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Study: Retail Sales Grow Despite Recession, Profits Take a Hit

NEW YORK -- Despite one of the sharpest economic contractions in decades, the world's largest retailers were able to increase sales by 5.5 percent in fiscal year 2008, which encompasses fiscal years ended through June 2009, with total retail sales equaling approximately $3.8 trillion.

However, 2010 Global Powers of Retailing, a new report from Deloitte Touche Tohmatsu in conjunction with STORES Media, shows the global recession affected retailers' bottom line. Profitability at the largest 250 retailers in the world fell from 3.7 percent in fiscal 2007 to 2.4 percent in 2008.

Two-thirds of the 184 retailers that disclosed their bottom-line results saw net profit margin decline in 2008, with 30 retailers operating at a loss. This trend affected almost every geography and category. Retailers in North America fell from 3.6 percent in 2007 to 2.4 percent in 2008. Those in Europe saw their profitability fall from 4.1 percent to 2.7 percent. Only those in Africa and the Middle East saw increased profitability.

The food marketing/consumer goods sector, which includes supermarkets and other food retailers, saw profits fall from 3 percent to 2.2 percent, despite seeing higher sales growth than the other groups at 8.6 percent.

"2008 has been a tumultuous year for the global retail industry," said Ira Kalish, director of consumer business for Deloitte Research in the United States. "Sales growth slowed and profitability fell, sharply for some. Many retailers 'bought' sales with heavy promotions, which hit the bottom line hard. However, we are already seeing evidence that as economic recovery takes hold around the world retailers should be able to return to a path of improving profitability."

The composition of the Top 10 retailers in the world remained the same this year. This group now accounts for over 30 percent of the total retail sales of the Top 250 retailers. Walmart Stores Inc. remained the world's largest retailer, ahead of Carrefour Group. Despite Tesco PLC's better sales growth rate, relative currency strength against the U.S. dollar enabled Metro AG climb above Tesco back into third place.

Most retailers have yet to make online push as social networking sites start to make an impact, the report found. Also, multichannel retailing continues to grow as more companies develop an e-commerce capability. However, online still accounts for a small percentage of sales. On average, online sales account for 6.6 percent of total sales for the top 100 retailers in the world. Food retailers seem yet to have embraced e-commerce with online sales accounting for only 0.9 percent.

"The Internet is going to pose an ever-greater challenge and opportunity for retail in the next decade," said Kalish. "Retailers need to ensure their multichannel strategy is in place to capitalize on web-savvy shoppers migrating to the 'net. Secondly, we are starting to see retailers launch targeted marketing campaigns online by offering special deals or discounts through their Web site or social networking sites."

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