Global Retail’s Big 10 & Our Shopping Future

If you look beyond Walmart & Tesco, you find big retailers that have the money and nerve to do business in India. But what are the challenges for these giant companies, globally & in India?

    With foreign direct investment (FDI) in retail, India's $450-billion retailing industry is about to undergo a big change. What you buy and how you buy will change too. 
    Pushing for this change will be an entire brigade of big retailers. The big daddy of retail — Walmart — has already announced that it will be here in 12-18 months. Others like Metro and Tesco too are figuring out their India strategy. They all will do their best to stir up the Indian shopping experience. 
    In the next five-ten years expect many more global retailers to get into the fray in India. Who will they be? What are they like? And how will they fit into Indians' shopping basket? These are questions with no easy answers. But global pecking order should hold a few clues. More importantly, how is the world of global retailing (born in the 20th century) getting redefined in the 21st century? What are the opportunities and challenges that the big retailers see and how is that reshaping the landscape in the industry? Answers for these questions will help us get a perspective on global retailing. But it will also offer clues into how Indian retailing will shape going forward. 
As India and Indians take tentative steps to embrace modern retail, ET Magazine brings to its readers a global perspective on how the retailing world is stacked up and a few trends that are reshaping it: 
Changing Pecking Order 
First the pecking order. Of course Walmart is the biggest of them all. Based on 2010 retail sales figures, a Deloitte 2012 global report puts the top 10 retailers as follows: Walmart, Carrefour, Tesco, Metro, Kroger, Schwarz, Costco, The Home Depot, Walgreen and Aldi — in the descending order. 
    The nationality of these retailers is revealing. There are five US-based retailers (the biggest consumer market till recently), three German and one each from the UK and France. 
    But that order is seeing some flux. "Many of the new, fast-growing players are coming from China, Japan and Australia," says Shyamak Tata, partner, Deloitte Plc, a consultancy firm. 
    A ranking done by Planet Retail, a global retail consultancy firm, based on total sales of 2011 sees entry of two Asian ( Japanese) retailers Aeon, Seven & I and one French retailer Casino. The entry of Asian retailers in the top 10, mirrors the shift that the world economy is undergoing from the West to the East. Interestingly, US-focussed Home Depot and Walgreen make an exit from the Planet Retail's top 10 ranking. 
    Their pace of growth too tells a story. Look at Carrefour, the second-largest retailer after Walmart. Its total sales are expected to grow from $123 billion in 2006 to $161 billion by 2016, a growth of 31% over a decade, according to the Planet Retail data. As compared to this, Asian retailer Seven & I is expected to grow from $62.5 billion in 2006 to $131 billion by 2016, a rise of almost 110%. 
    But the world's biggest retailer, Walmart, seems to be maintaining its competitive edge. From around $368 billion in 2006 to an estimated $607 billion in 2016, it is expected to log a topline growth of almost 65% over a decade. "The business is undergoing a structural shift. Action is shifting from slow mature markets to emerging ones. And their successful big-box strategy is under threat with e-tailing. Retailers will have to rejig their strategy to maintain edge," says Natalie Berg, global research director, Planet Retail. 
    India angle: As India enters 
    the world of organised retail, 
    its billion-plus population and growing consumption power will receive a lot of attention from global giants seeking growth. Expect to hear many more to announce their India plans in future. 
Retail is a Local Business 
Of course global giants will look at India. But it is important to keep in mind that organised retailing has so far been a very local business — often dominated by local not global players, says Arvind Singhal, chairman, Technopak Advisors. 
    Most of the top retailers in China — from the Brilliance Group, to Suning Home Appliances, Gome Home Appliances to Dashang Group — are Chinese. This is when there are 25 global retailers vying for customers in the $2-trillion plus Chinese market. 
    China isn't an exception. It is the same in most other countries like Japan, Germany, France and the US. Most top global retailers — from Carrefour to Walgreen to Aldi to Home Depot get the bulk of their global sales from their home territory. There are some like The Kroger Co (fifth largest) and Target (11th largest) who only operate out of one country, the US. 
    Many global retailers have ventured out, but finding success hasn't been easy. Carrefour recently withdrew from Malaysia and Thailand and will shut down operations in Singapore. Walmart has had to close down 
its operations in Germany 
and South Korea. 
    In 2006, the US-focussed Home Depot ventured into China by acquiring a local company. But it has been struggling with its operations there. "The complex logistics and understanding of local customers make it very difficult for foreigners to crack 
the market. Local firms have a 
significant edge," says Singhal. 
India angle: India, considered one of the most difficult markets in the world where food habits change every 200 km, may not be any different. The operating cost of an organised retail store is about 15% higher than a kirana store. India has among the highest rents per sq ft of space while the sales per sq ft are among the lowest. Global retailers, as much as Indian, are struggling to make profits. Some like Bharti Group may let its partner Walmart lead the way. The Future Group too might get a global partner on board to continue the journey. But experts expect local players like the Tatas (it has a tie-up with Tesco), Birla and Reliance to show the way provided they get their act right and play their cards well. 
Globalising to Chase Growth 
With slowing growth in their home bases, the retailers are exploring newer markets in the developing world. Take for example Carrefour, which has a vast network of stores across the world but bulk of it sales still come from western Europe. It is now looking at Latin America and Asia seriously. 
    The same is true for the German Schwarz Group which operates Kaufland and deep discounter Lidl stores. The Europe-only player was focussed on central and west European market. However, growth in these places has tapered and it is now looking beyond to eastern Europe, Asia, the Americas and South Africa for growth.
    This journey will not be easy as many like Carrefour, Walmart and 
    Home Depot have realised it 
    first hand. Most of them 
    have had to exit a few countries or rework their strategies in these markets. The big retailers will need to go glocal — use their global experience and tap into local knowledge and 
    management 
    to operate in 
    emerging markets, says Berg. India angle: After lots of trial and tribulations, difficult markets like China have taught global retailers such as Walmart to be flexible and appreciate the importance of local knowledge. Humbled, today it marries well its global learning and best practices with local understanding to handle emerging markets. India, late to the global retailing party, should benefit from this. 
Death of Big Box? 
The story of big retail has largely been built around big-box strategy, which took birth in the middle of the 20th century. The retailers set up large hypermarkets, often outside the main city, where real estate was cheap and used the economies of scale and operational efficiency to make money. His- torically, big retailers have entered a new country through the hypermarket route before a full-fledged rollout. 
But now this model is under threat. A Canadian retailer Rona is pushing for proximity stores while closing down its big-box outlets. Walmart is testing a smaller-format Walmart Express aimed at urban locations. Another retailer Target has opened City Target in downtown Chicago. Targeted at the local population, it will be the first Target store with no parking facility. 
    "Proximity retailing looks to address the convenience of shoppers through easily accessible stores offering an edited assortment to fulfil the top-up/impulse/distress needs of shoppers," says Himanshu Pal of Kantar Retail in a recent report. 
    But why are retailers looking at newer formats? A combination of factors is pushing big-box driven retailers to think small. In mature markets like the US, retailers built big-box stores on the outskirts of the cities, where space was cheap and plenty. That market is saturated. "One last opportunity for them are the cities which are still under penetrated," says Berg. Greying population in mature markets, where people prefer neighbourhood shopping, is catalysing this shift. Not to forget that technology too is shaking up the business — but more on this a bit later. 
    All this means that big retailers, used to making money on bigbox stores, have to learn how to make money from small stores. Located in the middle of the city where real estate is scarce and expensive and replenishing merchandise in these stores is difficult. Making money is even more so in this proximity model which leans on high footfalls and capture rate to make money. 
India angle: This learning will come handy for many of the retailers with aspirations in India. Densely populated India, with costly real estate, will not afford retailers the comfort to go for a full-blown big-box strategy. Indians are also used to shopping for routine stuff at their neighbourhood stores rather than driving long distances. 
Tech-edged Challenge 
Technology has redefined many industries. Retailing isn't an exception. Guess who is keeping Walmart awake at night? Amazon. Three factors — low prices, wide assortment and everything under one roof — helped the big-box retail model become so successful in the past. Now, e-tailers like Amazon offer all that with more convenience, better price and more variety. Not to forget that over time, retailers like Amazon have also built customer trust that they can exploit. 
The growing popularity of "showrooming" is another challenge big retailers face. Showrooming is the act of examining a product in a brick-and-mortar store and then purchasing it online at cheaper rate. It does not help that today's consumers are armed with smartphones and can instantly compare the prices while walking down the aisles of stores and make an informed decision. 
    Further, e-tailing is growing rapidly even as brick-and-mortar-focussed retailers such as Best Buy and Border book stores struggle to survive. Almost all retailers are laying thrust on tapping the internet. Using social media to connect with customers is high on the agenda. Tesco, for example, recently offered double Clubcard points to its customers who used Facebook to like, share and buy its products on its website. Dell is rewarding its customers who promote Dell products online. 
    But they have a long way to go as Walmart discovered recently. To promote one of its products, it announced a contest where it would send American rapper Pitbull to a Walmart store that received the most new Facebook Likes. A cheeky online campaign #ExilePitbull was launched to send Pitbull to the remotest Walmart outlet near Alaska — and it won. 
    Big retailers are also trying hard to reinvent their big-box strategy. Proximity stores that know the neighbourhood well and stock appropriately and cannot easily be replaced by internet shopping is their first weapon. Most retailers are pushing deeper into private labels which help them avoid direct price comparison with other big brands, takes the conversation away from just prices and offers them better margins. Some retailers are also trying newer formats. For example, Auchan in France has innovated on a hybrid model — where you place order online but drive and collect the order from a physical store. The format has seen good success and is being followed by many other retailers. 
India angle: India is late to the organised retail world. It can leapfrog. Expect global retailers, with no legacy issues here, to experiment with some of these new formats when they come.

Walmart 
Presence 
Home base is US; present in 16 countries The big daddy of the retailing world is also the world's second-largest private sector employer with 2 million plus employees. With 8,500-plus stores in 16 countries under 55 different names, it is known for using its global supply chain efficiency to offer low-priced products to its customers. Its size and dominance has also made it an easy target for anti-capitalist, anti-globalisation and labour pressure groups. The big-box retailer, now feeling the heat from e-tailers and changing shopping habits, is shifting thrust to small stores, e-commerce and a global push to gear up for the future. Experts expect it to push its small-store strategy in new emerging markets that it is entering, including India. It recently scaled back operations in Brazil and China to improve profitability. REVENUES $418.9 bn

Carrefour 
Presence 
Home base is France; present in 33 countries The inventor of the big-box model, despite 
its presence in so many countries, is 
struggling today due to its heavy dependence on slow-growing west European economies, demographic shifts (ageing population, single household and urban lifestyles) and new competitive threats (online, smaller formats). Its obsession with "fixing the hypermarket" meant it was late in embracing multi-channel formats. It is now laying thrust on small-box stores (especially in markets like Latin America and Poland). It is expected to also push for the Drive (click & collect) concept. Under shareholder pressure, it is rationalising its operations in unprofitable markets like Singapore, Malaysia, Indonesia, Poland, Taiwan Greece and Turkey. This could mean complete or partial exit from these markets. REVENUES $119 bn

Tesco 
Presence 
Home base is UK; present in 13-plus countries The third-largest retailer holds the top 
rank in the UK and Hungary; is No. 2 in 
Thailand, Ireland and Malaysia and No. 3 in South Korea and Czech Republic. Yet, it is hobbled by a slow growing home market and is investing both attention and resources in overhauling its UK operations. It is also pushing for smaller-format high-footfall stores like Express and Metro stores, e-commerce, m-commerce and click & collect stores to get back in shape. For future growth, it is increasingly looking to emerging markets like China and India. Its entry strategy in new markets is fairly flexible. It typically prefers the M&A route or through joint ventures and once a JV is established and lessons learnt, it then looks to acquire a majority stake in the JV like Hymall China. It is now also open to entering through the franchise route, like in South Korea. REVENUES $92 bn

Metro 
Presence 
Home base is Germany; present in 33 countries The group's operations are split into 
wholesale, food retail, non-food speciality stores and department stores. It is among the top-three players in nine of its markets from Europe to Asia. But under pressure due to slowing economy, demographic and changing shopping habits, it has recently rationalised operations pulling out completely or partially from Morocco, the UK, Indonesia and Norway. It is the only player among Germany's top 5 forecasted to see a decline in sales by 2016. The first in Germany to try click & collect through its Real Drive format, it is pushing for this and small-box city stores to remain competitive. But when it comes to global expansion, it is largely through Metro Cash & Carry, especially in emerging markets like India. Once a market develops sufficiently, it then tends to roll out its other retail formats.REVENUES $88.9 bn

Kroger 
Presence 
Home base is US; present in only 1 country This is America's largest traditional 
grocer that operates under Kroger, 
Ralphs, Fry's and Smith's. It also operates Fred Meyer hypermarkets, several convenience store chains, and fine jewellery stores. It consistently outperforms the channel and key competitors due to its strong competitive positioning and a compelling price/value proposition. Best-in-class shopper 
    analytics and shopper insights developed 
    in partnership with dunnhumby USA enables customised and personalised marketing and promotional programmes down to shopper level. Its problems are it is exclusively reliant on the competitive and Walmartdominated US market, dependent on bigbox strategy and targets baby boomers. Lagging behind in e-commerce, it will face challenges with young, tech-savvy Americans. REVENUES $82 bn

Schwarz 
Presence 
Home base is Germany; present in 26 countries The Europe-only player is mostly focussed on 
western and central Europe and has discount 
stores under two brands Lidl and Kaufman. The privately held retailer, owned by a family trust, has largely followed an organic growth so far. It is now looking beyond saturated European markets, to eastern Europe, Asia, South Africa and the Americas for growth. As a private label-focused retailer, Lidl is increasingly investing in vertical integration to keep costs low. After setting up its own water bottling plants, Lidl has built its own chocolate manufacturing facilities and will soon build its own bakeries. With its focus on priceaggressive grocery stores, the group is well positioned in the difficult economic climate across Europe. Lidl is likely to start click & collect service in France. As one of the fastest-growing global retailers, its concepts are internationally standardised but are flexible enough to adapt to different markets. REVENUES $79 bn

Costco 
Presence 
Home base is US; present in 9 countries It is a membership-based warehouse 
club that follows the low-cost model with 
the golden rule of never marking up a product by more than 14%. For this it keeps a tight control over costs and maintains high efficiency level in sourcing and shipping. US operations remain its core but it is laying more thrust on new markets, especially in Asia (Japan, South Korea and Taiwan). In the US, it is not only the club channel leader in terms of sales, but continues to separate itself from its competitors like Walmartowned Sam's Club in club productivity. It gets more members per club, bigger average transaction size and faster inventory turns in its stores vis-à-vis its rivals. Slow to adopt e-commerce, it relies heavily on a big-box concept that may not resonate well with techsavvy younger generations.REVENUES $76.2 bn

The Home Depot 
Presence 
Home base is US; present in 5 countries It is a US-based home improvement retailer recognisable for its big orange box format. 
The retailer operates in the US, Canada, Mexico, China, Guam and Puerto Rico. Home Depot segments its customers into three main groups: do-it-yourself customers, who are typically home owners and buy products and complete projects and installations themselves; doit-for-me customers, who are typically home 
    owners and buy products themselves, but arrange for third-party contractors to complete projects or installations; And professional customers, who are typically small business owners or contractors. It operates a global sourcing function from the US with sourcing offices in China, India, Italy, Mexico and Canada. Home Depot is struggling with its operations in China. Coupled with that, a weak demand in the US too is keeping it worried. REVENUES $67.9 bn

Walgreen Co 
Presence 
Home base is US; present in 2 countries Walgreens operates drugstores 
across the US and in Puerto Rico. 
The retailer sells pharmacy, OTC health-care products and more recently has also begun to retail a wide variety of convenience goods, fresh food, general merchandise and, in selected stores, fresh food. It has a strong portfolio of OTC health-care private labels. The majority of stores feature a drive-through pharmacy facility. It finally forayed into international markets in partnership with Alliance Boots which will give it access to high-growth markets like China, Thailand and Russia. It is also repositioning itself from a traditional drug retailer to a provider of "retail health and daily living". It has also acquired drugstore.com to boost its online presence. REVENUES $67.4 bn

Aldi 
Presence 
Home base is Germany; present in 18 countries Aldi is the world's leading hard discount 
grocer and inventor of the concept. It 
has a single-format strategy with a presence in Europe, Australia and the US (where Aldi Nord also owns Trader Joe's supermarkets). Aldi is focused on efficiency and cost control through limited assortments, limited services, low prices, small footprints and private labels. Its global presence is limited to developed markets in three continents. Aldi is struggling with 
    slowing home markets. After withdrawal from Greece, its initial plans to launch in east and central Europe too have been scrapped. It is also losing some ground to its rival Lidl. Aldi is establishing new categories and launching innovations, addingvalue to its ranges with in-store bakery ovens, more convenience and regional foods to boost its sales. REVENUES $67 bn