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 Wal-Mart, the world's largest retailer, has announced plans to cut back its domestic store opening programme in 2009, and other major retailers such as Carrefour are warning of increasingly volatile times ahead.
It is important therefore to look at how developments in the global economy are impacting retailer internationalisation strategies, and what the read-through is for those that supply them.
Capex plans under review
With costs coming under increasing pressure, and sales growth no longer a given, it comes as no surprise to IGD that many global retailers are reviewing their Capex (capital expenditure) plans. At Wal-Mart's 15th annual investor briefing in Bentonville in late October, CFO Tom Schoewe indicated that total group capital expenditure in Fiscal 2009 is expected to reach $13.0bn, down from $14.9bn in the last fiscal year. He also announced that new store openings at both Sam's Club and Wal-Mart Stores U.S. would slow in Fiscal 2009 and Fiscal 2010, with a focus on developing smaller, more productive Supercentres.
It's not just in mature markets that these developments are taking place - emerging markets are affected too as the Russian giant X5 indicated late last month. With plans to considerably reduce personnel costs, CEO Lev Khasis commented, "We have stopped financing all projects where the construction has not started yet, in order to ensure that all short term debts will be paid."
Yet despite the above revisions, both Wal-Mart and X5 are still looking at further expansion opportunities. X5 was recently reported by the Russian press to have signed a deal to acquire Alpi, a Siberian retailer operating 22 hypermarkets. Wal-Mart announced plans for further growth at Wal-Mart International; accelerating Capex from $4.3bn-$4.8bn this year, to $4.8bn- $5.3bn in Fiscal 2010, with particular focus on growing its presence in key emerging markets like Brazil and China.
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| Are retailers still willing to bet on global expansion? | |
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Emerging markets save the day?
News of Tesco's move into India, covered in September's IGD Update, together with Carrefour's analyst trip to the Brazilian market in June 2008, demonstrates the attraction that emerging markets continue to hold for today's global retailers. This is likely to be the case going forward, as retailers (and their suppliers) seek to tap into the faster growth rates that many of these markets offer.
Yet investment in emerging markets is not without risk, and by refocusing Capex on these opportunities, many of today's retailers are likely to face increasing pressure from investors to get it right overseas. Of course, those pursuing international expansion have a number of tools at their disposal, such as global sourcing scale, a multi-format portfolio and an increasingly efficient operating model. However, these tools alone may not be sufficient for retailers to achieve the ROI (return on investment) that shareholders are looking for, so getting the balance right between emerging and mature market investment will be key for those seeking to expand internationally.
Is a value positioning the way forward?
With the current downturn in the global economy, and resulting impact on consumer spending, adopting a stronger value positioning might seem the obvious quick-win for those retailers seeking to capitalise on internationalisation. Yet companies that seek to over-simplify in a race for value may be heading down the wrong track. Instead of down-trading, recent research that IGD carried out in the UK suggests that although shoppers are economising they are still investing in brands or ranges which reinforce their values at the right price, and deliver what they want without compromising standards.
And this is where discount retailers, among others, are directing their attention. By flexing their store concepts to include greater focus on areas such as health and ethical trading, while maintaining simplicity in their operating model, global discounters such as Aldi and Lidl are positioning themselves to respond to growing consumer trends at the right price. Encouragingly, many global retailers are also focusing on these areas, and with recent increases in promotional activity from the likes of Carrefour in France, and Tesco in the form of its discounter brands campaign, a strong focus on value could yet become a major criteria for successful global expansion.
What read-through for suppliers and the wider industry?
There are still many contradictions in today's global retailing environment, but it is clear that retailer globalisation is by no means over, and with further turmoil expected in the global economy, things don't look set to get any easier.
The read-through for suppliers is that they need to be smarter and sharper than ever before, planning ahead for potential changes in retailer Capex and remaining flexible enough to adapt to changing retailer demands.
None of this sounds easy and it would be dangerous to assume that what we are seeing played out in the global economy and wider retailing environment is just a blip. The world is changing and both suppliers and retailers will need to change. The question is: do you stick or twist with global retailing? Doesn't really matter as long as it provides the necessary returns!
More information:
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