Global retail giants take stock
Friday, May 29, 2009/
There’s a growing sense that we’re past the half-way mark in this global downturn, meaning we’ll see a smaller number of job losses to come and fewer significant collapses left. So let’s take stock of where we are, based on the first quarter’s performance for four of the world’s largest retailers.
Wal-Mart, Tesco, Carrefour and Metro Group between them own a broad range of retail brands in many retail channels including cash and carry, grocery, department stores, consumer electronics and convenience stores. They trade across Europe, North America, South America and North and South East Asia.
A look at the performance of these four global retail giants over the first three months of this year is a good litmus test for how the global economy is performing.
And how are they performing? The simple and short answer: like a curate’s egg, it’s good in parts.
Over a 12 month period we’re seeing little significant change in overall sales, with like-for-like store sales generally up or down within a 3% band. We’re seeing exchange rate gains protect some retailers out of their home markets. We’re seeing home market dominance remain a core platform of profit growth and cashflow management. Think investment in existing stores to create great shopper experience (through store refits) rather than many new store openings.
Both Carrefour and Metro relied on exchange gains and sales increases in Asia to compensate for falling sales and profit in their home and near-home markets across Europe, validating their moves into the developing markets at significant cost and with significant growing pains over the past decade.
From the CEOs leading the big retailers, we are seeing a similar leadership philosophy that focuses on delivering value to shoppers. Mike Duke of Wal-mart puts its continuing growth down to “building our brand by reducing costs, sharpening our merchandising and updating our stores.” At Tesco, CEO Terry Leahy talks of “lowering prices, introducing more affordable products and offering even sharper promotions”.
These phrases both talk of lowering internal overheads, seeking sharper pricing from manufacturers, who are also lowering overheads, and communicating these new compelling price points and offers to shoppers via timely and engaging in-store activity. Sounds easy, doesn’t it?
But, underneath this strong performance, what are they actually doing? Bryan Gildenberg, Chief Knowledge Officer at Management Ventures Inc (MVI) last year cited the “five new rules of retailing” as observed in his discussions with senior retailers just when we were heading into recession. They were:
1. Needs beat wants – “I focus on shopping lists and make less impulse purchases.”
2. Value beats difference – “I know what I want, please give it to me at your best price.”
3. Destination beats impulse – “I am going to my regular aisle in my regular store, and I’m trying not to be distracted.”
4. Where I am beats where I am going – “If I see an item in your store that I would normally buy elsewhere, I’ll buy it now to save time.”
5. Financial conservatism beats financial adventure – Retailers and manufacturers are focusing on things they know will drive sales rather than taking risks that may miss their sales forecasts, or worse still, keeping excess inventory. Existing store refurbishments are less risky than new store openings.
From the sales results we are seeing, the comments from key retailers and manufacturers, plus our own observations as consumers in stores, Bryan’s five new rules of retail appear to be standing up to the test and driving growth in what are still challenging times.