- Sustained retail sales growth since 2010.
- Growth in the Chinese middle class.
- Significant urbanisation in Asia and Africa, driving the sector
- Slowdown in emerging economies
- Fierce competition in the sector.
Growth in global retail sales (%)
Household consumption, which is the driving force in the retail sector, is in a mixed situation from one region to another. While it is continuing to fall in Brazil, its growth remains positive in Asia as well as in the United States, while it is picking up in Europe. In all, global retail sales should grow by more than 3% in 2016 and 2017 (see chart).
This growth should be shaken up by momentum in e-commerce, the share of which in overall global retail sales is rising (10% in 2017 vs 7.4% in 2015) according to Emarketer. The emergence of this new competition is generating pressure on traditional players in the sector and accentuating company defaults. Defaults are primarily high in the textiles sector, and more specifically in clothing throughout the world.
Market share of online purchases of mass consumer products (FMCG FDP- SS) is set to double over the next 10 years in the most developed markets. These are set to total 30% of the market in South Korea, 15% in China and 10% in the UK and France. In 2025, this type of sale is set to represent 9% of the retail market, or sales of $150bn. As an example, in France which is one of the best positioned players, internet sales growth remained robust in Q2 2016. Over the full-year 2016, online purchases should grow by 10% (after an increase of 14% in 2015).
FMCG-FDP,SS Fast moving consumer goods,fresh dairy products, self-service
Eurozone growth is set to total 1.6% in 2017 on Coface estimates (vs. 1.7% in 2016). It should remain driven by household consumption, which bodes well for the sector. In 2016, household purchasing power rose, especially since inflation remains low. Unemployment continued to fall slightly at the same time . The level of growth in retail sales remains respectable in the eurozone. This growth is partly underpinned by growth in household purchasing power prompted by low interest rates in the eurozone. The ECB’s asset purchase programme has helped step up pressure on rates, which has the automatic effect of increasing loan requests by European households in 2016. Renegotiations, which in France represented 50% of the share of home loans in August 2016 (vs. 29.6% in February 2016), had a very beneficial effect on growth in French purchasing power. In 2017, household purchasing power should continue to benefit from low interest rates.
In North America, and more specifically in the US, the election of Donald Trump entails serious uncertainties about consumption and investment. According to Coface, growth in the United States is expected to slightly pick up to 1.8% in 2017 (1.6% in 2016 and 2.4% in 2015). In 2016, household consumption shows signs of slowdown, with retail sales growth (year on year) down by 1 point between July 2015 (3.4%) and July 2016 (2.4%). Retail is expected to be even more affected in 2017. The "positive" impact of the elections is on the side of interest rates, which are not likely to increase at the end of 2016. This should be beneficial for consumer credit costs, which are widely used by US households.Trends are more positive in Canada where retail sales rose in 2016.
In 2017, the slight rebound in activity in Brazil will not suffice to shake up the sector (+0.6% in 2017 vs. -3.4% in 2016 on Coface estimates).This economy must deal with rising unemployment, high inflation, and an erosion of real wages.
In 2017, the slowdown in the Chinese economy (+6.1%) will continue to affect the retail sector, even though growth remains robust. Indeed, while household confidence picked up slightly in August it remains low. The rapid increase in household debt (40% of GDP in 2016) should be closely followed.
In 2017, revenues at companies in the sector are bearing up in Europe like, for instance, Carrefour, European leader in food retail, for which sales are set to grow by 3.8% in 2016. Leclerc’s sales are set to rise by 3%. This momentum is confirmed in France where the banner gained 0.4 points of market share over one year in September 2016, whereas the majority of market shares of other traditional banners have stagnated or fallen. In the UK, like Lidl and Aldi, discounters continued to win market share in September 2016.
In the US, sales at the leading global retail group, Walmart, are set to stagnate in the end in 2016 (+0.5%). This figure is fairly reassuring given that the strength of the dollar is weighing on its revenues. Similarly, despite changes in its wage policy, which increased by 1.2 million employees ($10 per hour vs. $9 previously) in January 2016, in Q2 the group generated a net profit up 8.6% for Q2 of its 2016/2017 split financial year. Increasingly exposed to pressure from Amazon, Walmart has stated its aim to develop its own e-commerce business, which is why in August, the group acquired (for $3bn) the US online retailer Jet.com. This operation proved beneficial, with growth of 11.8% noted in its online sales in this last quarter. In October 2016, Walmart also doubled its stake in the capital of Chinese online sales site JD.com. The family-owned group now has a 10.8% stake. The US group has therefore become one of the major shareholders in the Chinese group, which is considered to be the main rival to Alibaba, the Chinese no. 1 in e-commerce.
In Latin America, companies in the sector will keep suffering from the economic slowdown in 2017. In Brazil, the decline in activity has led US retailer Walmart to close 10% of its stores in 2016. In contrast, Carrefour, which has been present in Brazil for 40 years, remains an exception as it managed to maintain sales growth in Latin America at 17.9% in H1 2016.
Companies in the retail sector are likely to suffer from the economic slowdown in China in 2017. Carrefour’s sales in the country have continued to decline, dropping 5.3% in H1 2016. Financial situations at certain Chinese suppliers could therefore become strained. However, a number of heavyweight groups are resisting, such as Alibaba (no. 2 global e-commerce website), whose sales in the segment rocketed 49% over one year in H1 2016. While 75% of the group’s revenues stem from e-commerce in 2016, the giant is increasingly diversifying its business (sport, media, online finance etc.), given the local economic slowdown.
Last update : December 2016