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Linking the retail & wholesale sector with its macro-economic
Prof. Dr. Bruno ColmantPartner Roland Berger Strategy Consultants
Brussels, April 23 2014
its macro-economic environment
Contents Page
2.
1. Summary of the retail & wholesale sector's macro-economic impact 3
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not be passed on and/or may not be made available to third parties without prior written consent from Roland Berger Strategy Consultants. RBSC does not assume any responsibility for the completeness
and accuracy of the statements made in this document.
© Roland Berger Strategy Consultants
2. Evolution of the European economic context and impact on the retail & wholesale sector 5
3. Societal contribution of the retail & wholesale sector 13
1.
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1.Summary of the retail & wholesale sector's macro-economic impact
The retail & wholesale sector contribution to most important macro-economic indicators is very critical
Macro-economic impact of the sector – overview
> Retailing and wholesaling in the European Union:
– account for 1 in 4 enterprises and 99.9% of
COMMENTS# FIRMS[# firms; 2013]
EMPLOY-
3.7 1.8 25 million
RETAIL WHOLESALE
22%
13%
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enterprises and 99.9% of the 5.5 million European retail & wholesale businesses are SME's
– provide 1 in 7 jobs in Europe, which, for example, represents 25 X more than in the chemical industry
– contribute ≈≈≈≈ 10% of Europe's gross value added
– represent more or less 8.5% of European GDP
EMPLOY-MENT[# empl.; 2011]
GVA[EUR tn; 2011]
GDP[EUR tn;2011]
18.6 10.4 223 million
RETAIL WHOLESALE
0.59
0.49 EUR 11.3trillion
1.1EUR 12.6 trillion 1)
RETAIL WHOLESALE
RETAIL + WHOLESALE
13%
9.6%
8.6%
1) Taking the assumption that ∑ GVA ≈ 90% of GDP
Source: Oxford Institute of Retail MGMT, Roland Berger
2.
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2.Evolution of the European economic context and impact on the retail & wholesale sector
Many expected trends in the European macro-environment could directly or indirectly impact retailers and wholesalers
Overall model of economic
interactionECB watching Eurozoneinflation report Household debt
Euro area retail sales
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Retail sales, confidence and PMI in the retail and households sectors
The Big Mac index
Consumer confidence indicator
Unemployment in the Euro area
Source: Tradingeconomics & Eurostat, Bloomberg, European Commission, ECB, The Economist, Financial Times, Roland Berger
Among them, we selected the most impactful economic variables for the European retailers and wholesalers
MACRO-VARIABLES:SELECTION
MICRO-VARIABLES:INCOME STATEMENT
1. Disposable income
2. Unemployment
UNITS SOLD
AVERAGE PRICE
SALES
COST OF SALES
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2. Unemployment
3. Consumer confidence
4. Inflation
5. Interest rates
GROSS PROFIT
SELLING, GENERAL ANDADMINISTRATIVE EXPENSES
(INCLUDING PERSONNEL COST)
EBITDA
DEPRECIATION, AMORTIZATION, PROVISION
INCOME BEFORE TAXES
FIN. INCOME
FIN. EXPENSES
LEGEND:
points at a positive relation; points at a negative relation; points at a balanced relation
E.g. An increase in the disposable income has a positive effect on the retail sales (upward arrow), while an increase in unemployment has a negativeeffect on retail sales (downward arrow).
During the financial crisis, the disposable income remained relatively stable
Balance of primary income per inhabitant after taxation [In current Euro per inhabitant; 2007-2011]
24,000
23,000
1 DISPOSABLE INCOME – BACKUP
> The disposable income was severely impacted in the United Kingdom during the financial crisis (from EUR22,900 per inhabitant to EUR 17,700 per inhabitant). In the biggest
COMMENTS
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2007 2008 2009 2010 2011
19,000
21,000
22,000
20,000
18,000
17,000
16,000
15,000
United KingdomGermany ItalyFrance
per inhabitant). In the biggest Eurozone member states, the impact remained limited
> From 2009 onwards, the disposable income has started to increase again in most member states (except for Italy, where it seems to have stabilized around EUR 18,300 per inhabitant)
> Since 2008, Germany has the highest disposable income of our set of big European Union member states
> A further increase in the disposable income would be beneficial for retailers.
Source: Eurostat, RB Analysis
Unemployment rates will go down again, but the heterogeneity amongst member states will remain big
2 UNEMPLOYMENT – BACKUP
Unemployment rate in the European Union and its biggest member states [%; 2010-2020e]
13%
12%
> The unemployment rate has been increasing in the overall European Union for the last 4 years
> As we return to a world where the
COMMENTS
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2013201220112010 2018(e)2017(e)2016(e)2015(e)2014(e)
8%
7%
6%
2020(e)2019(e)
12%
11%
10%
9%
United KingdomItalyGermanyFranceEuropean Union
> As we return to a world where the economic growth is positive, the unemployment is expected to go down (from 12.1% in 2012 to 10.4% in 2020 for the overall EU)
> Amongst the four biggest member states, the heterogeneity in unemployment rates has increased since 2010, and it is expected to remain high
Source: Oxford Economics, Office for National Statistics, Bank of England, RB Analysis
The consumer confidence increased a lot over the last year
3 CONSUMER CONFIDENCE – BACKUP
Consumer confidence in the European Union and its biggest member states [index value; 2010-2014]
0
5
10
> The consumer confidence indicator has been low between 2010 and 2013
> Germany was the first member state
COMMENTS
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-45
-40
-35
-30
-25
-20
-15
-10
-5
0
2010M01 2011M01 2012M01 2013M01 2014M01
GermanyFranceEuropean Union Italy United Kingdom
> Germany was the first member state where the consumer confidence started rising. Since 2013, the other big member states have been following.
> The upward trend will translate in a higher sales volume, especially for big purchases (which have been delayed for a longer time)
Source: Eurostat, RB Analysis
We have entered a climate of very low inflation, and a sudden increase is not excluded
4 INFLATION/ DEFLATION - BACKUP
Consumer Price evolution in the European Union and its biggest member states [% of annual growth; 2010-2020e]
> The current inflation is far below the 3.1% we had in 2011. The expected inflation for 2014 is 1.1%
> In the short term, the heterogeneity
COMMENTS
5.0%
4.5%
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> In the short term, the heterogeneity amongst the biggest Eurozone membersis expected to increase (e.g. for 2016, 2.9% inflation is expected for Germany and only 1.3% for Italy)
> In the longer run, the inflation is expectedto return to the ECB target (below, but close to 2%)
> So, there is still a positive inflation expected for 2014-2020. However, the evolution of consumer prices has to be followed with a lot of attention as deflation could potentially make customers delay their purchases. If this would happen on a large scale, a deflation spiral (cf. Japan) could be the result.
Source: Oxford Economics, RB Analysis
2019(e)2018(e)2017(e)2016(e)2015(e)2014(e)2013201220112010
2.5%
2.0%
0.5%
2020(e)
4.0%
3.5%
3.0%
1.5%
1.0%
United KingdomItalyGermanyFranceEuropean Union
The interest rate is currently historically low, and an immediate increase is not expected
5 INTEREST RATES – BACKUP
European Central Bank (ECB ) Policy Rate: past evolution and predictions [%; 2012-2020e]
> Following the financial and sovereign debt crisis, the policy rate of the ECB (currently 0.25%) has approached the "zero lower bound"
COMMENTS
4,0
3,5%
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> As there currently is no risk for inflation, the interest rate is expected to stay at this level
> The low interest rate has a positive effect on the average household budget, as it implies that the share of mortgage payments in the total budget decreases
> For retailers who can use market financing, the low interest rates shape an interesting climate to invest.
2017(e)2016(e)2015(e)2014(e)20132012
3,0%
2,5%
2,0%
1,5%
1,0%
0,5%
0,0%
2020(e)2019(e)2018(e)
ECB Rate [main refinancing rate – short term]
Source: ECB, RB Analysis
3.
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3.Societal contribution of the retail & wholesale sector
The retail and wholesale sector plays an important societal role: zoom on employment and tax collection
Societal role of the retail and wholesale sector until now (cf. findings Oxford Institute of Retail management)
1
EMPLOYMENT
> The retail and wholesale sector is far more flexible than most other sectors in terms of employment, offering job opportunities in education, age or gender's categories for which unemployment rates are higher than average:
– education profile: the sector employs people with no qualifications to PhDs
– age: the sector employs from the very young (student jobs) to more mature workers
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2
TAX COLLECTION
– age: the sector employs from the very young (student jobs) to more mature workers
- 20% of the 18.7 m 15 to 24 years old employed in the EU economy in 2012 worked for this sector
– gender: the sector employs proportionally more women than European economy average, mainly explained by the flexible employment opportunities offered by the sector (part-time, temporary, permanent, …)
Source: Oxford Institute of Retail MGMT, Roland Berger
> Wholesalers and retailers collect Value-Added Taxes (VAT) on behalf of public authorities:
– Considering an average VAT rate of 15% and total retail sector's sales of EUR 2.6 tn, the total amount collected by wholesale and retail firms reaches EUR 390 bn
In a deflationary context, the sector could also play an important role in the support of internal consumption
Societal role of the retail and wholesale sector in a deflationary context
Deflationary contextStimulating internal
consumption
REQUIRES
ROLE FOR INVESTMENTS BY THE RETAIL AND
WHOLESALE SECTOR
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> The sector is investing heavily in more sophisticated communication with customers ("click-and-drive-in supermarkets", new payment solutions,…)
> Investments can lead to a more optimized supply chain, and can increase the productivity in the sector
> As a result of this increased efficiency, the sector can induce and foster internal consumption
Source: Roland Berger
> Investments in retail might also require additional workforce
> On average, the profile of a significant part of the workforce required matches the profile of unemployed people
> Therefore the impact on the employment rateand the impact on internal consumption will be very positive
1 CAPITAL INTENSIVE INVESTMENTS 2 LABOR INTENSIVE INVESTMENTS