Chile's Cencosud is the biggest Latin American retailer.

Latin American retailers register the highest revenue growth in the world

Local operations rely heavily on domestic markets; 11 companies based on the region figure in the Top 250 ranking

Latin America recorded the highest retail revenue growth and profitability as compared to all other regions in 2018-19 and the good results came even while the growth rate witnessed a fall of 5.3 percentage points over the previous fiscal year. The data comes from the latest edition of the yearly report on retailing around the world released by Deloitte, a global consultancy group. The region added 2 retailers to the current total of 11 companies in the report’s Top 250 ranking, earning an average revenue of $7.9 billion. Compound annual growth rate, which measures average progression of growth during a time period, also saw a big increase in Latin America, from 3 in 2014-18 to 8.1 percent in 2015-19. 

Retailers in the region still have very local operations though, usually concentrating on their home country, operating in just 2.5 countries on average and generating nearly 80 percent of their revenue from their domestic markets. Only Asia Pacific — excluding China and Japan — had an albeit slightly lower level of globalization in retail operations.

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According to the study, the growth of retailing in Latin America is driven mainly by consumer demand for convenience, with increasing internet penetration providing a further boost to e-commerce, and the adoption of multi-channel strategies by companies. Consumer confidence increased as well, with a rise in GDP of the countries in the region. 

Chile’s Cencosud is the region’s largest retailer. It and Mexico’s Femsa Comercio and S.A.C.I Falabella were the biggest contributors to revenue among the Top 250 companies in Latin America, while Mexico’s Grupo Comercial Chedraui and Brazil’s Magazine Luiza were the fastest growing retailers, with double-digit revenue growth. 

Deloitte’s report points out that the growth of Grupo Comercial Chedraui was boosted by the acquisition of US grocery chain Fiesta Marts, opening of new El Super stores and new stores in its home country (of which 30 percent were Chedraui Stores and 70 percent were smaller formats, such as Super Che and Supercito). Revenue growth for Magazine Luiza was largely organic and attributable to the opening of 100 new stores and a 60 percent jump in e-commerce, which represented 35.7 percent of total sales.

Political and social climate

The 11 largest Latin American retailers hail from only 3 countries: Mexico (5 companies), Brazil (4) and Chile (2). Deloitte’s report draws attention to the degree of unrest across the region, which it calls “surprising”. “It includes countries where one would least expect it – such as Colombia and Chile, both of which have seen strong economic growth. It appears that many people are worried about an uncertain future as new technologies disrupt old ways of doing things”, says the study, adding that the sense of uncertainty likely contributed to the election of populist leaders in Latin America’s two largest economies, Brazil and Mexico.

In Brazil Jair Bolsonaro, a populist politician from the right, was elected in 2017 with an agenda of market liberalization that is tentatively being implemented. He managed to get a pension reform through the Congress, lowered some tariffs, and began to ease domestic regulations. Although the economy remains weak, there are positive signs. The central bank has cut interest rates, leading to lower capital costs and hopefully more investment. According to Deloitte, the main headwind for the country is weakness in the global economy, especially in China and Europe, Brazil’s largest trading partners. 

Mexico, on the other hand, elected a left-wing leader who had previously served as Mexico City’s mayor. Immediately after taking office, Andres Manuel Lopez Obrador (also known as AMLO) cancelled a half-built airport for the capital. By doing this, he alarmed businesses which worried about the government’s commitment to infrastructure and its willingness to service the government’s debt. Investors also became worried that the government intends to reverse the energy market liberalization championed by the previous administration. Investment has weakened, especially as the US economy slows down and trade remains uncertain. “By the end of 2019, Mexico was technically in recession and the outlook for 2020 does not look auspicious”, concludes the report.

Global concentration

The Top 250 global retailers generated aggregated revenues of US$4.74 trillion in the 2018-19 fiscal year, representing growth of 4.1 percent. “The outlook for the global economy and the retail industry in 2020 is uncertain,” says Ira Kalish, Deloitte Global Chief Economist. “Overall economic growth is likely to be subdued but positive, with lower growth in consumer spending and inflation in most countries remaining low.”

The world’s Top 10 retailers contributed 32.2 percent share to the Top 250’s total retail revenue, up from the 31.6 percent share in the previous year. Growth of the Top 10 outpaced that for the Top 250 retailers, at 6.3 percent and 4.1 percent respectively. 

Europe has the highest number of Top 250 retailers, with 88 companies based in the region. The US has the largest companies, with an average size of $27.6 billion, which is much higher than the average Top 250 size of $19.0 billion.