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Global Powers of Retailing Top 250 highlights

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Retail industry rebound continues as global economy stumbles
The global economy decelerated in 2011 in many of the world’s leading markets. In Europe, the euro crisis led to the tightening of credit markets. Governments across the continent cut spending and raised taxes, which weakened economies and further undermined consumer confidence. By the first half of 2012, the region was heading toward the recession that it is now experiencing.

In China, monetary policy was tightened in 2011 in order to restrain an overheated, inflationary economy. Yet, as Europe slowed, Chinese export growth decelerated at the same time that tight monetary policy began to have a negative impact on domestic demand. Fearful of a hard landing, the Chinese authorities reversed course by late 2011 and began loosening monetary and fiscal policy. By 2012, China was facing a moderate slowdown in growth. The consumer sector, however, remained fairly robust.

In the United States, 2011 offered modest but improved growth as the manufacturing sector recovered and exports performed well. But the failure of the government to agree on a path toward fiscal rectitude—leading to the first-ever downgrade of the U.S. government’s credit rating—wreaked havoc on investor confidence, hurting equity prices and employment creation. By 2012, with European and Chinese growth decelerating, the U.S. economy began to slow down as export growth trailed off. Yet the U.S. consumer sector continued to grow at a modest pace. In Japan, 2011 was an awful year following the devastating earthquake and tsunami.

Despite a stumbling global economy, consumers continued to spend in 2011 and the retail industry kept rolling—extending the rebound that began in 2010. Sales-weighted, currency-adjusted retail revenue rose 5.1 percent for the world’s Top 250 retailers in fiscal 2011, building on the previous year’s 5.3 percent growth. More than 80 percent of the Top 250 (204 companies) posted an increase in retail revenue. Those with declining sales could often point to restructuring activities and divestments of non-core assets rather than deterioration of the core business. A disproportionate share of the companies that experienced a decline in revenue were Japanese retailers whose revenue drops can be attributed in large part to the economic impact of the earthquake.

The Top 250 maintained a healthy 3.8 percent composite net profit margin in 2011, matching the industry’s 2010 result. Nearly all of the companies that disclosed their bottom-line results (181 of 194 reporting companies) operated at a profit in 2011. Not surprisingly, perhaps, fewer companies saw an increase in their net profit margin in 2011 following 2010’s improvement in profitability. Composite return on assets ticked up slightly to 5.9 percent from 5.8 percent in 2010.

For the first time, the aggregate retail revenue of the Top 250 topped $4 trillion. This milestone was achieved, in part, by a change in methodology that impacted some of the companies. This year, for the first time, companies were ranked by total retail revenue, not just retail sales. For purposes of this analysis, retail revenue includes royalties and franchising/licensing fees as well as wholesale sales to affiliated/member stores or other “controlled wholesale space” operations (e.g., in-store shops or identity corners). For a detailed definition of retail revenue, see the Study Methodology section at the end of this report.

This change reflects the growing complexity of the operating model of many of the world’s largest retail companies. As retailers in mature markets ramp up their efforts in foreign markets in search of more attractive growth rates, they are employing multiple market entry strategies including franchising, licensing and joint ventures in addition to owned expansion. Readers of this report who monitor the Top 250 rankings year-over-year should note that as more revenue was considered “retail” for companies with more diverse operating structures, this change in methodology resulted in some upward movement in these companies’ Top 250 ranking in 2011, irrespective of their actual revenue growth.

The average size of the Top 250 in 2011, as measured by retail revenue, topped $17 billion. The threshold to join the Top 250 in 2011 was $3.7 billion.

Wal-Mart exceeds 10% of Top 250 revenue
The world’s 10 largest retailers remained unchanged from 2010. With 6 percent revenue growth, retail giant Wal-Mart increased its lead over Carrefour. The French retailer maintained its No. 2 position despite a sales decline resulting from the spinoff of its Dia hard discount chain in July 2011. Metro hung onto fourth place, although its revenue fell slightly. Robust growth boosted Costco ahead of Schwarz, while Aldi overtook both Walgreen and The Home Depot on the back of a stronger euro against the U.S. dollar in 2011.

Wal-Mart, which accounted for more than 10 percent of total Top 250 revenue, acquired South Africa’s Massmart in June 2011, its biggest deal in more than a decade. This will allow Wal-Mart to widen its lead over its top 10 rivals in the future.

As a group, the top 10 have a much larger geographic footprint than the Top 250 overall. These big retailers operated in 16.7 countries, on average, nearly twice as many as the average for the entire group. Revenue from foreign operations accounted for nearly one-third of total top 10 retail revenue. This compares with less than one-quarter of the larger group’s combined retail revenue. That said, the biggest European retailers were much more likely to pursue growth outside their domestic borders than were U.S. top 10 retailers.

The composite year-over-year revenue growth for the top 10 of 4.4 percent was moderated by Carrefour’s 9.8 percent sales decline. By comparison, the Top 250 posted composite revenue growth of 5.1 percent. As a result, the leader group’s share of total Top 250 revenue continued to slide, falling to 29 percent in 2011 from a high of 30.2 percent in 2008. The profitability of the top 10 (2.9 percent) also lagged that of the Top 250 group as a whole (3.8 percent). In part, this reflects the composition of the top 10, which consists primarily of retailers in the lower-margin fast-moving consumer goods sector.