- Sustained retail sales growth overall.
- Growth of the Chinese middle class.
- Rapid urbanisation in Asia and Africa is driving the sector
- Fierce competition in the sector
- Weak growth prospects for advanced economies
- Physical points of sale struggling to respond to the growth of online commerce
E-commerce share of total global retail sales (%)
Household consumption, which is the retail sector’s main driver, is expected to suffer overall from softer growth in most advanced economies, especially in Europe. However, the situation is different in large emerging economies, such as Brazil, China and India, whose growth prospects should remain positive albeit muted for 2018 and 2019. Global retail sales, including online sales, are expected to continue to grow in 2018, rising 3.4% to just over USD 28 trillion, compared with around USD 26.8 trillion in 2017, driven by the continued momentum of e-commerce, whose share in total global retail sales is steadily increasing.
The market share of online consumer goods sales is expected to double over the next decade in the most advanced markets and make up 9% of the retail market in 2025. The emergence of this new source of competition is putting pressure on traditional players in the sector. To meet these challenges, traditional firms are being forced to rethink their strategies, notably to include greater segmentation of supply. One key shift in this respect is the rise of product premiumisation. Another is the trend towards tie-ups between online and traditional retailers.
In 2019 Demand
Global economic growth is expected to remain steady in 2018 and to decline slightly in 2019. Coface forecasts growth of 3.2% in 2018 and 2017 and 3.1% in 2019, after 2.6% in 2016, which should support the sector as a whole. Household consumption patterns are undergoing major changes: in advanced economies, there is a greater appetite for online shopping, and the rise of the middle classes in emerging economies, particularly in China, is supporting demand in the sector.
Coface estimates that Chinese growth should reach 6.6% in 2018 compared with 6.9% in 2017. Demand in the sector is expected to remain strong and feed the country’s rapidly expanding middle class. Retail sales increased by 9% year-on-year in August 2018 after an approximate growth of 10% in August 2017. Household debt, which stood at 49.3% of GDP in April 2018, up from less than 20% ten years ago, is an area to watch.
In Latin America, Brazil’s economic situation has improved, with Coface projecting growth of 1% in 2018 and 2.8% in 2019, after years of recession and a 3.5% contraction in 2017. A catch-up effect in household consumption has been observed after two years of recession, plus a return to low inflation. This resulted in an approximate 3% increase in sales in August 2018 compared with the previous year. By contrast, in Argentina, the outlook for the sector is difficult: Argentina is experiencing a severe currency crisis and is in recession. Coface forecasts activity to contract by 2.4% in 2018 due to the high level of inflation (31.2% year-on-year increase in July 2018) and high interest rates (72.5% in October 2018), which are making it harder for households and companies to obtain credit. These indicators are likely to negatively impact the health of the Argentinian retail sector.
In the United States, high consumer confidence and disposable income and historically low unemployment (3.7% in September 2018) enabled retail sales to grow by 4.4% between January and September 2018 compared with the same period last year. However, we anticipate that the substantial increase in the cost of credit will mainly affect the poorest households and impact their consumption. In addition, households' room for manoeuvre is particularly limited due to their debt level, which remains high (77.3% of GDP in the second quarter of 2018), and the decline in their savings rate over the past two years.
The eurozone environment is unsupportive of household consumption: growth is expected to be 2.1% in 2018 and 1.8% in 2019 after 2.4% in 2017, and the household confidence index was -2.9 in September 2018, down from -1.2 in September 2017. Business confidence, while still positive, fell by 3.2 points in one year to 4.6 in September 2018. Meanwhile, consumers in the United Kingdom have had to cut spending, with the savings rate at a record low and real wages increasing slowly.
The sector remains dominated by the US world leaders: according to the 2018 Deloitte Global Powers of Retailing Report ranking (based on 2016 revenues), Wal-Mart Stores Inc., Costco Wholesale Corporation and Kroger Co were the top three, with revenues of USD 486 billion, USD 118 billion and USD 115 billion respectively. Overall, companies are making significant changes to their offerings in advanced economies to meet changing consumer preferences, including developing concept / experience stores that combine online retailers and traditional stores.
In the United States, the sound financial health of one of the leader – Wal-Mart – masks a sector in great difficulty. Retail sales grew by 6% year-on-year over the three months to July 2018, mainly due to e-commerce, which increased by 8.9% year-on-year. The Sears bankruptcy in October 2018 demonstrated the fragile state of the sector's companies and their difficulty in competing with e-commerce firms, such as global online retail giant Amazon, whose sales increased by 19% in 2016 compared with 2015.
The Deloitte 2018 report names German groups Schwarz Unternehmenstreuhand KG and Aldi and French firm Carrefour as the three European leaders, with estimated revenues of around USD 99 billion, USD 85 billion and USD 84 billion respectively. Online sales competition is intense throughout the region, but the situation remains very mixed. In the United Kingdom, industry players will likely be revising their expansion plans in light of Brexit. In addition, business insolvencies are on the rise in the sector, climbing 16.6% over one year in the second quarter of 2018 after climbing 7.8% in the first. If the UK leaves the EU without an agreement, Coface consider that retail will likely be one of the hardest hit sectors.
In Latin America, retail companies should benefit from the relatively better economic situation in Brazil. Carrefour , for example, continues to benefit from positive financial results in the country, recording 5.8% sales growth in the first half of 2018, despite the drop in food prices.
China’s retail landscape is very dynamic, as are online sales, featuring Chinese and international giants such as Alibaba. However, the high level of indebtedness of Chinese companies, which reached 145% of GDP in 2016, remains a point to watch.
Last update : November 2018