Page 93 - DMGT551_RETAIL_BUSINESS_ENVIRONMENT

Retail Business Environment

Notes Profitability continued to improve as well. The Top 250 composite net profit margin rose to 3.8
percent in 2010, up from 3.1 percent in 2009 and 2.4 percent in 2008. Nearly all of the companies
that disclosed their bottom-line results (183 of 195) operated at a profit in 2010, and more than
two-thirds of the reporting companies saw an improvement in their net profit margin.
Stronger profitability also led to an improvement in return on assets. Composite ROA increased
to 5.8 percent in 2010. While this is up from 4.9 percent in 2009, asset turnover declined slightly
to 1.5 times from 1.6 times the prior year. This suggests that retailers may have increased their
inventories and invested in new property and equipment in 2010 in anticipation of an economic
recovery.

Walgreen Joins Top 10 Leader Board
The share of total Top 250 retail sales accounted for by the Top 10 retailers slipped again in 2010
to 29.4 percent, down from 30 percent in 2009 and a high of 30.2 percent in fiscal 2008. The Top
10’s 5 percent composite year-over-year sales growth, while a significant improvement over
2009’s meager 0.2 percent increase, lagged the 5.3 percent sales gain for the Top 250 as a whole.

The leader group’s top-line performance in 2010 was dragged down by Wal-Mart’s 3.4 percent
sales increase. Despite strong growth in international sales, stagnant sales in the U.S. division,
which accounted for more than 60 percent of Wal-Mart’s total sales, led to overall inferior
growth.
All 10 companies on the leader board saw an increase in retail sales in 2010, led by Schwarz and
Costco. Tesco, Walgreen and Kroger also outpaced the Top 250’s composite growth rate.
The makeup of the Top 10 changed slightly for the first time since 2007. Walgreen continued its
steady climb up the Top 250 ranking to become one of the world’s 10 largest retailers in 2010,
displacing Target, which fell to 11th place. A weaker euro against the U.S. dollar had an impact
on the European retailers, causing some to drop in the dollar-denominated rankings despite
solid growth.
Profitability for the world’s Top 10 retailers also underperformed the Top 250 group as a whole.
The eight Top 10 companies that disclosed their bottom-line profits generated a composite net
profit margin of 3 percent, compared with 3.8 percent for the Top 250. Although Top 10 sales
growth and profitability lagged the larger group, the retail leaders were more productive than
the group as a whole, as reflected by the Top 10’s superior return on assets and asset turnover
ratio.
In a competitive retail industry, the right IT and telecommunications infrastructure will be an
immense difference and a huge competitive advantage over competitors in terms of cost savings,
productivity and inventory management. In the age of modern technology, digital signage,
customer relations, relative advertisement, marketing, and improved pricing strategy should
be implemented to enhance customer experience immensely to distinguish your business from
competitors. By offering store and loyalty cards to customers is an example of an advantageous
implementation of current technology which enables vendors to not only enhance customer
experience by rewarding shoppers with discounts but also tracking spending habits and buying
trends of their customers. By knowing customer buying patterns and tailoring their promotional
campaigns consistently, vendors will be able to anticipate customer preferences so they can staff
and stock levels accordingly. Retail branding is an important and current trend of the retail
industry to tailor the unique taste of every consumer. Although pricing seems to be an issue to
almost every consumer but it is not the only consideration for them. Focusing only on price will
make a vendor only one dimensional and diminish the customer experience, increase
dissatisfaction, loss of reputation, and overall devaluation of brand in an important branding
trend. This will all lead to what we have witnessed in 2009, a complete business failure. As I
mentioned before, evolution of business practices and product variety is most crucial to success

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