Retailers' global risks

The world's largest retailers - headed by Wal-Mart with more than three times the sales of the next biggest, France's Carrefour - face a challenging risk management landscape that arguably deserves as much attention as sales growth or cost control.

by Deloitte Touche Tohmatsu (with Stores magazine), January 2006
Last Updated: 23 Jul 2013

This annual study of the largest 250 global retailers identifies the key risks as:

- Non-financial: while the primary focus of risk management in recent years has been on compliance with financial reporting requirements, the media profile of the most powerful retailers requires them to be responsible, positive contributors to society or risk consumer backlash, political repercussions and regulatory change. This is now also transforming corporate reporting practices, with efforts to build trust with consumers and other stakeholders.

- International economics: global supply chains mean retailers are also vulnerable to the uncertainties of the global economy, whether exchange rate volatility (including forecast falls in the value of the US dollar) or rising trade protectionism. The prime impact of a high oil price on retailers is reduced consumer spending power.

- lobal supply chain: worldwide sourcing and increasingly global operations mean more complex and fragmented supply chains. Global supply chains may offer significant cost advantages, but they also mean long-distance supply lines, extended lead times and increased risk. A weak link in the chain can cause safety hazards or compromised quality, which may lead to bad publicity, damage to the brand and lost sales.

- Terrorism: this is not just about securing facilities and protecting employees and customers; merchandise - especially food - could also be threatened. Companies need to plan for business continuity, including supply chain disruption. Possible terrorist threats need to be factored into country risk assessment. The biggest retailers should also be aware that they could be particular targets - those with strong brand names are probably most at risk.

- Brand management: as retailers continue to replace manufacturer brands with their own, they assume brand and inventory management risks that historically have been the responsibility of the supplier.

- Talent management: growing retailers need more employees, but in most major markets demographics are working against them. In the West, populations are ageing and in emerging markets there is an insufficient supply of skilled employees. That retailers are generally low payers makes it even harder for them to compete for staff.

- New media: the internet has empowered consumers, making them more disloyal to brands. It is increasingly difficult for marketers to disseminate only the information they want in the way that they want. It is no longer enough for brands to interrupt consumers with one-directional messages - customers need to be more engaged.

Source: Global powers of retailing 2006
Deloitte Touche Tohmatsu (with Stores magazine), January 2006

Review by Steve Lodge

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