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Global Powers of Retailing Product Sector Analysis

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The Global Powers of Retailing analyzes retail performance by primary retail product sector as well as geography. Four sectors are used for analysis: Fast-Moving Consumer Goods, Fashion Goods, Hardlines & Leisure Goods and Diversified. A company is assigned to a specific product sector 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 sales, the company is considered to be diversified.

Food retailers advance 
Building on momentum from 2008, retailers of food and other fast-moving consumer goods (FMCG) once again gained ground among the Top 250 Global Powers. Food retailers’ relative resilience in recessionary times allowed the FMCG sector to increase both its share of companies and its share of sales. In 2009, the sector accounted for more than half of Top 250 companies and more than two-thirds of Top 250 sales. FMCG retailers are, by far, the largest companies as well as the most numerous, with average 2009 sales of $18.4 billion. Despite sluggish composite retail sales growth of 1.7 percent in 2009 (down from 8.6 percent in 2008), this sector nevertheless outperformed the others on the top line. And the bottom line for this historically low-margin sector improved to 2.5 percent from a composite net profit margin of 2.2 percent in 2008.

Frugal consumers put the squeeze on fashion retailers again in 2009. Sales were essentially flat for the 35 companies that make up the Fashion Goods sector, edging up just 0.3 percent over the prior year. As a result, this group fell as a share of the Top 250. These relatively small companies (average sales of $8 billion) accounted for 14 percent of Top 250 companies but just 7.4 percent of Top 250 sales -- both down from 2008. Although sales were stagnant, the bottom line was much improved. The composite net profit margin for the Fashion Goods sector nearly doubled from 4.1 percent in 2008 to 7.6 percent in 2009.

The collapse of the housing market in the United States and Europe took its toll on the Hardlines & Leisure Goods sector for the second straight year. Composite sales fell to 1.1 percent in 2009 from 3.1 percent in 2008. The Home Depot and Lowe’s both suffered another year of declining sales. On the other hand, the majority of retailers in this sector enjoyed healthier profits; the composite net profit margin rose more than one point to 3.8 percent.
The Diversified group was the only sector to experience declining sales in 2009. As with the other sectors, however, overall profitability improved.

The Diversified group was the only sector to experience declining sales in 2009. As with the other sectors, however, overall profitability improved.

Among the product sectors, the high-margin Fashion Goods retailers had the highest return on assets (8 percent), followed by the Hardlines & Leisure Goods group. As would be expected, the lower-margin FMCG and Diversified sectors generated lower ROA figures. However, FMCG retailers were the most efficient at using their assets to generate sales. The asset turnover ratio for this group was 1.8x, a reflection of their rapid inventory turnover rate compared with the other sectors. Fashion Goods retailers (1.1x) had the lowest asset turnover rate.

Fashion’s growing global footprint
Of the four product sectors, Fashion Goods retailers have been the most globally active. Although retail sales from foreign operations accounted for between 20 and 25 percent of total sales for all of the sectors, fashion retailers had the biggest global footprint in terms of the number of countries in which they operated.

Fashion retailers engaged consumers through stores, catalogs and/or websites in an average 17.5 countries, more than twice the average for the Top 250 as a whole. This can be explained, in part, by a move toward greater internationalization of styles created by highly rationalized, multi-national fashion retailers. Companies like H&M, Inditex and Fast Retailing have continued to defy the economic downturn through steady global expansion. Despite fashion retailers’ wide geographic reach, however, only one-quarter of the sector’s combined sales were derived from foreign operations. That is because, in many cases, these retailers operate only a flagship location or a handful of stores outside their home country.

Retailers of fast-moving consumer goods operated in the fewest number of countries in 2009, an average of 4.4. Indeed, half of the FMCG companies were single-country operators, compared with less than one-quarter of the fashion retailers. Taste differences and other cultural barriers, not to mention the sheer size of the investment required, can make the global expansion of food retailing difficult. Nevertheless, FMCG retailers that have expanded internationally have made their presence felt, as foreign operations generated a relatively large 21.2 percent of the sector’s total sales.

Top 10 retailers by product sector
The top 10 retailers of Fast-Moving Consumer Goods were a fairly stable group in 2009. The only changes were toward the bottom of the list. Walgreens pulled ahead of Rewe, and CVS Caremark became the 10th-largest retailer in the sector, while Auchan dropped off the list on stagnant 2009 sales.

Once again, currency fluctuations influenced the rankings, in this case among the top 10 Fashion Goods retailers, moving Japan's Isetan Mitsukoshi above Sweden's H&M despite deteriorating sales for the former and double-digit growth for the latter. The only other change in this sector's leader board involved Arcandor, which filed for bankruptcy and is no longer represented as a Top 250 Global Power. It was replaced by C&A Europe as the 10th-largest retailer of fashion goods.

The Home Depot hung onto the top spot in the Hardlines & Leisure Goods sector, not by virtue of its sales growth (negative in 2009), but because of its sheer size. Poor sales dropped rival Lowe's into third place, while several years of double-digit growth boosted Best Buy into the No.2 spot. Amazon.com continued to climb the ranks of the Top 250 in 2009, becoming the 35th-largest retailer in the world. Among the Hardlines & Leisure group, the e-commerce retailer ranked fifth. France's PPR, which also sells books, music and video games through its Fnac entertainment stores -- along with operating a wide array of other formats -- fell to No.7. Groupe Adeo, a leading player in the international DIY market, acquired Castorama Italy from Kingfisher in January 2009, moving the company into 10th place and bumping Toys "R" Us out of the top 10.

Changes among the top 10 Diversified retailers have to do with how two retailers were classified. The reclassification of Tenglemann -- its OBI DIY division now accounts for the majority of the company's sales -- removed it from the list of the top 10 Diversified retailers and into the Hardlines & Leisure Goods sector. Marks & Spencer, formerly classified in the FMCG sector, was changed to a Diversified company, occupying fifth place among this group.

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