Retail outlook presentation 2010Presentation Transcript
Retail Outlook June, 2010
EU25 General Economic Outlook ■ The combined GDP of Western Europe will grow by only about 1.2% in 2010 while in a few countries – notably Ireland, Greece and Spain – the recession will continue. Europe's recovery will generally be more sluggish than previous ones. ■ The need for households to scale back their indebtedness – as well as the prolonged rise in unemployment – will further slow the recovery in consumer spending. ■ Public debt in Western Europe is soaring. In the EU, public debt could reach 100% of GDP by 2014. As recently as 2007, it was equivalent to only 66% of regional GDP. ■ Western Europe is ageing much faster than other regions of the world. By 2050, the pace of growth will be reduced by half a percentage point simply due to the falling number of workers that will be available.
EU6 Macro Outlook
Global Retail overview ■ Retailing was affected by the downturn ■ Wal-Mart remained the world’s largest retailer ■ Grocery retailing weathered the storm best ■ Most emerging markets survived the downturn better than Western ones ■ Price-oriented retailers were the winners of the economic downturn ■ Internet retailing continued to grow ■ Shopping patterns are expected to be affected in the longer term ■ Growth to hit previously expected levels in 2013
Development into new store formats
Retailers are continuing to innovate in terms of formats, and grocery retailers are attempting to become less reliant on large out-of-town stores in developed markets. This has led to the development of hybrid formats, such as smaller hypermarkets and discounter/supermarket concepts.
Focus on private label
Major grocery retailers are increasingly focusing on private label in order to boost their low-price credentials, with an emphasis on value private label ranges, especially in developed markets facing recession in 2009. Private label also enables retailers to gain greater control over their brand strategy and image.
The internationalisation of the retailing industry remains in its infancy, and most leading players have considerable scope to expand their international operations, especially grocery retailers, as they often do not operate through franchises.
The economic crisis in developed markets increases the need for many international retailers to become more present in emerging markets in the long term, in order to reduce their dependence on mature developed markets, although in the short term it has the effect of reducing their profits and their ability to invest abroad.
Pricing strategies and discounting
With the global recession hitting consumer confidence and reducing the disposable incomes of many households, retailers are increasingly using price-cutting campaigns and heavy discounting in order to maintain their customer base.
Discounters are set to make further inroads in the midst of the economic crisis, thus contributing to price wars in grocery retailing.
Key Retail Trends and Growth Strategies Developing internet retailing presence A greater number of retailers are expected to operate in internet retailing. Internet retailers which undercut store-based players on price are set to benefit from the global economic downturn. Grocery retailers will also develop synergies between store-based and non store-based channels.
Boosting brand image, loyalty and CSR profile
Beyond the price aspects, it remains essentials for all retailers to retain a strong brand image, increase the emotional attachment to their brands and build customer loyalty to ensure long-term growth.
Hence, retailers' innovations will focus on new services, loyalty schemes and processes to make their businesses more sustainable, which will also help them reduce costs.
Internationalisation on the agenda for major retailers
Internationalisation remains a key long-term strategic goal for retailers to offset market maturity and stagnation in their domestic markets, which is even more apparent in the current economic crisis.
Carrefour and Wal-Mart have been successful in establishing a strong presence in several major developed economies, as well as emerging markets. Tesco's global network, though significantly smaller, has a stronger bias towards fast-growing emerging countries, which makes the group well-positioned to take advantage from these markets growth opportunities, so, although its international presence is more limited, it has greater growth potential. Wal-Mart has already counteracted this with recent acquisitions such as D&S and, with its greater resources, could expand further in the high potential emerging markets.
In contrast to these three retailers, Seven & I still relies essentially on Japan and North America, but could accelerate its expansion across Asian markets.
Price perception through discounting and private label
As the global economic crisis increases price consciousness among consumers, grocery retailers will strengthen their focus on improving their price perception through aggressive discounting. This gives an advantage to Aldi, Schwarz and Wal-Mart over retailers with an image less associated with budget prices, especially Carrefour and Seven & I. The latter two should attempt to match Tesco's robust image that combines low price with an above average quality assortment and shopping environment.
A focus on budget private label is also likely to become more prominent, as part of grocery retailers' strategies to improve their price positioning. Meanwhile, this enables them to gain a greater control over their product strategy and to build greater brand loyalty among customers. Several retailers, including Carrefour, Royal Ahold and Tesco, have successfully developed such a strategy, whereas Seven & I and Wal-Mart will need to increase the depth of their private label ranges.
Global Expansion and Pricing Strategies Are Key
Physical multi-channel brands
The world's leading brands are focusing on developing their presence across several channels, such as Carrefour and Tesco from convenience stores to hypermarkets.
Carrefour has been rebranding Champion supermarkets to Carrefour Market in France since 2008, following the success of this strategy in Spain, and started testing convenience stores in France and Spain under the Carrefour City banner in 2009.
In Western Europe, the popularity of discounters, recently boosted by the economic crisis, is likely to lead to the emergence of a diversity of formats based on discounters' brands, pioneered by Carrefour in Spain, with the successful Maxi Dia concept offering larger surface area and choice.
Most brands develop their reach in internet retailing
Most retailers with physical stores will continue expanding in non-store retailing. Best Buy, Tesco and Wal-Mart will maintain strong growth in internet retailing, while among the top web-only brands, Amazon and Rakuten are set to improve their positions rapidly.
Brands with little or no presence in internet retailing are likely to lose ground, with the exception of discounter fascias (Aldi, Lidl), whose business model may not require this move.
Multi-channel retailers with well-known brands internationally would benefit from entering new markets through internet retailing, as this allows them to reduce costs and minimise risks compared to opening new stores.
Such a move was unveiled in autumn 2008 by Marks & Spencer, with the company planning to deliver products to Australia, Canada, France, Germany, New Zealand, Spain and the US.
Retailers Focus on Multi-channel Brands Multinational internet retailers adapt their sites to national preferences in terms of payment methods, such as EC direct debit and Giro Pay popular in Germany, and home banking widely used in the Netherlands. Marks & Spencer unveiled a new international delivery service in several markets in 2008 .
Virtual and Multi-channel Retail: Bricks to Clicks and Back Again Interplay Between Channels Becoming More Fluid Development into new store formats
These formats focus on high quality products and an upscale retail environment, and are able to charge higher prices as a result. However, maintaining a suitable store ambience and developing/sourcing appropriate products raises operational costs.
Technology has a wide range of applications within the retail environment, whether improving product supply, enhancing customer service or reaching the areas that retail otherwise struggles to access.
Identifying a customer base and then designing a store format expressly to cater to it. Targeting specific consumers rather than all consumers and, at the same time, making sure the consumer base is big enough to support the retail store is a complicated balancing act. Internet retail has added another layer to the segmentation concept, by allowing niche concepts to attract consumers from a much wider area.
Other Trends in New Retail Concepts Premiumisation Technology Segmentation
Retail Channels dynamics
Non- Store Retail is growing (EU6) 2009 2013
Non – Store Based Retailing (EU6)
Internet Retailing Landscape
■ Level of penetration is stabilising
◘ Those not online are too old, too poor or technophobic
■ Virtually all access is now via broadband
◘ A pre-requisite for e-commerce
Internet Retailing Landscape – UK Top bought items
An independent channel, or a service to customers?
■ Traditional retailers dominate the web,
■ But online is still a tiny share of their sales
■ Only in mail order, where it is far cheaper to take orders online, has there been a substantial move.
■ E-commerce is now the natural channel for home shopping
Retailers on Social Networks ■ Collapsed UK store brands Woolworths and Zavvi are using Twitter to maintain brand awareness as they transform into online-only retailers. ■ Zavvi is using the site to advertise products and services on the "new Zavvi", answer questions and gain consumer insight. ■ "team_woolies" tweets are informal and chatty, aiming to maintain the surge of popularity that Woolworths belatedly experienced before its closure, in preparation for the relaunch of the brand online.
Department stores outlook Department stores format hard hit by the global economic downturn Emerging markets provide strongest prospects for growth Urbanisation is key to department stores’ growth potential Competition from other channels is high in core developed markets Private label development allows department stores to play to their strengths Department stores should continue to expand their online offer Retailers are taking more control in relationships with concessions The global recession is a kill and cure