Rite Aid, a move that would combine two of the country’s three biggest drug store chains. If the deal receives regulatory approval, the drug store giant would likely vie for a spot near the top of the leader board — exactly where would depend on the number of stores to be closed or sold off for antitrust reasons or because they are located too close together.

As would be expected due to sheer size, the world’s 10 largest retailers — five U.S.-based and five headquartered in Europe — have a much bigger global footprint as compared with the Top 250 overall. On average, the top 10 had retail operations in 16.7 countries compared with 10.4 countries for the Top 250. Nearly one-third of the top 10’s total retail revenue came from foreign operations, while the entire group derived about one-quarter of its collective business outside the retailers’ home countries. Schwarz, Carrefour, Aldi and Metro depended on foreign markets for the majority of their sales. Kroger was the only single-country operator among the top 10 in 2014.

Geographical analysis

For purposes of geographical analysis, companies are assigned to a region based on their headquarters location, which may not always coincide with where they derive the majority of their sales. Although many companies derive sales from outside their region, 100 percent of each company’s sales are accounted for within that company’s region.

Region Country Profiles Globalization by country
Retail Revenue Growth Analysis
Retail Revenue Growth and Profitability Region Country
Net profit margin analysis by region

Growth falls to 5-year low for European retailers in 2014; slows in Asia/Pacific and Latin America

Retail revenue growth fell to a five-year low for European retailers in 2014 as 30 percent of the region’s Top 250 retailers (28 companies) experienced negative sales growth and another third saw their rate of growth decline but remain positive. The composite 2.1 percent year-over-year growth rate — as contrasted with a five-year compound annual growth rate of 4.1 percent — was the slowest since 2009 and the lowest of the five geographic regions. As competition remained fierce both offline and online, many European retailers continued to downsize — closing stores, retreating from difficult foreign markets, divesting non-core operations and building smaller-footprint stores. Not surprisingly, these companies were the most exposed to margin erosion from falling revenues. Europe’s composite net profit margin at 2.4 percent was also the lowest among the regions. While only 10 percent of the companies that reported their profitability generated a net loss, an additional 43 percent of European Top 250 retailers posted a smaller net profit margin in 2014 compared with the prior year.

U.K. companies were largely responsible for dragging down the region’s overall results as Britain’s food retailers continued to be hit by falling prices. Sales fell for half of the U.K. retailers in 2014, with nearly another third witnessing slower growth, resulting in a composite growth rate for the country’s 16 Top 250 companies of -0.6 percent. Profits fell along with sales — the group posted a composite net profit margin of -2.2 percent. Tesco suffered a record annual loss, much of which was due to a significant downward revaluation of its property portfolio. Of Europe’s big three economies, Germany posted the strongest top-line growth — though still modest at 3.1 percent — but retailing remains a low-margin industry in this country. The five German retailers that reported their profits in 2014 (the other 11 companies are private and do not disclose their bottom line) eked out a meager 0.3 percent composite net profit margin. On the bottom line, French retailers remained the most profitable, posting a net profit margin of 4.6 percent.

European retailers are the most international in scope. The average Top 250 European retailer had a presence in 16.8 countries in 2014. More than 38 percent of their combined retail revenue came from foreign operations. French and German retailers, by far the largest companies on average, generated more than 40 percent of their sales from foreign operations. 

In North America, while profitability softened, growth strengthened as the broader economy gained some momentum. North American retailers reported a composite net profit margin of 3.1 percent in 2014 as revenue advanced 5.2 percent. Nevertheless, almost half of the companies in this region reported either negative or declining year-over-year revenue growth, while more than half posted either a negative net profit margin or lower profitability than the year before.

Although the European region, with 93 companies, continued to account for the largest share of the world’s Top 250 retailers in 2014, with 87 companies averaging $23 billion in retail revenue North America maintained the largest share of Top 250 revenue. Despite their large size, most North American retailers do not have significant foreign operations, lagging well behind their European counterparts. Nearly half the North American retailers (40 companies) operated only within their domestic borders, compared with about 20 percent of the European companies and one-third for the Top 250 overall.

The average number of countries with retail operations includes the location of franchised, licensed and joint venture operations in addition to corporate-owned channels of distribution. Where information was available, the number of countries reflects non-store sales channels, such as consumer-oriented e-commerce sites, catalogs and TV shopping programs, as well as store locations. However, for many retailers, specific information about non-store activity was not available.

In the Asia/Pacific region, retail revenue growth slowed dramatically as Japan’s growth cooled following the national sales tax hike that took effect on April 1, 2014. Sales declined for 11 of the 28 Top 250 Japanese retailers (39 percent), while another eight companies experienced slower growth in 2014. Combined revenues grew 5.8 percent for the region as a whole, marginally above Japan’s 5.7 percent growth rate. Although the growth rate for the 14 retailers based in China or Hong Kong remained considerably higher than for the region as a whole, the majority posted slower or negative growth in 2014. On the bottom line, the composite net profit margin weakened to 2.6 percent for the Asia/Pacific group. Relatively few of the region’s retailers operated at a loss in 2014, but more than half saw their net profit margin decline from the prior year.

The continued depreciation of the Japanese yen has taken a toll on the number of Japanese companies in the ranks of the Top 250. In 2014, there were 28 Japanese retailers, down from 31 in 2013 and 39 in 2012. Although a weak currency vis-à-vis the U.S. dollar is not the only factor in the declining number of Japanese companies, it accounts for most of the fallout over the past two years.

In the Asia/Pacific region, foreign operations generated 10.7 percent of overall retail revenue — a relatively small share — as more than 40 percent of the region’s Top 250 retailers (23 of 53 companies) had only domestic retail operations. More than half of the retailers based in China or Hong Kong (eight of 14 companies) operated only within the country. For this analysis, China and Hong Kong are considered as one country.

Retail revenue growth continued to slow for Latin America’s Top 250 retailers in 2014 to 8.5 percent on a composite basis. Still, this was the second-best result among the five regions; only Africa/Middle East grew faster. The pace of growth slowed for six of the nine companies that compose the region, leading to the overall softer result. Only Soriana reported a contraction in sales in 2014, a difficult year marked by a strong reduction in consumption in a highly competitive Mexican market. However, the company plans to bolster its position as Mexico’s leading food and general merchandise retailer in a pending deal to acquire 143 stores from Controladora Comercial Mexicana (Comerci). The region’s composite net profit margin of 3.8 percent also outperformed the other geographies except for Africa/Middle East. All of the retailers that disclosed their bottom line results (seven of nine companies) generated a profit in 2014, although profit margins shrunk for most.

Latin American retailers continue to have the smallest global presence in terms of the average number of countries in which they operate (just 2.3 in 2014). However, five of the region’s nine retailers operated outside their home country — though only within Latin America — and foreign operations accounted for a sizeable 25 percent of the region’s combined retail revenue.

The eight retailers that constitute the Africa/Middle East region in 2014 generated composite growth of 19.4 percent, 4.5 times faster than the Top 250 as a whole. Strong growth yielded a robust profit margin of 5.6 percent, double that of the Top 250. Acquisitions boosted revenue for two South African retailers. In August 2014, Woolworths acquired Australian department store chain David Jones. The combination will create one of the world’s largest department stores operators. In March 2015, Steinhoff International bought South African value-oriented clothing and footwear retailer Pepkor. Retailers based in Africa and the Middle East have expanded well outside their home countries — although mainly within the region with the exception of Steinhoff — operating in an average 12.4 countries. Nearly one-third of their retail revenue came from foreign operations in 2014.

Product sector analysis

The Global Powers of Retailing analyzes retail performance by primary retail product sector as well as by geography. Four sectors are used for analysis: Apparel and Accessories, Fast-moving Consumer Goods, Hardlines and Leisure Goods and Diversified. A company is assigned to one of three specific product sectors if at least half of its sales are derived from that broadly defined product category. If none of the three specific product sectors accounts for at least 50 percent of a company’s sales, it is considered to be diversified.

Expanding international presence boosts performance of specialty apparel & footwear retailers 

Net Profit Margin Analysis by Primary Product Sector
Retail Revenue Growth Analysis by Primary Product Sector
Retail Revenue Growth and Profitability by Primary Product Sector

International expansion — including stand-alone stores, department store concessions and e-commerce — continued to be an important driver of sales and profits for many apparel, footwear and accessories retailers in 2014. Specialty retailers, including Primark, H&M, Fast Retailing, Inditex and Forever 21, are rapidly expanding their fashion empires abroad. In addition, acquisitions boosted the sector’s top-line performance. In May 2014, Signet Jewelers, the largest specialty retail jeweler in the United States and the United Kingdom, acquired North American jeweler Zale Corp., creating one of the world’s largest specialty jewelry retailers. Acquisitions have helped make Canada’s Hudson’s Bay Company one of the fastest-growing department store retailers in the world. HBC acquired Saks in November 2013. In September 2015, the Canadian retailer purchased Germany’s Galeria Kaufhof and its Belgian subsidiary Galeria Inno, marking its first foray into Europe.

As a group, apparel and accessories retailers were the fastest-growing and most profitable product sector in 2014 — as they were in 2013. Composite retail revenue growth increased 6.7 percent while the group’s composite net profit margin reached 8.1 percent. Although these companies are relatively small in size, with average retail revenue of $9.1 billion, they are nevertheless the most global. Eighty-five percent (41 of the 48 Top 250 apparel and accessories retailers) operated internationally in 2014. On average, retailers in this product sector have expanded their operations to almost 26 countries around the globe and generated nearly one-third of their revenue outside their home countries.

Retailers of fast-moving consumer goods (FMCG) continue to represent the largest product sector, accounting for half of all Top 250 retailers and two-thirds of Top 250 retail revenue in 2014. Although the companies composing this sector are the largest in size as well as number, averaging almost $24 billion in retail revenue, they remain the least global. In 2014, more than 40 percent operated only within their domestic borders. As a group, they operated in an average of 5.3 countries compared with 10.4 countries for the Top 250 as a whole. Nevertheless, the sector generated more than 22 percent of its total retail revenue from operations in foreign countries, the result of several large, truly global operators like Walmart, Carrefour, Casino, AS Watson and hard discounters Schwarz and Aldi.

This sector’s revenue growth, which outpaced the softgoods and hardgoods sectors in 2011 and 2012, has since cooled somewhat. In 2014, composite retail revenue grew 4.1 percent, on par with the prior year. Of the 95 FMCG companies that reported their profits, only nine operated at a loss. However, more than half saw their net profit margin shrink in 2014. As a result, the sector’s composite net profit margin fell to 1.9 percent. The number of companies representing the FMCG sector continued to drop in 2014 to 126 from 132 the year before. In addition to fallout from slower sales relative to the specialty retailers, several former Top 250 FMCG companies were swallowed up through acquisition in fiscal 2014, including Alliance Boots (acquired by Walgreens), Harris Teeter Supermarkets (acquired by Kroger), Shoppers Drug Mart (acquired by Loblaw), Poslovni sistem Mercator (acquired by Agrokor) and Welcia Holdings (acquired by Aeon).

On a composite basis, the hardlines and leisure goods sector posted another solid performance in 2014. Top-line sales for the group as a whole grew 6.5 percent on a composite basis and profitability remained healthy with a 3.8 percent composite net profit margin. This sector’s top-line growth got a boost from e-commerce giants Amazon.com and JD.com, although neither was profitable in 2014.

Acquisitions also helped sustain growth for some companies. Office Depot and OfficeMax completed their merger in November 2013 in an effort to create a stronger, more competitive and more efficient global provider of office products, services and solutions. Advance Auto Parts acquired General Parts International, parent company of the Carquest Auto Parts chain, in January 2014. The transaction created the largest automotive aftermarket parts provider in North America. Sharing a vision of where the world is headed, Dixons and Car Phone Warehouse merged in August 2014. The deal was designed to enable both companies to capitalize on the Internet of Things — that is, the growth of Internet-enabled devices, such as appliances controlled from smartphones. Seeking to become one of the world’s biggest value-oriented retailers, furniture and homegoods retailer Steinhoff extended its discount position into the clothing sector with the March 2015 acquisition of South Africa’s Pepkor group.

Composite performance aside, individual company fortunes were decidedly mixed within the hardlines and leisure sector. Most notably, many of the Japanese retailers suffered a downturn in sales and profitability during the year. Rising prices caused by the April sales tax hike and the yen’s fall continued to outpace the slow pickup in wages, eroding the purchasing power of many households and leading to declining consumer confidence.

Diversified retailers — those selling a broad product offering and often operating a range of formats — continued to struggle in 2014. Composite retail revenue growth declined 1.0 percent, while the group’s composite net profit margin was a meager 0.4 percent. This group was represented by 22 companies in 2014, including some of the world’s largest retailers: Germany’s Metro group, Target and Sears Holdings in the United States, Lotte Shopping Co. in South Korea and British retailer Marks and Spencer. The average size of the companies in this group was more than $16 billion — second only to retailers of fast-moving consumer goods.

Fastest 50

The Fastest 50 is based on compound annual revenue growth over a five-year period. Fastest 50 companies that were also among the 50 fastest-growing retailers in 2014 make up an even more elite group. These retailers are designated in italicized bold type on the list.

Chinese e-retailers top Fastest 50

From 2009 through 2014, composite retail revenue for the 50 fastest-growing retailers grew at a compound annual rate of 20.6 percent, more than four times faster than the growth rate for the Top 250 as a whole. More than half of the Fastest 50 (27 companies) were also among the 50 fastest-growing retailers in 2014. This contributed to composite year-over-year retail revenue growth of 12.4 percent, nearly three times faster than the Top 250. For the 43 companies that disclosed their 2014 bottom-line results, strong sales also translated into better profitability. The composite net profit margin for the Fastest 50 retailers was 3.7 percent in 2014 versus 2.8 percent for the Top 250. Only three companies operated at a net loss.

A review of the Fastest 50 reveals four primary growth drivers. Mergers and acquisitions played a big part in boosting sales for many companies. E-commerce, which drives much of the retail industry’s growth today, is a major focus, if not the exclusive focus, of several companies. Strong organic growth is also a factor and is particularly apparent in the number of emerging market retailers among the Fastest 50.   

Two of China’s largest e-retailers, Vipshop — a 2014 Top 250 newcomer — and JD.com — a Top 250 newcomer in 2012 — topped the list of the 50 fastest-growing retailers in 2014. Sales soared more than 300 percent on a compound annual basis between 2009 and 2014 for Vipshop. The company, which began operations in 2008 and went public in 2012, is an online discount retailer for popular domestic and international brands in China, utilizing a flash sales model. JD.com, China’s largest e-retailer, sells primarily electronics and home appliance products directly and through a third-party e-marketplace.

Although growth has slowed in China, eight of the 14 Top 250 Chinese retailers (including those based in Hong Kong) ranked among the Fastest 50 in 2014. In addition, all six of the Russian Top 250 retailers are represented. Dixy Group, Russia’s fourth-largest retailer, opened its first neighborhood store in Moscow in 1999 and has pursued rapid organic growth ever since. The company also increased its store count by 50 percent in 2011 with the acquisition of Victoria Group, one of Russia’s largest supermarket retailers. In 2014, Dixy opened 396 net new stores for a total of 2,195, while comp store sales rose 11.4 percent. Lenta, Russia’s second-largest hypermarket chain, has continued the rapid roll-out of Lenta hypermarkets nationally in order to tap the enormous potential in cities with no federal hypermarket. The company has also created compact and supercompact formats for smaller catchment areas and to locate closer to customers in big cities. In 2014, selling space increased 38.7 percent through the opening of 31 new hypermarkets for a total of 108.

Growth through acquisition, as noted throughout this report, earned a number of companies a spot in the Fastest 50.  AB Acquisition LLC (now Albertsons Companies) brought all of the Albertsons stores back together again in 2013 by purchasing from SUPERVALU the assets that it had acquired in 2006 from the former Albertson’s Inc. Albertsons then bought Safeway in January 2015, creating the second-largest supermarket retailer in the United States. CP All, owner of Thailand’s 7-Eleven chain, acquired Siam Makro from SHV in August 2013. Full-year consolidation of the cash and carry operator’s results for the first time in 2014 helped boost CP All’s revenues 30.6 percent.

Top 50 e-retailers

E-retailing, as defined in this analysis, includes B2C e-commerce only, where the business owns the inventory and sales are made directly to the consumer. Companies that primarily operate as e-marketplaces or facilitators that aggregate many sellers are excluded from the Top 50 e-retailer analysis as their revenues are largely derived from fees and commissions on sales from third-parties — consumers or other businesses that own the inventory — rather than directly from the sale of goods.

E-commerce primary driver of retail revenue growth

E-commerce accounts for the majority, if not all, of the sales growth for many retailers today — especially mature, traditional retailers who, at best, are eking out low-single-digit gains in same store sales. And for a number of companies, online sales are helping to offset declining sales in the physical store base. An analysis of the e-commerce activity for the Top 250 Global Powers of Retailing illustrates this trend. For 2014, e-commerce sales information was available for 173 of the Top 250 companies (either as reported by the company or estimated by Planet Retail or Internet Retailer). Of these 173 companies:

  • About one-fifth (33 companies) did not have a transactional website in 2014. This is similar to the 2013 result but down from more than one-quarter in 2012 as more retailers have launched an e-commerce business. Most of the companies that did not engage in e-commerce are retailers of food and other fast-moving consumer goods (i.e., supermarket, hypermarket, hard discount, and convenience stores operators).
  • The 140 Top 250 companies with B2C e-commerce operations generated 7.6 percent of their combined retail revenue online in 2014, up substantially from 6.5 percent for this group of companies in 2013. If Amazon.com, JD.com, and Vipshop — the three web-only retailers among the Top 250 — are factored out of the equation, e-commerce as a share of total retail revenue drops to 5.0 percent in 2014 versus 4.4 percent the year before. While this overall level of online sales penetration may seem fairly modest, it varies greatly by type of retailer. Food retailers that sell online — which accounted for 52 of the 140 retailers studied — tended to drag down the composite result as e-commerce typically accounted for a small share of their total revenue — generally 2-4 percent or less.
  • Although e-commerce accounted for 7.6 percent of these companies’ total retail revenue in 2014, it represented 36 percent of their combined retail revenue growth in 2014. Excluding Amazon.com, JD.com, and Vipshop, e-commerce generated 24.6 percent of the group’s total growth. For 62 of these retailers, online sales accounted for the majority of their growth, if not their only growth.
  • Of the 140 companies with e-commerce-enabled websites, more than one-quarter (39 retailers) reported negative retail revenue growth in 2014. For the vast majority of those companies (34 retailers), e-commerce sales helped to offset contracting sales. For another 10 retailers, growth would have been negative without the contribution made by their e-commerce operations.
  • Online sales grew at a composite rate of 20.3 percent in 2014 for the 140 Top 250 retailers with e-commerce operations. This compares with total composite retail revenue growth of just 3.5 percent for this group of companies. Excluding the three pure-play e-retailers, online sales grew 18.2 percent versus total growth of 3.1 percent.

Omnichannel retailers dominate world of e-retailing

In addition to analyzing the e-commerce activity of the world’s 250 largest retailers, Deloitte also compiled a list of the 50 largest e-retailers around the globe. Analysis of the “e-50” shows:

  • The majority of the e-50 (39 companies) are omnichannel retailers with bricks-and-mortar stores as well as online and other non-store operations. Eleven companies are non-store or web-only retailers, including Amazon, the world’s largest e-retailer with 2014 net product sales (i.e., sales where Amazon is the seller of record) of more than $70 billion. Apple’s estimated e-commerce sales of $20.6 billion ranked the company in second place. Online direct sales for JD.com, China’s largest e-retailer, jumped 62 percent in 2014 to nearly $17.7 billion. Wal-Mart, with online sales estimated at $12.2 billion, was the only other company to generate more than $10 billion in e-retail sales in 2014, making the world’s largest retailer the fourth-largest e-retailer.
  • The Top 250 Global Powers of Retailing dominate the list, accounting for more than three-quarters of the e-50 (38 companies). China’s Vipshop Holdings, the world’s 12th largest e-retailer, became a Top 250 newcomer in 2014, more than doubling its sales during the year.
  • All but six e-50 retailers are based in the United States (26 companies) or Europe (18) — especially the U.K. (9), France (5), and Germany (3). The other six are emerging market companies (4 China, 1 Brazil, 1 Russia). A 50 percent jump in sales boosted Russian e-retail leader Ulmart into the e-50 in 2014. E-Commerce China Dangdang, an online bookstore and general merchandise retailer, also joined the e-50 for the first time in 2014. Meanwhile, venerable British retailer Marks & Spencer fell off the list as its upgraded website, relaunched in February 2014, reportedly suffered a sales decline after struggling with technical issues.
  • E-50 retailers grew their digital sales 19.7 percent, on a composite basis, in 2014, very similar to the 20.3 percent pace of online sales growth for the Top 250 e-commerce group discussed above. For both groups, online sales grew more than four times as fast as the 4.3 percent composite retail revenue growth for the Top 250 Global Powers of Retailing as a whole. The pace of growth decelerated slightly from the e-50 group’s composite 22.0 percent compound annual growth rate over the 2011-2014 period.
  • E-commerce sales accounted for 13.2 percent of e-50 retailers’ total retail revenue on a composite basis. This compares with 7.6 percent for the Top 250 e-commerce group.
  • To join the ranks of the e-50 in 2014 required e-retail sales of more than $1.2 billion. Competition was fierce at the bottom of the list as an additional 26 companies with B2C e-commerce sales between $750 million and $1.2 billion were also vying for position. This up-and-coming group includes several rapidly growing pure-play e-retailers: zulily, an American e-commerce company targeting young mothers with clothing, toys, and home products (acquired by Liberty Interactive, parent company of QVC, in October 2015); U.S.-based Wayfair, one of the world’s largest online destinations for furniture and home furnishings; Norway’s Komplett Group, an Internet retailer of computers and other consumer electronics; RFS Holland, the holding company for Wehkamp, a pioneer in the Dutch Internet e-commerce sphere, as well as several other online retailers (company agreed to be acquired by investment group Apax Partners in July 2015); Global Fashion Group, a combination of five leading e-commerce companies in emerging markets created by Swedish investment fund Kinnevik and German internet incubator Rocket Internet in September 2014; and Tencent Holdings, a leading provider of comprehensive internet services in China. Tencent, an e-50 retailer in 2013, fell out of contention in 2014 following a 50+ percent decline in e-commerce transactions. This mainly reflected a traffic shift to JD.com following the formation of a strategic partnership between the two companies in March 2014 and the repositioning of Tencent’s Yixun e-commerce business from principal to marketplace operations.

From clicks to bricks: accelerating the omnichannel environment

As consumers buy more and more goods online, traditional store-based retailers are under massive pressure to find new ways to grow. Rapid shifts in consumer shopping behavior, driven by technological advances and changing preferences, are forcing companies to accelerate an omnichannel approach to the business — creating a more innovative retail environment where online and in-store shopping are a seamless experience for consumers. As a result, many store-based retailers are seeking to bolster their online reach and expand their e-commerce capabilities by acquiring web-only merchants and other e-commerce technologies.

Despite the difficulties faced by many traditional retailers, however, it appears that the death of bricks-and-mortar retailing has been greatly exaggerated as more and more online players begin to establish a physical presence. This growing trend to find a balance between e-commerce and physical retail stores, to integrate online and offline into a seamless process, to view them as enhancements to each other, not as threats, will be key to maximizing both customer satisfaction and retail performance in the years ahead.

As this clicks and mortar trend unfolds, the digital channel is reshaping the retail store — from location and space configuration to inventory management to marketing and customer relationship management. Companies are mining data from their online operations to determine where to open stores. Backroom space and inventory storage is being reduced in favor of roomier and less cluttered public space where customers can interact with the products and the staff, using electronic devices to get in-depth information or place an order. Increased capabilities to perform in-store analytics by linking customers’ online purchase history allow retailers to know more about their customers, optimize the product mix, and better understand promotional effectiveness.

By giving them a touchpoint, online retailers can leverage physical space to engage and educate potential customers, communicate brand value, and create a destination experience that encourages customers to spend — both offline and online. When consumers are unfamiliar with an online brand, value the tangible elements of the shopping experience, seek instant gratification, or are simply uncomfortable with e-commerce, the physical store provides e-retailers an opportunity to gain exposure, legitimize the brand, and grow the customer base.

For these reasons, a growing number of online retailers have begun to develop an offline presence through partnerships with traditional retail chains and by opening pop-up shops, showrooms, or even full-fledged bricks-and-mortar stores. Both online and offline brands have realized that to build volume and scale, they need multiple channels of distribution.

Among the growing number of online brands making a move from clicks to bricks is the world’s largest e-retailer — Amazon. In November 2015, the online giant launched Amazon Books, a new bricks-and-mortar bookstore in Seattle, as a physical extension of Amazon.com. The company reportedly has used the knowledge it’s gained over the last two decades about consumer tastes to create a more targeted in-store shopping experience. For example, books are selected based on Amazon.com customer ratings, pre-orders, sales, popularity on Goodreads, and curators’ assessments. Beyond selling books, Amazon stores could also serve as order pick-up locations to accompany the company’s accelerated delivery options.

Fashion eyewear e-commerce pioneer Warby Parker launched as an online-only retailer in 2010. By November 2015, it operated 20 standalone stores and five showrooms inside other retailers’ boutiques, having opened the first as an experiment in April 2013 in Manhattan’s SoHo district, where the company is based. According to the company, each store opening dramatically increases the growth rate in the city in which it’s located. Rather than cannibalize e-commerce sales, the physical stores have only seemed to help them.

Women’s activewear brand Athleta launched e-commerce operations in 1999. Acquired by The Gap Inc. in 2008, physical stores didn’t follow until more than 10 years later when the first location opened in San Francisco in 2011. At fiscal year-end 2014, Gap operated 101 Athleta brand stores with plans to add 20 more in fiscal 2015.

In response to customers who want to try on items before buying, Bonobos, an upscale menswear e-retailer, has launched a new kind of shopping destination called a “Guideshop.” The first of these showrooms opened in June 2015 on Fifth Avenue in New York and grew to 20 locations around the United States as of November 2015. Guideshops give customers the opportunity to try on and order any of the clothing available on the company’s website for shipment to their home or office with one of each item variation (size, color, fit, fabric) on the showroom floor. Customers can book an appointment with a guide who will explain the shopping process and provide personalized service to make sure they receive all the assistance they need. Prior to the Guideshop launch, the clothier had already expanded into bricks-and-mortar retailing. In 2012, after five years as an online-only retailer, Bonobos partnered with Nordstrom, which made an investment in the company, to bring its assortment into the stores. In another offline retail partnership, Bonobos opened brand departments in a handful of Belk department stores in February 2014.

Fast fashion jewelry retailer BaubleBar started out online in 2011 but always believed that a physical presence was key to building the brand. The company began testing offline sales almost since its inception with both pop-up shops and through retail partnerships with Nordstrom, Anthropologie, and Bloomingdale’s. While it maintains a presence inside these stores, BaubleBar also plans a very deliberate, data-driven rollout of its own store network. The first location opened in July 2015 in Long Island’s Roosevelt Field Mall.

Rent the Runway, the online company that rents designer dresses for special occasions, first opened a showroom for shoppers to try on dresses at its SoHo headquarters. Next came a Henri Bendel shop-in-shop. In September 2014, the company opened its first freestanding store in New York City’s Flatiron district. The location has proven to be a positive step forward in converting browsers into buyers, as it eased shoppers’ fears that an item wouldn’t fit or show up on time. At the store, visitors are able to reserve rentals for future events, or take items with them that day. The location also offers tailoring services. Rent the Runway has since opened three other locations in Las Vegas, Washington D.C. and Chicago.

L.L. Bean, the century-old, Maine-based catalog and online retailer, which operated 30 full retail stores and 11 outlets as of November 2015, is planning to more than double the number of its bricks-and-mortar locations to at least 100 by 2020. The company believes that physical stores, rather than being obsolete, have become a critical part of its omnichannel retail strategy. Customers who venture into the new stores will not see quite as many products on the shelves as they might in the company’s bigger, older locations. However, they will be able to order the entire line through an app that they can install on their smartphones, or they can order through iPads located throughout the Wi-Fi-enabled premises.

Zalora, Southeast Asia’s number one online fashion destination, launched in 2012 and is now part of the Global Fashion Group backed by German venture fund and tech incubator Rocket Internet. Over the past two years, the company has been experimenting with pop-up locations in the Philippines, Singapore, Hong Kong, and Malaysia. In an effort to reach more customers and encourage them to try online shopping, these temporary locations are open from several days to several months, at which point they may extend, close, or reopen elsewhere.

On a larger scale, e-commerce marketplace giant Alibaba announced in August 2015 that it would invest $4.5 billion to acquire a 20 percent stake in Suning, a Chinese electronics chain that once struggled to cope with consumers shifting to the Internet. The investment in offline infrastructure aims to connect internet shoppers with stores to expand and speed up the delivery network. Under the partnership, Suning will open a flagship store selling consumer electronics, home appliances and baby products on Alibaba’s brand-focused Tmall.com platform, the companies said.

Alibaba’s deal came less than a week after e-commerce rival JD.com said it would invest $700 million for a 10 percent stake in Chinese supermarket chain Yonghui Superstores. Yonghui, which operates more than 350 stores, is known for its live seafood and fresh produce. The partnership will enable JD.com to connect online shoppers with offline supermarkets in their neighborhoods. Shoppers will be able to order groceries and fresh food and have them delivered to their home within two hours.

Q ratio analysis

What is the Q ratio, and why is it important?

In today’s world, the global business environment is characterized by intense competition combined with downward pressure on retail prices, slow growth in major developed markets such as Europe, slower growth in emerging markets than in recent years, volatile input prices combined with consumer resistance to higher retail prices, excess store capacity in many developed markets, and a continued shift toward online retailing in which consumers often perceive everything to be a commodity. What this means is that, in order for retailers to prosper, they must distinguish themselves from competitors in order to have pricing power that leads to higher margins. This means having strong brand identity, offering consumers a superior shopping experience, and being clearly differentiated from competitors. The latter can entail unique merchandise offerings including private brands, unique store formats and designs, and superior customer experience. If a publicly traded retailer has these characteristics, the financial markets are likely to reward such a retailer. That is where the Q ratio comes in.

The Q ratio is the ratio of a publicly traded company’s market capitalization to the value of its tangible assets. If this ratio is greater than one, it means that financial market participants believe that part of a company’s value comes from its non-tangible assets. These can include such things as brand equity, differentiation, innovation, customer experience, market dominance, customer loyalty, and skillful execution. The higher the Q ratio, the greater share of a company’s value that stems from such non-tangibles. A Q ratio of less than one, on the other hand, indicates failure to generate value on the basis of non-tangible assets. It indicates that the financial markets view a retailer’s strategy as unable to generate a sufficient return on physical assets. Indeed it suggests an arbitrage opportunity. That is, if a company’s Q ratio is less than one, theoretically a company could be purchased through equity markets and the tangible assets could then be sold at a profit.

In our analysis, we have calculated the Q ratio for all 157 publicly traded retailers on our top 250 list. The calculation is based on companies’ assets at the end of the latest fiscal year as well as the market capitalization as calculated in late October 2015.

Top 10 Q Ratio
Composite Q Ratio

Which companies have notable Q ratios?

This year the top spot on our Q ratio list goes to French luxury brand Hermes, followed by Tractor Supply Company of the U.S. Next on the list is H&M Hennes & Mauritz, the legendary Swedish apparel retailer that has been at or near the top of our list since we began doing these calculations. H&M is closely followed by Inditex, the Spanish apparel retailer that is known for differentiating through fast changes in merchandise selection. Interestingly, many of the retailers at the top of our list are engaged in both retailing and wholesaling. What distinguishes them is the strength of their brands regardless of the channels by which they distribute to consumers. Of the top 10 retailers ranked by Q ratio, four are European, five are from the U.S., and one is from China. Two are principally in the online retailing business.

Highlights

This year we analyzed the financial results of 157 publicly traded companies on our list of the top 250 retailers in the world. This is up from 156 companies analyzed last year. The composite Q ratio for all companies was 0.604, down from 1.130 last year. The sharp drop might be explained by the sharp increase in the value of the dollar in the past year. The Q ratio is calculated using the market capitalization in October 2015 and the assets reported in the latest fiscal year. Those assets were mostly reported before the rise in the value of the dollar. Thus, for retailers located outside the U.S., the Q ratio might have been considerably suppressed simply due to exchange rate movements. This year’s composite Q ratio is, of course, well below the 1.57 recorded in 2008 just before the start of the global financial crisis. Of the 156 companies on the list, 76 have Q ratios above one and 80 have Q ratios below one. We also examined the composite Q ratio by country, region, retail format, and dominant product category. We only calculated a composite ratio when there were three or more companies in a particular country or category.

The retail formats with the highest composite Q ratios are non-store, apparel/footwear, home improvement, and electronic specialty. The latter category is dominated by Apple Inc., which accounts for most of the market capitalization of the electronics specialty companies on our list. If Apple is excluded from the list, the composite Q ratio drops dramatically. Thus, the elevated status of this category is mainly due to one company. This is not entirely surprising. Most electronics retailers now face considerable competition from online sellers, online sites of manufacturers, and discounters. It is difficult to differentiate when selling products that are often perceived as commodities. Apparel retailers have become extremely important global players. Their high composite Q ratio (3.363) is due to the fact that most companies in this category are either vertically integrated with strong brands, or are fiercely price competitive and generate considerable volume. The department store category, on the other hand, has a low Q ratio of 0.74 reflecting difficulty in differentiating from other sellers of fashion and home goods. The lowest composite Q ratio belongs to the hypermarket category. This is an industry that has faced considerable competitive challenges in recent years especially from discount stores and online sellers. Plus, it is a format where clear differentiation is difficult and where price competition is brutal. Interestingly, the composite Q ratio for discounters is considerably higher than that of hypermarkets.

Of the four merchandise categories, the two with the highest composite Q ratios are hardlines/leisure (2.539) and apparel and accessories (2.113). Yet given the dominance of Apple in the hardlines category (accounting for more than half the market capitalization of the category), it is notable that the apparel and accessories category has the highest composite Q ratio when Apple is excluded from this analysis. The category of diversified retailers has, once again, a low composite Q ratio. Retailers specializing in fast-moving consumer goods have, by far, the lowest composite Q ratio.

Composite Q Ratio

We also analyzed the composite Q ratios of countries, provided that there are three or more companies from a given country. We excluded countries with only one or two retailers from this analysis. The weakest composite Q ratios are those of Mexico, South Korea, and Germany in that order. The highest composite Q ratios are found in the U.S., China, and South Africa. By region, there is once again a stark divide between North America (1.590) and the Africa/ Middle East region (1.478) and every other region (ranging from 0.015 for Latin America to 1.081 for Europe). Moreover, the higher Q ratio for North America is due to the higher Q ratio for the U.S.. The other North American country, Canada, has a relatively low Q ratio. There are many possible explanations for the relatively high Q ratio for the United States. Some observers will say that it reflects strong brand equity, clear differentiation, and a successful transition to online retailing in the United States. Others will note that these trends are often absent in other regions. As for Europe, its composite Q ratio, while low, has improved substantially from last year. This likely reflects the impact of a rising equity market, in part driven by an aggressive monetary policy on the part of the European Central Bank.

The retail formats with the highest composite Q ratios are non-store, apparel/footwear, home improvement, and electronic specialty. The latter category is dominated by Apple Inc., which accounts for most of the market capitalization of the electronics specialty companies on our list. If Apple is excluded from the list, the composite Q ratio drops dramatically. Thus, the elevated status of this category is mainly due to one company. This is not entirely surprising. Most electronics retailers now face considerable competition from online sellers, online sites of manufacturers, and discounters. It is difficult to differentiate when selling products that are often perceived as commodities. Apparel retailers have become extremely important global players. Their high composite Q ratio (3.363) is due to the fact that most companies in this category are either vertically integrated with strong brands, or are fiercely price competitive and generate considerable volume. The department store category, on the other hand, has a low Q ratio of 0.74 reflecting difficulty in differentiating from other sellers of fashion and home goods. The lowest composite Q ratio belongs to the hypermarket category. This is an industry that has faced considerable competitive challenges in recent years especially from discount stores and online sellers. Plus, it is a format where clear differentiation is difficult and where price competition is brutal. Interestingly, the composite Q ratio for discounters is considerably higher than that of hypermarkets.

Of the four merchandise categories, the two with the highest composite Q ratios are hardlines/leisure (2.539) and apparel and accessories (2.113). Yet given the dominance of Apple in the hardlines category (accounting for more than half the market capitalization of the category), it is notable that the apparel and accessories category has the highest composite Q ratio when Apple is excluded from this analysis. The category of diversified retailers has, once again, a low composite Q ratio. Retailers specializing in fast-moving consumer goods have, by far, the lowest composite Q ratio.

We also analyzed the composite Q ratios of countries, provided that there are three or more companies from a given country. We excluded countries with only one or two retailers from this analysis. The weakest composite Q ratios are those of Mexico, South Korea, and Germany in that order. The highest composite Q ratios are found in the U.S., China, and South Africa. By region, there is once again a stark divide between North America (1.590) and the Africa/ Middle East region (1.478) and every other region (ranging from 0.015 for Latin America to 1.081 for Europe). Moreover, the higher Q ratio for North America is due to the higher Q ratio for the U.S.. The other North American country, Canada, has a relatively low Q ratio. There are many possible explanations for the relatively high Q ratio for the United States. Some observers will say that it reflects strong brand equity, clear differentiation, and a successful transition to online retailing in the United States. Others will note that these trends are often absent in other regions. As for Europe, its composite Q ratio, while low, has improved substantially from last year. This likely reflects the impact of a rising equity market, in part driven by an aggressive monetary policy on the part of the European Central Bank.

Study methodology and data sources

Companies were included in the Top 250 Global Powers of Retailing based on their non-auto retail revenue for fiscal year 2014 (encompasses fiscal years ended through June 2015). To be included on the list, a company does not have to derive the majority of its revenue from retailing so long as its retailing activity is large enough to qualify. Private equity and other investment firms are not considered as retail entities in this report — only their individual operating companies.

A number of sources were consulted to develop the Top 250 list. The principal data sources for financial and other company information were annual reports, SEC filings and information found in company press releases and fact sheets or on company websites. If company-issued information was not available, other public-domain sources were used, including trade journal estimates, industry analyst reports and various business information databases.

Much of the data for non-U.S. retailers came from Planet Retail, a leading provider of global intelligence, analysis, news, and data covering more than 9,000 retail and foodservice operations across 211 markets around the world. Planet Retail has offices in London, Frankfurt, Hong Kong and New York. For more information please visit www.planetretail.net.

Group Revenue reflects the consolidated net revenue of a retailer’s parent company, whether or not that company itself is primarily a retailer. Similarly, the income/loss and total assets figures also reflect the consolidated results of the parent organization. If a privately held company reports gross turnover only, this figure is reported as Group Revenue and footnoted as “g.” Revenue figures do not include operations in which a company has only a minority interest.

The Retail Revenue figures in this report reflect only the retail portion of the company’s consolidated net revenue. As a result, they may reflect adjustments to reported revenue figures to exclude non-retail operations. Retail Revenue includes foodservice sales if foodservice is sold as one of the merchandise offerings inside the retail store or if restaurants are located within the company’s stores, but excludes separate foodservice/restaurant operations where it is possible to break them out. Retail Revenue also includes sales of services related to the company’s retail activities, such as alterations, repair, maintenance, installation, etc., fuel sales and membership fees. However, retailers that derive the majority of their retail revenue from the sale of motor fuel are considered to be primarily gas stations and are excluded from Top 250 consideration. Retail Revenue includes business-to-business sales made from retail stores, such as warehouse clubs, cash and carry operations, DIY warehouses, automotive parts stores, etc.

Revenue figures do not include the retail banner sales of franchised, licensed or independent cooperative member stores; they do include royalties and franchising or licensing fees. Group Revenue includes wholesale sales to such networked operations as well as to unaffiliated stores. Retail Revenue includes wholesale sales to affiliated/member stores but excludes traditional wholesale or other business-to-business revenue (except where such revenue is derived from retail stores), where it is possible to break them out. For vertically integrated companies, the combination of retail sales, controlled wholesale space sales (i.e., sales to franchise stores, leased in-store shops/concessions) and other retail-related revenue (e.g., franchise/license fees, royalties, commissions) are used to calculate the Retail Revenue figure.

For e-commerce companies, retail revenue includes only direct business-to-consumer sales where the company is the seller of record. It excludes the sales of third-party sellers as well as third-party seller fees and commissions.

In order to provide a common base from which to rank companies by their Retail Revenue results, revenues for non-U.S. companies were converted to U.S. dollars. Exchange rates, therefore, have an impact on the results. OANDA.com is the source for the exchange rates. The average daily exchange rate corresponding to each company’s fiscal year was used to convert that company’s results to U.S. dollars. Individual companies’ 2014 year-over-year growth rate and 2009-2014 compound annual growth rate (CAGR), however, were calculated in each company’s local currency.

Group financial results

This report uses sales-weighted composites rather than simple arithmetic averages as the primary measure for understanding group financial results. Therefore, results of larger companies contribute more to the composite than do results of smaller companies. Because the data has been converted to U.S. dollars for ranking purposes and to facilitate comparison among groups, composite growth rates also have been adjusted to correct for currency movement. While these composite results generally behave in a similar fashion to arithmetic averages, they provide better representative values for benchmarking purposes.

Group financial results are based only on companies with data. Not all data elements were available for all companies. Top 250 companies that did not derive the majority of their revenue from retail operations were excluded from the calculation of group profitability ratios (net profit margin and return on assets) as their consolidated profits mostly reflect non-retail activities.

It should also be noted that the financial information used for each company in a given year is accurate as of the date the financial report was originally issued. Although a company may have restated prior-year results to reflect a change in its operations or as a result of an accounting change, such restatements are not reflected in this data. 

This study is not an accounting report. It is intended to provide an accurate reflection of market dynamics and their impact on the structure of the retailing industry over a period of time. As a result of these factors, growth rates for individual companies may not correspond to other published results.

Q Ratios by Region

comments

2
Anil N.
Why does the table for the 2016 Top 250 link back to the 2014 table?
Susan R.
Hi Anil, This is one of those oddities about publishing in Jan. 2016. The data is based on 2014 & 2015 figures (based on when companies reported) and the link back to 2014 is to compare the most recent numbers to the prior year. Here's how Deloitte explains it: This 19th annual edition identifies the 250 largest retailers around the world based on publicly available data for fiscal 2014 (encompassing companies’ fiscal years ended through June 2015) and analyzes their performance based on geographic region, primary product sector, e-commerce activity and other factors. I hope this helps. Admittedly, it can be confusing. Best, - Susan Reda
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