OREANDA-NEWS. January 25, 2007. Retailers from Russia entered the list of the world’s 250 largest retailers for the first time in fiscal 2006, according to a new report, 2008 Global Powers of Retailing, from Deloitte Touche Tohmatsu, in conjunction with STORES magazine.

This report identifies the 250 largest retailers around the world based on publicly available data for the companies’ fiscal year 2006 (encompasses fiscal years ended through June 2007). The report also provides an outlook for the global economy; an analysis of market capitalization in the industry; and a discussion of 10 major trends affecting retailers.

According to the report the highest-ranked Russian retailer was X5 Retail Group N.V. (X5) at number 191. X5 was formed in May 2006 through the merger of Pyaterochka and Perekrestok, two leading Russian chains.  The other Russian company is privately owned Euroset Group (#229), that country’s largest mobile handset retailer.

We should also mention that many Russian retailers still prefer not to make their performance indices public, this imposes constraints on their inclusion in the rating system.

Alexander Dorofeyev - Partner, Audit Department, Retail Group Leader, Deloitte CIS, says: “It is significant that major Russian companies have been included in the top 250 global retailers. When new players appear, competition in global consumer markets becomes fiercer and fiercer. Even though the potential size of the Russian market differs from that of other major world markets, certain Russian companies have the potential to take their own place among industry world leaders. To do so, major national retailers will have to solve two problems; they will need to continue their regional development and increase the effectiveness of their business by using the most up-to-date technology”.

Dr. Ira Kalish, Deloitte Research’s Consumer Business Director, said: “This is an exciting time for global retailing. There is evidence of consolidation and modernization in emerging markets that should continue in the coming years. Traditionally, foreign retailers have dominated in markets such as Russia and China, but the strategies behind the emergence of these new stores reflect a growing maturity among emerging market businesses.”

Sales Rise Eight Percent and Tesco Climbs to 4th
Total retail sales for the Top 250 rose to $3.25 trillion in fiscal 2006, up eight percent from the previous year. In addition, more companies in the Top 250 contributed to that growth. Only 36 retailers saw declining sales in 2006, compared with 49 in 2005. According to the report, the average net profit for the group (based on available figures from 187 companies) was 3.6 percent, a small increase from 3,5 percent the previous year. Just seven of the 187 companies reported a net loss in 2006, compared with 15 of 188 companies in 2005.

At the top of the list, Wal-Mart Stores, Inc. (Wal-Mart) remained the world’s largest retailer and increased its lead over second placed Carrefour Group (Carrefour). The big mover was Tesco PLC (Tesco), which overtook German retail giant Metro AG (Metro) to take 4th place, the first movement among the Top 5 since 2003. In doing so, Tesco also became the 2nd largest retailer in Europe and is gaining ground on Carrefour. Over the past decade, Tesco has rapidly climbed the Global Powers of Retail list.

In 1996, the company was ranked 18th and by 2001 it had reached 13th.  Between 2001 and 2006, Tesco achieved the fastest compound annual growth rate of any of the current Top 10 retailers in 2006 and continued its ascent into the Top Five.

Kalish added: “The Top 10 retailers’ share of Top 250 combined sales continued to inch up. With combined sales of $978.5 billion in fiscal 2006, the world’s 10 largest retailers accounted for 30.1 percent of Top 250 sales, compared with 29.4 percent in 2005. Indeed, the tenth largest retailer, Schwarz, is growing at a faster rate than its closest rival, Aldi GmbH & Co., meaning the gap between the Top 10 and the rest is widening.”

Self-Esteem Spend on the Increase
According to the report, food and other fast moving consumer goods companies represent the largest sector with average 2006 sales of $16,5 billion, but net profit margin for the group averaged just 2,8 percent. Kalish said: “As the basic need for food and shelter becomes increasingly satisfied around the world, consumer spending is turning more toward self-esteem.  This is borne out by the increasing number of retailers in the Top 250 that specialize in selling ‘discretionary’ products.”

There are 49 apparel/footwear companies in the Top 250 in 2006 compared with 40 in 2004. Consumer electronics stores have increased from 34 in 2004 to 37 in 2006. Other speciality retailers (sporting goods, furniture and home decor, toys and hobbies, jewelry, auto parts and office supplies) were also on the rise with 88 on the list in 2006 compared with 80 in 2004.

Europeans Expand Abroad to Drive Growth
Facing saturated and intensely competitive markets at home, European retailers are most likely to expand their operations abroad. On average, French companies had retail operations in 15,1 countries in 2006, while German retailers did business in an average of 13,7 countries. These rates are more than double the average of 6,2 countries for the Top 250 and significantly higher than US companies who operated in an average of 3,9 countries.

Race for the Rupee
With the geographic mix of consumer spending shifting away from the US towards Asia, retailers from the US and Europe may need to seek opportunities abroad to take advantage of increases in consumer spending in emerging markets, and maintain the growth of their businesses. One market which could form the next battleground for big retail is India.

At the moment, India remains relatively closed to foreign investment, its business environment is riddled with obstacles and its rapid economic growth is so new it is not clear whether it can be sustained. However, Kalish argues: “India is a gamble worth taking.  It is a country which is moving towards a true market economy and has already experienced rapid growth in consumer spending. The leaders of India’s huge business conglomerates have turned their attention to retailing. Companies in such disparate realms as energy, telecommunications and manufacturing are recycling their excess cash into creating a modern retailing infrastructure.”

“Investing in India is a long-term proposition, one that can get a foot in the door and the advantage of first-mover status. It is likely that an increasing number of global retailers and Indian conglomerates seeking out one another for joint ventures over the coming months and years.”