Global Powers of Retailing 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: Fast-Moving Consumer Goods, Fashion Goods, Hardlines & 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 account for at least 50 percent of a company’s sales, it is considered to be diversified.
Specialty retailers advance as global economy emerges from recession Retailers of Fast-Moving Consumer Goods (FMCG) represent the largest product sector, accounting for more than half of all Top 250 retailers and two-thirds of Top 250 sales in 2010. This sector continued to gain ground among the Top 250 in 2008 and 2009, during the height of the global recession. In 2010, however, as the global economy emerged from recession and began to stage a sporadic recovery, specialty retailers—both Fashion Goods retailers and Hardlines & Leisure Goods retailers—outperformed the food, drug and mass merchandise sector.
Nevertheless, both sales and profits were up for FMCG retailers compared with 2009, even as the number of companies representing the sector fell to 133 in 2010 from 139 the year before. In addition to fallout from slower sales relative to the specialty retailers, four former FMCG retailers were reassigned to the Diversified group, as none of the other three primary product sectors accounted for at least 50 percent of total company sales in 2010. As a result of both of these factors, the sector’s share of the Top 250 eroded.
Fashion Goods retailers saw sales rebound from a dismal 2009 to lead the Top 250 in 2010 with composite retail sales growth of 7.4 percent. Healthy sales also boosted the ranks of Top 250 fashion retailers to 38 companies from 35 in 2009, which allowed the sector to increase its share of both Top 250 companies and Top 250 sales. Profitability remained strong, and the fashion sector enjoyed an industry-leading 7.7 percent net profit margin. This contributed to the highest return on assets among the four product groups.
The Hardlines & Leisure Goods sector also staged a comeback in 2010 following two years of depressed sales. Composite sales growth of 6 percent was almost a return to 2007 pre-recession levels, when sales increased 6.7 percent. The sector’s net profit margin rose more than two percentage points to 5.9 percent from 3.8 percent in 2009. The group’s share of Top 250 companies and sales were both up slightly from 2009.
In 2010, a rising tide lifted all boats. The Diversified group, the only sector to experience declining sales in 2009, posted a sales gain of 3.5 percent as well as improved profitability. Nevertheless, it remained as the poorest performing of the four product sectors. Although diversification can be key to spreading risk and helping to maintain an aggressive growth trajectory, there are dangers associated with excessive diversification. Retailers operating too many concepts or formats can experience diseconomies of scale resulting from increased marketing and operational complexity.
Fashion retailers bank on global consumer
Fashion Goods retailers are the most global of the product groups analyzed. In 2010, more than three-quarters operated outside their home country, engaging consumers in an average of 19.3 countries. Not surprisingly, they derived a larger share of sales from foreign operations (27.7 percent) than the other product sectors. Yet, it might be expected that foreign operations would account for an even larger share of the sector’s combined sales given this group’s wide geographic reach. Although retailers of fashion goods see the opportunity, they are being very deliberate in their approach to foreign markets, testing the water with a small number of stores or a single flagship location.
On average, retailers of Fast-Moving Consumer Goods remain the least global, operating in the fewest countries (4.7). More than half were single-country operators. In particular, FMCG retailers based in North America have not ventured outside their home country. For many retailers that have ventured globally, however—especially the Western European hypermarket, supermarket and discount store retailers—sales from foreign operations have become the lifeblood of their business, accounting for 50 percent or more of total company sales.
More retailers in the Hardlines & Leisure Goods sector expanded beyond their domestic borders in 2010. Among the 54 companies in this product sector, only 30 percent did not operate internationally. Bucking this trend were the 11 Japanese retailers in this group; only two had retail operations outside Japan.
Diversified retailers were among the least geographically diverse, perhaps because their multiple formats allow them to continue to find growth at home.