Paul Martin UK Head of Retail KPMG UK For NG Retail Event, Dublin October 2016

Transcription

1 Retail Outlook 2016 Paul Martin UK Head of Retail KPMG UK For NG Retail Event, Dublin October 2016

2 Key factors impacting Retailers & Consumer Goods companies UK s referendum on EU membership The UK s leave vote is creating high market volatility and is weakening both business and consumer confidence. Initial impact will be predominantly focussed on fx rates with Sterling weakening Long-term volatility depends on future governments plan and exit negotiations with the EU 2. FX rates Sterling has already reached 31 year low against USD. This will specifically impact non-food retailers due to their high-dependency on USD buying The US has began the long haul back to a more normal interest rate policy at the end of last year which has strengthened the USD A number of currencies in key Export markets have lost significant value over recent years e.g. Russian Rouble 3. Low commodity prices Commodity prices have fallen significantly, with oil at $120 per barrel in now at around $40. Positive for consumers and business customers in the UK, but large oil companies will continue to struggle as their cashflow withers. Demand for other commodities is low, especially for industrial commodities, which is why prices may stay persistently low. Source: IMF 4. Continuing global uncertainties China will continue to decelerate with a predicted 6.8% growth in 2016 (IMF), dragging emerging markets down and slowing growth in rich nations. Brazil and Russia s recessions will continue with both economies to continue shrinking slowly in Eurozone debt crisis may also impact the economy, however it is showing slow signs of recovery Economic growth in the Middle East and North Africa (MENA) is stagnating. 2

3 Brexit presents both challenge and opportunity What s going on: The UK will begin to exit the EU in April 2017 UK participation in the European Single Market is undecided The pound continues to fall against the dollar, with an expectation towards parity Challenges Unforseen FX hedging costs Personnel costs may rise - National living wage will likely raise costs Businesses will be expected to invest in and train its staff Restriction in migration may result in higher labour cost Sourcing international design talent might be impacted A pricing policy decision will need to be made to pass on or absorb costs Potential for longer inventory times and customs hassles If exporting to Europe could incur costs e.g. customs warehousing Data privacy and sharing laws will need to be reviewed (e.g. Denmark) Opportunities Lower tariffs - no longer paying external EU tariffs on clothes Positive exposure to /$ if trading overseas Business models that are more efficient or relies on less staff are likely to be more successful in the current environment Sourcing locally could offer cost savings, though first need to consider our competitive position Originally tariff-free sources of product will have to change (e.g. Turkey), but Bangladesh, India and China are still relatively lower cost options Potentially positive impact on the share price (inverse to dollar/pound) Source: interview with KPMG BRC Expert Mark Essex 3

4 Economic and retail outlook by region: Europe Sweden 2.2% (GDP) 1.5% (retail sales) UK 1.5% (GDP) 1.9% (retail sales) Netherlands 1.5% (GDP) 0.8% (retail sales) Germany1.2% (GDP) 1.2% (retail sales) Russia 1.1% (GDP) 0.0% (retail sales) France 1.4% (GDP) 1.0% (retail sales) Switzerland 1.6% (GDP) 0.6% (retail sales) Spain 1.9% (GDP) 2.5% (retail sales) Italy 1.1% (GDP) 0.9% (retail sales) Turkey 3.7% (GDP) 1.4% (retail sales) Source: Euromonitor, KPMG Boxwood analysis GDP growth forecast 2016f-2020f (CAGR) [real] Total retail sales growth forecast 2016f-2020f (CAGR) [real] 4

5 % of retail sales USD per capita USD bn European Retail Outlook W European Consumer Spending Consumer spending 25, W Europe Channel Overview RETAIL CHANNEL CAGR Supermarket 1% 20,000 15,000 10,000 5, F 2017F 2018F 2019F 2020F Consumer spend Retail spend F 2017F 2018F 2019F 2020F Internet 12% Hypermarket 1% Health & Beauty Home & garden 0% -0% Discounters 3% Leisure & personal -0% Electronics & 0% appliances Mixed 1% Direct 2% Vending 0% Home shopping -8% STORE VS NON-STORE Online Category split Western Europe 12% non-store retailing 100% 95% 90% 85% 80% F 2017F 2018F 2019F 2020F Store-based retailing Non-store retailing Source: Euromonitor; WeAreSocial; Adyen 5

6 The Age of Disruption

7 Disruptors Value Poundland B&M ALDI Cdiscount Amazon Argos Convenience Asos Uber Zappos.com Hello Fresh Warby Parker Thread.com Build A Bear Workshop Niketown Hamleys Experience 7

8 1 2 3 Warby Parker Hello Fresh Thread.com Designer glasses without the designer price tag Redefining food shopping A personal stylist on your phone 8

9 Top 10 Retail Trends

10 Retail macro trends Internationalisation Convenience Fulfilment Discounters Innovation Business model Connected home Artificial intelligence Omni-channel Consumer power 10

11 Theme 1: Discounters

12 mn Number of outlets Both Aldi and Lidl have grown consistently 60,000 Retail Value RSP Number of outlets , , % 51,898 48,986 7,000 40, % 5,000 36,293 30,000 29,349 3,000 20,000 1,000 Year Aldi Lidl Year Western Europe market Compound Annual Growth Rates noted Western Europe market Aldi Lidl Source: Euromonitor 12

13 Discounters continue to threaten the multiples market position Asda s low price proposition is under threat from the discounters The Grocer 33 basket comparison: UK Retailers ( ) Discounters gain significant market share, predominantly from Asda Market shares: UK Retailers ( ) 35% Tesco Asda JS Morrisons Aldi Lidl % 25% 20% 15% Asda market share declines to 16.4% below Sainsbury (16.5%) for first time in 3 years 10% 5% 0% Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Average basket comparison ( ) Market Share (%) Source: The Grocer 33 (Average basket price: 15/08/14, 7/11/14, 5/12/14, 13/3/15, 8/5/15, 2/7/15, 24/7/15) Source: Kantar 12 week market shares (March 2013 July 2015) 13

14 Supermarketisation - Lidl Rushden 14

15 Case study: Trader Joe s World s leading private label organic supermarket High Sales Density Founded in in 1958 in California, this chain is owned by ALDI since 1979 Over 450 stores in the US located Phenomenal growth: sales up from $2.1bn in 2003 to $9.4bn in 2014 For the last three years named by consumers as their overall favourite store (survey by Market Force Information) Trader Joe s doesn t pick up on trends it sets them A Trader Joe s buyer Trader Joe s stores operate at one of the highest sales density levels in the US over $1,750 per sq. f. Value Proposition TJ is targeting different customer segments: from cost-conscious to cool college kids to trendy well-heeled urbanites What s unique Elevate food shopping from a chore to a cultural experience Focus on gourmet, organic, natural, MSG free products, mostly private label Quirky fashionable products at a Walmart s price point, many of which you won t see anywhere else (80% of stock is own label) Friendly neighbourhood store type customer service Operating Model Standardised store layout with most locations about 1,100m2 Low SKU count (4,000) they don t carry all the necessities Whenever possible, Trader Joe s purchases directly from the manufacturers Small stores rely on timely distribution and don t have large back rooms Good pay and employee culture help maintain customer service and low employee turnover (4%) Competing on price is not the only option TJ is an example of how a chain with many characteristics of a discounter can position themselves differently and target different customer segments Some of the Trader Joe's-branded products are already in Aldi stores in Europe when will they be in Croatia? 15 15

16 The trend towards Supermarketisation Value Convenience Experience 16

17 Case study: Mercadona Spain s leading grocery retailer operating supermarkets predominantly located in or the edge of town centres A benchmark for retail productivity in Spain sales per employee up by 62% between 2004 and 2012 Sales: 18.2bn, growth of 20% between 2010 and 2014 while overall Spanish household consumption contracted by 2% 1,576 stores, with plans to open a further 200 stores by 2018 Sales ( m ex.vat) Operating profit Outlet numbers Sales area ( 000 sqm) Sales per outlet ( 000) Sales per sqm ( ) 15,055 16,284 17,422 17,849 18, ,310 1,356 1,411 1,467 1,521 1,680 1,769 1,851 1,894 1,919 11,698 12,216 12,597 12,404 12,157 9,123 9,443 9,625 9,532 9,527 Mercadona wants to control its supplies totally, to dictate what they produce, when and how. Javier Alfonso, author of Mercadona, a success story 17

18 Case study: Mercadona continued Value Proposition Mid-market offering with excellent quality to price ratio Up to 8,000 branded and private label lines; private label accounts for over 20% of Spain s private label sales by volume Everyday Low Prices policy with stable prices and low promotion share Customer is at the top of the company s organizational pyramid - high standards of customer service and constant dialogue with the customer Operating Model Integrated supplier model - close relationship with a group of suppliers that exclusively produce for Mercadona, often in exchange for Mercadona s investment. Tight control over costs across the supply chain, e.g. working with suppliers to eliminate the glossy finish on some packaging Innovation over imitation of popular brands - Mercadona has its own laboratories where they invite customers to showcase and test their products High employee morale and low turnover boosted by high job security (90% permanent contracts) and above average pay Total control over supply chain and customer centricity allowed Mercadona to become the market leader with over 20% market share Mercadona has successfully withstood the economic downturn and competition from discounters will it last in the online age? 18

19 Theme 2: Connected Home & AI

20 The Connected Home Home encompasses both the fabric and environment of the dwelling and the well being of people. The connected home is no different. The connected home offers a huge spectrum of benefits, spanning the provision of protection, convenience and environmental improvements to its inhabitants as well as delivering entertainment, wellness and lifestyle benefits. These are available whether the occupants are In or away from the house. Lifestyle automation Making shopping easier Automation & control Temperature Lighting Blinds Garden Wellness Heath monitoring Assisted living Security & monitoring Cameras Monitoring Entertainment & communication Access in and out of home Energy management Intelligent thermostats Consumption management 20

21 The Connected Home: the 5 Cs $ bn market by 2019 Growth of 50-60% annually over the next 5 years 25bn connected devices by 2020 Customer Connectivity Cloud Content Kit Loyalty + trust Complex sales Tech service Relationship management Insight + Analytics Infrastructure ID management Social Platform + Automation Geofencing + triggers Provider management Storage capability Access quality Security Cross platform integration Delivery channel Media development Learning + curation Provider management Media and social tech Beacons + controls Ambient computing Non-media tech White goods Wearables 21

22 Robotics in the value chain A robot in the board of directors! Bring back production thanks to robotics! Robots entertain me in the shop! 30% of Amazon marketplace sales are priced by algorithms! Robots are replacing warehouse workers! Self-driving trucks have arrived! Robots are talking to us! Strategy & Proposition Attract Buy Supply Sell Relate Support (Finance, Property, HR, IT, Partners) I ve been hired by an algorithm! An algorithm is telling me to replace failing parts! 22

23 Paul Martin UK Head of Retail, KPMG UK LLP KPMG UK LLP 15 Canada Square London E14 5GL United Kingdom

24 Disclaimer The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.