Deloitte Shines a Spotlight on Economics and the Global Consumer

Deloitte Shines a Spotlight on
Economics and the Global Consumer
IRA KALISH, Chief Global Economist, Deloitte Research

2Copyright © 2016 Deloitte Development LLC. All rights reserved.
Global economic outlook

United States
What to expect from the Trump Administration
Congress:
• Both houses of Congress controlled by Republicans
• Republicans hold 52 of 100 Senate seats
• Require 60 votes to break a filibuster
• Trump must work with Chuck Schumer on many areas of legislation
Traditional Republicans Trump Republicans
Tax cuts and reform Restrict trade
Deregulation Restrict immigration
Free trade and capital movements Industrial policy (Carrier, Ford, GM, Boeing, Lockheed)
Encourage skilled immigrants Infrastructure investment

United States
Topic Policy
Trade • Wants to label China a currency manipulator, possibly impose tariffs
• Will withdraw TPP, negative impact on Japan, empowers China
• Wants to re-negotiate NAFTA, possibly impose tariffs on Mexico
• Pressure companies not to shift resources to other countries
Spending and deficits • Boost spending on infrastructure, military
• Will not cut entitlements
• Pay for increased spending by borrowing
Regulation • Less regulation of environment, energy, labor, financial services
• Impose parental leave requirement
• Exit Paris accord on climate

United States
Economic and financial impact:
• Tax cuts and infrastructure spending boost supply of bonds, stimulate economy
• Accelerates wage increases and boosts inflation
• Boosts short term economic growth, but not necessarily longer term growth
• Cutting corporate taxes brings cash home from overseas, boost value of dollar
• Infrastructure spending and deregulation could boost longer term growth
• Trade and immigration restrictions slow growth, boost inflation, increase risk of recession
• Initial market reaction indicates that investors are not focused on trade, more focused on fiscal and regulatory
measures. This could change.

• Rising expectations of inflation in US and Europe
• Expectations of bigger budget deficits in the US
and UK
• Investors expect stronger economic growth in US
and Europe
Asset markets
Rising bond yields

Oil prices rebounded due to:
• Declining U.S. investment and production
• OPEC decision to cut production, not likely well
enforced
• If production falls:
− Prices will rise.
− Shale producers will return to the market
− Boost production
− Suppress prices.
− A ceiling will be reached.
• Expect a prolonged period of relatively low oil prices
Asset markets
Ceiling on oil prices

Currency Influences
US dollar • Strengthened over last two years due to relatively strong growth, higher
yields, expected tightening of monetary policy
• Declined in past year due to revised expectations of Fed policy
• Increasing now due to expectations of new fiscal policy
Euro • Downward pressure due to ECB policy, expected easing of policy, expected
shift in US policy, pessimism about euro sustainability
Pound • Downward movement due to expected drop in inbound foreign investment
Currencies
Dollars, Euros, Pounds

• Until two years ago, capital flowed into China, exerting
upward pressure on currency, boosting reserves
• Now, capital flows out due to:
• Weaker economy
• More outbound investment
• Rich Chinese moving funds out of the country
• End result, downward pressure on currency, selling of
reserves
• Possible rapid depreciation before Trump takes office,
could fuel conflict with US
Currencies
Renminbi

United States
Economic conditions
Job market strong, mature:
• Job growth slowing, but remains strong
• Job openings rate historically high
• Shortages reported, especially for those with specific
skills
• Economy at full employment
• Participation stabilizing after long decline
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2001 2003 2005 2007 2009 2011 2013 2015
‫‏‬Job openings rate
‫‏‬Payroll employment growth
Source: US Federal Reserve

Declining male participation:
• Shifting demand for skills
• Displacement from technology and trade
• Hurts economic growth, but also hurts
social stability
• Contributes to income inequality
• Contributes to populist politics
United States
Economic conditions

United States
Economic conditions
Influences on the consumer:
• Rising employment
• Wages begin to accelerate – especially at the
lower end of the spectrum
• Stronger cash flow, less debt, greater ability to
borrow again
• Persistent low energy prices
• Improved financial market conditions
• Rising income inequality slows consumer
spending growth
‫‏‬Debt service/disposable income
Source: US Federal Reserve

Slower growth, different growth:
• Slower growth due to weak exports and investment
• Transition from low wage to higher wage manufacturing
• Transition from manufacturing to services
• Transition from exports to domestic demand
• Excessive growth of state-sector, slow growth of private sector
• Needed transition from investment to consumer spending
• Transitions hampered by policy
• Economy at risk from excessive debt
China
Transitioning

• Declining working age population boosts wages,
hurts economic growth, hurts export competitiveness
• Declining rural-urban migration hurts growth.
Requires end of second-class status for migrants
Growth of working age population
China
Demographics

Mixed picture:
• ECB policy has suppressed euro, suppressed borrowing costs, and
boosted asset prices
• Consumer spending weakening after good growth
• Unemployment remains high
• Investment remains weak
• Strength in Spain, Ireland, Germany
• Weakness in France, Italy
• Inflation starts to accelerate
Eurozone
Growth outlook

• UK economy surprisingly resilient
• Investment and hiring could falter due to risk of
new trade barriers
• Cheaper pound will hurt consumer spending,
economic growth
• Government appears headed toward “hard Brexit”
with subsidies for companies and industries
• Potential impact on autos, financial services,
pharma
• Impact on rest of world muted
Source: IMF
United Kingdom
Brexit and beyond

Persistent stagnation and deflation:
• Per capita GDP growth not bad
• Despite Bank of Japan easing, including negative
interest rates, deflation persists, credit creation
falters
• Economy intermittently stalls
• Exports weaken as yen strengthens
• US dollar strength could reverse upward
pressure on yen
• Prime Minister wants fiscal stimulus
• Failure of TPP hurts
Japan
Growth outlook

Recovering from a bad episode:
• Many EMs hit by perfect storm:
– Strong US dollar
– Weak commodity prices
– Led to high inflation
– Led to tight monetary policy
– Too much debt
• Russian and Brazil remain in recession
• Rebound in activity as currencies and commodity prices stabilize
• Longer term outlook still strong
• Short term risks:
– Stronger US dollar
– US protectionism
– Decline in oil prices
‫‏‬Emerging market debt/GDP
Emerging markets
Growth outlook

Global Powers of Retailing 2017
Highlights

Wal-Mart continued its long-held position as the world’s largest retailer
Top 10 retailers
e: Estimate
#1
#2
#3
#4
#5
#6
#7
Costco Wholesale Corporation
The Kroger Co.
Schwarz Unternehmenstreuhand KG
Walgreens Boots Alliance, Inc. (formerly Walgreen Co.)
The Home Depot, Inc.
Carrefour S.A.
Wal-Mart Stores Inc.
Aldi Einkauf GmbH & Co. oHG
Tesco PLC
Amazon.com, Inc.
#8
#9
#10
US
US
US
Germany
US
US
France
Germany
UK
US
$ 482.1
$ 116.2
$ 109.8
$ 94.4
$ 89.6
$ 88.5
$ 84.9
$ 82.2 e
$ 81.0
$ 79.3
+5
+3
-1
-1
-4
+2
Key highlights
 The top 4 retailers maintained their
positions on the leader board
 Acquisitions, divestitures and exchange
rate volatility shuffled the rest of the top
10
 Walgreens moves up leader board and
Amazon joins top 10
 Germany’s Metro Group fell out of the top
10 as the company’s transformation
process accelerated
FY2015 Retail revenue (US$ billions)Country of origin Change in rank#: FY2015 Top 250 rank

Percentage share of top 250 revenue by region and by top countries
Geographic breakdown
North
America
47.6%
Europe
35.0%
Latin
America
1.6%
Asia
Pacific
14.4%
Africa/
Middle East
1.4%
US
45.6%
China/Hong
Kong
3.7%
Japan
6.5%
Other Asia
Pacific
4.3%
France
8.2%
Germany
9.8%
UK
5.8%
Other
Europe
11.2%

Product sector breakdown
9.8%
Apparel and
accessories
Fast-moving
consumer goods
(FMCG)
66.6%
Hardlines and
leisure goods
16.4%
Diversified
7.2%%
Share of
revenue
TOP 250
45
133
Companies by sector
Key highlights
 Revenue growth for the apparel and accessories retailers outpaced
the other product sectors, for the third year in a row
 Retailers of FMCG are the largest companies and the most
numerous among the top 250— with average retail revenue of
US$21.6 billion
50
22
 The strong growth of e-commerce giants Amazon.com and JD.com gave the
hardlines and leisure goods group’s composite revenue growth a big boost—
offsetting negative growth among 13 of the sector’s 50 companies
 The diversified group has experienced persistently slow growth—its composite
revenue declined as two of the three largest diversified companies posted
negative top-line results
Percentage share of top 250 revenue by primary product sector

FY2010-FY2015
Top 10 fastest-growing retailers
e: Estimate
#1
#2
#3
#4
#5
#6
#7
JD.com, Inc.
Albertsons Companies, Inc.
Axel Johnson AB / Axfood, Axstores
Sprouts Farmers Market, Inc.
Steinhoff International Holdings N.V.
Southeastern Grocers, LLC
Vipshop Holdings Limited
OJSC Dixy Group
PJSC "Magnit"
Grandvision N.V.
#8
#9
#10
Key highlights
 From 2010 through 2015, the
composite retail revenue for the 50
fastest-growing retailers increased
at a CAGR of 22.2%—more than 4X
times faster than the growth rate for
the entire top 250 group
 34 of the fastest 50 companies were
among the 50 fastest-growing
retailers in FY2015
 E-commerce and acquisitions are the
key drivers for the fastest 50
FY2015 Retail revenue (US$ billions)Country of origin FY2010-15 Retail revenue CAGR#: Growth rank * Revenue includes wholesale
and retail sales
China
China
US
Sweden
US
South Africa
US
Russia
Russia
Netherlands
$ 6.1
$ 27.0
$ 58.7
$ 5.8 *
$ 3.6
$ 13.2
$ 11.1 e
$ 4.5
$ 15.7
$ 3.6 *
184.6%
81.3%
74.1%
49.2%
47.4%
44.5%
34.6%
33.5%
32.0%
29.1%
157
36
17
164
242
72
84
198
61
244
Top
250
rank

FY2015
Top 10 e-retailers
#1
#2
#3
#4
#5
#6
#7
JD.com, Inc.
Apple Inc.
Wal-Mart Stores, Inc.
Suning Commerce Group Co., Ltd.
Otto (GmbH & Co KG)
Tesco PLC
Amazon.com, Inc.
Vipshop Holdings Limited
Liberty Interactive Corporation
Macy's, Inc.
#8
#9
#10
US
China
US
US
China
Germany
UK
China
US
US
$ 79.3
$ 27.0
$ 24.4 e
$ 13.7
$ 8.1 e
$ 7.2
$ 6.5 e
$ 6.1
$ 5.1
$ 4.9 e
13.1%
54.5%
18.2%
12.3%
95.0%
0.5%
9.0%
64.4%
1.0%
n/a
Key highlights
 E-commerce is the major growth
engine for many top 250 retailers
 80% of the 50 largest e-retailers
are top 250 companies
 The vast majority of the e-50 are
based either in the US (26
companies) or Europe (19
companies)
 The pace of growth of online sales
has decelerated for retailers
engaged in e-commerce, but it
remains higher than the growth in
overall revenue
10
36
33
1
46
92
9
157
97
35
Top
250
rank
e: EstimateFY2015 e-commerce retail sales
(in US$ billions)
#: FY2015 e-50 rank * Revenue includes wholesale
and retail sales
FY2015 e-commerce growth rateCountry of origin

13 retailers appear in the top 250 for the first time
Newcomers to the Top 250
PETCO Animal Supplies, Inc.
Smart & Final Stores, Inc.
BGFretail Co., Ltd.
Hobby Lobby Stores, Inc.
Nojima Corporation
Ulta Salon, Cosmetics & Fragrance, Inc.
Homeplus Co., Ltd.
PT Indomarco Prismatama (Indomaret)
HSN, Inc.
PT Sumber Alfaria Trijaya Tbk (Alfamart)
FY2015 retail revenue growth (%)Country of origin
Savola Group/Panda Retail Company
Sprouts Farmers Market, Inc.
American Eagle Outfitters, Inc.
Top
250
rank
163
208
222
227
229
231
234
235
236
239
240
242
247
Hypermarket/Supercenter/Superstore
Other Specialty
Cash & Carry/Warehouse Club
Convenience/Forecourt Store
Other Specialty
Electronics Specialty
Other Specialty
Non-Store
Hypermarket/Supercenter/Superstore
Supermarket
Apparel/Footwear Specialty
ne
5.1%
12.4%
28.7%
2.7%
86.5%
21.2%
20.1%
2.9%
15.5%
10.9%
21.1%
7.3%
S. Korea
US
US
S. Korea
US
Japan
US
Indonesia
US
Indonesia
Saudi Arabia
US
US
Dominant format ne: not in existence (created by divesture or merger)

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Deloitte Shines a Spotlight on Economics and the Global Consumer

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