Global Trends in Retail: Is Retail Globalization Dead?
European Retailing in the Week Ahead – Week 3, 2016
Over the past five years many global “big box” retailers celebrated their 50 year anniversaries. In 2012 we saw Walmart, Kmart, Target and Kohls in the USA hit the half century mark. The French global giant, Carrefour, threw a global 50th birthday party in June 2013. Auchan, one of Carrefour’s leading domestic competitors hit 50 in 2011. Metro Cash & Carry, the German international giant, celebrated 50 in 2014. Shoppers in nearly every country of the world were given the chance to celebrate with discounts and flash promotions.
However, in the boardrooms of these retailers the discussions on how to celebrate these anniversaries were more about, “what can we afford?” rather than, “how do we use this event to reach new consumers?” You see, since about 2002-2003 nearly all big box retailers have faced three big problems.
- Declining like for like store sales in their big box formats in mature domestic markets
- Declining credit ratings or higher costs of borrowing (as evaluated by Standard and Poors or Moodys)
- Falling share prices – loss of market capitalization
As a result, these companies have given many observers the impression that the age of global retailing has hit a “pause” and that the period of fast growth is over. However, this probably does not tell the whole story. Let’s explore the arguments for and against a “slowdown” in global retail growth.
Arguments for “The Death of Retail Globalization”
If all we did was look at Walmart, Carrefour, and Metro Group who were ranked number one, two and three globally about ten years ago we may just conclude that the age of global expansion is over. Metro has fared most poorly in their Cash & Carry format – they were once in nearly 50 countries and now are down to 25-26 countries excluding their premium foodservice business. That channel generated nearly EUR50 billion (USD 60 billion) in 2008 for the group but is now below EUR30 billion (USD 35 billion). Likewise Carrefour has had to sell off important business units in Asia, the Middle East, and Eastern Europe in order to pay down heavy levels of debt and try to restore investor confidence. Walmart likewise is more careful and considerate and has taken steps to separate some businesses from the parent company including independent stock listings in Latin America and Africa.
Likewise, if we look at Capital Expenditures – or the amounts of money retailers spend to create future growth – each retailer has had to spend an increasingly high level of money in remodeling ageing stores rather than spending on new stores. Likewise, the total budgets have shifted with more and more investment allocated to new technologies/ecommerce and small store formats such as Neighborhood Market, Carrefour Express, and Metro Junior Cash & Carry or HORECA express stores.
Finally, if we looked at their overall Balance Sheets – a look at the assets they declare as producing opportunities for growth – we can see that most retailers have taken steps to free up exposure to assets that no longer produce profits such as the land that they occupy or shopping mall space that they own and either rent or lease out. Companies such as Carrefour and Auchan used to have property divisions that generated nearly as much profit through lease-outs to other businesses as they generated from their own big box stores through sales of chewing gum and televisions. As each company has taken steps to “sell off” assets that may no longer produce profits, the overall “balance sheet” has become smaller and the ability of these retailers “to take over the world” has become more subdued.
Arguments against “The Death of Retail Globalization”
The biggest argument against this story – that global retailing has slowed down – is that these “50 year old” companies are not the only businesses out there. In fact, if you measure success by sales added, by taking the dollar amount of global sales in one year and subtracting the result from an earlier year, you would see that Walmart is no longer the most successful retailer in the world. From 2008-2013 Walmart grew the second fastest of all retailers. The first in the world was an internet-only retailer named Alibaba. Granted, Alibaba’s websites such as TMall only facilitate the sales of other retailers and they actually do not control the merchandise for most of what they sell, but it shows just how big a change we are seeing today in how we measure retail success with shoppers. In fact, Alibaba broke its own record for single-day sales with over USD$14 billion of sales on Chinese Singles Day (11.11.15).
What is most interesting about Alibaba is their plans for global expansion. They have already become one of the top retailers in Russia after only 24 months of operation. Their official stock listing on the NYSE generated a huge amount of buzz and is widely seen as a big step toward globalization of their business. As we speak anyone in the world can shop at Alibaba’s online shops if they are willing to pay for shipping fees from primarily China. These costs come down as Alibaba sets up sourcing partnerships in key countries around the world.
Alibaba is not the only retailer finding success in new forms of retail. Amazon has also enjoyed success in growing its online-only sales across many countries and broke records for reaching a billion dollars in revenue in India in less than a year. Apple, the technology company that creates iPhones and iPads, has had huge success in selling its own products. Apple grew its own retail sales enough for it to land in the Top 5 most successful retailers as measured by sales added from 2008-2013.
However, a second argument against this theory that global retailing is ‘dead’ is the fact that big box growth has not evaporated - it has just shifted. In France, Carrefour’s chief big box competitor, Leclerc, has nearly doubled its sales from 2005-2015 despite the recession in France. Big box formats in France continue to grow in sales but are simply losing share to new formats such as convenience food, organic/premium food, and online. In the USA, big box operators such as Costco and Kroger have seen phenomenal success in large-formats by competing directly with Walmart and winning in most cases. In Germany, two German supermarket companies named Edeka and Rewe have been growing at a slow but steady pace and have used that success to open more big box stores in places like Austria, Czech Republic, Hungary and Romania. As we look globally, nearly every country has seen some local big box success stories. Much of the ‘retail formula’ behind these successes is a universal formula – good looking instore displays, excellent marketing, and more control over product sourcing and the rules of product placement.
A third argument against the ‘end of globalization’ is that of non-big box success. In Europe, the German supermarket discounters called Aldi and Lidl have catapulted their business success in many corners of the world. Lidl is now the only food retailer in every single European country and soon to be in the USA too. Aldi has delivered amazing results in Europe but also in the USA and Australia and hopes to enter China. Likewise, when we look at global apparel companies we can see that globalization is accelerating not slowing. Clothing and Fashion Accessories companies like H&M, Zara, Pandora and Uniqlo have opened more stores in more countries over the past 5 years (2010-2015) than they have in the previous 5 (2005-2010). Greenfield investment is not the only way to grow. Drugstore retailers such as Walgreens and CVS have grown through strategic Mergers and Acquisitions with Walgreens acquiring Europe’s largest drug retailer “Alliance Boots” and now trading as Walgreens Boots Alliance. CVS has purchased several important drug store businesses in Latin America.
The final argument can be seen by looking at the big box retailers themselves. Each one of them has turned to new business models to fuel their global expansion. Walmart is now actively franchising its clothing brand, George, and has opened franchise operations in the Middle East and Mediterranean area. George ships clothing via the internet to more than 16 countries in Europe despite not having a single store in any of those countries. Carrefour has actually has stores trading in more countries in 2015 than they had in 2011 (the year they began divesting assets) through a new area franchising program and a switch to pure store-based franchising in many countries. Tesco famously entered and exited a country in the same year. In 2014, Tesco was finally able to sell off its Fresh & Easy stores that had failed in the USA after trying to divest them for 3 years. That same year, its global apparel store franchise, F&F, opened a flagship store on 5th Avenue in New York City.
Conclusions
We at Kantar Retail see the global battle for retail success as becoming more complex in the future – and more successful globally. In order to see this from our perspective, you need to look at retail in new ways. Retail is made up of three pieces when you think of shopper path-to-purchase.
Piece 1: Searching for products you would like to purchase.
Piece 2: Procuring / Paying / or Committing to pay for the products you have selected.
Piece 3: Picking up or arranging to have the products delivered.
When we look at all 3 elements we can quickly see that the conditions for globalization of these pillars is well and truly becoming more essential rather than less. When it comes to searching for goods, mobile phones made on either the IOS platform or the Android platform have made coding/app creation a more universal activity where global scale is critical due to the expensive skill sets required to make an item “show up” in the right place on somebody’s phone while they are going from place A to place B.
Moving to procurement, more and more shoppers want to switch from Cash to Electronic Payment systems – which once again requires a global standard for bank exchange whether it pay Apple Pay, Alipay, Bitcoin, or Visa Contactless payment. Lastly, looking at pickup, the success of home delivery / order & ship shopping has boosted the profits of parcel specialists like UPS, Fedex, DHL, as well as national postal carriers. As we enter the age of drone deliveries and UBER logistics we can clearly see the opportunity for global synergy / globalization of platforms.
So, as we gaze in our crystal balls and think about retailing in the year 2021, we would not be surprised to see more globalization. However, the globalization just might happen where we break down the path-to-purchase and several different global companies agree to work together to make retail happen. We can see a day where shoppers use Google to find a Carrefour item at one of Carrefour’s global franchises, pay for it using Apple Pay by connecting to Tesco’s Bank (yes, Tesco is now the number 6 consumer banking service in the UK), and receive it via Amazon-owned UPS global shipping.
Good luck in the week ahead. As always please share your thoughts, opinions, and questions with us at Kantar Retail via our KRiQ website, twitter feeds, LinkedIn communications, or by old fashioned email or telephone.
Regards,
Ray Gaul eMail: ray.gaul@kantarretail.com Twitter: @RayGaul
News from the week beginning 4th January 2016:
eCommerce
Amazon Announces Record Growth of Marketplace Sellers in 2015
Amazon UK Launches Pay Monthly
Auchan Drive Released Windows-Phone App
Auchan.fr Ranked 5th Favourite Holiday Shopping Platform
Government
VAT Changes in Central and Eastern Europe
Expansion
Intermarche to Open New Distribution Center
Carrefour Launches New DC South of Paris
Carrefour’s Atacadao Now in All Brazil States
Buying alliance
Auchan and Systeme U File Alliance Documentation
Financial results
M&S Reports Q3 2016 Results; Food LFL Up 0.4%
LeShop.ch Sales Up 6.6% in 2015
Management changes
M&S Appoints New Chief Executive Officer
Market Share
Mercadona Leads Spanish Grocery Sector
Loyalty
Auchan Revamps Loyalty Program in France