Managing new retail risk requires different focus, says report

By Anita Awbi

- Last updated on GMT

Related tags Supermarket Risk

The changing nature of risk in global retail is forcing companies
to move away from traditional financial risk assessment to address
a different set of issues, says a new report.

In a study by Deloitte and Touche, called '2006 Global Powers of Retailing', an array of business threats are identified that correspond to retailers' increased exposure in global markets and the new challenges this brings.

Into 2006 the usual financial risk assessment model is no longer appropriate the report states, as large supermarket chains move into unknown countries and grapple with a new range of threats.

Currency fluctuations, tax rules, poor infrastructure, unstable political climates and uneven economic growth are considerations that until very recently many Western retailers did not consider.

And although multinationals are now taking these matters on board, worldwide commerce throws up several difficult issues such as global corporate responsibility concerns, and food safety and product counterfeiting problems that are not so easy to resolve.

"Being big in itself means closer scrutiny of operations from the outside, including being subject to increasing anti-trust legislation and shifts in public perception,"​ says Deloitte and Touche.

These new risks are forcing retailers to converge, as they take on similar management and risk minimisation methods. They are all beating a path together, as recent Eastern European and Asian invasions by the likes of Tesco, Carrefour and Wal-Mart have illustrated.

"Really the risks are a short-term irritation,"​ said Mintel director of retail research Richard Perks.

"If you're going to go into another country you've got to take the long-term view. There aren't going to be instant returns. And to succeed you need to mix arrogance with humility."

He insists that if companies were to hang around and wait for legislation and business practices to change to suit them they may miss the boat.

"If you wait for a developing country to have a legal framework you're not going to go anywhere,"​ he said.

But this type of international retail expansion is having a profound effect on the competitiveness of the market as a whole.

As the retailers grow their capacity to support rapid expansion abroad, market consolidation is rife.

And increased consolidation in retail and manufacturing can only bring more sameness to the industry, as supermarkets carry the same product lines and offer the same service levels.

"The globalisation process has contributed to a growing risk of commonality,"​ says the report.

"As continued expansion places retailers in head-to-head battles in more markets, competition for market share has become almost exclusively price-orientated in many sectors of the industry."

Retailers may do better to offer distinctive concepts, offer powerful brands and have flexible supply chains to succeed, Deloitte suggests.

Verdict retail analyst Nick Gladding agrees, saying: "Retailers like Wal-Mart that assume because a store works well in the US it is transferable to other countries are usually disappointed."

But retail sales and profitability have continued to grow over the past year, bolstered by the steady performance of the global economy.

And companies changing their management agendas to mitigate new risks will be best positioned to reap the rewards of another stable global growth year.

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