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Unilever's Struggles Are Scary

Mark Gilbert is a Bloomberg View columnist and writes editorials on economics, finance and politics. He was London bureau chief for Bloomberg News and is the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”
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The International Monetary Fund just slashed its global growth forecast by the most in three years. But for a really frightening insight into how policy makers are failing to resuscitate the global economy, take a look at the worsening prospects of a company that sells $56 billion of stuff to consumers every year.

Unilever, which peddles everything from margarine to deodorant to laundry soap in every country around the world, is having a hard time increasing revenue. Its 2014 sales improvement was the weakest in more than a decade. And it's not expecting this year to be much better. For any retailer hoping to make money in Europe, today's earnings report makes for grim reading.

Back in July, there was at least a whiff of optimism in Unilever's global outlook. "We are at the bottom of what we can expect," the company said at the half-year point. "We could see the second half of this year slightly improve on the first half, but it will be a slow recovery."

That's gone. "We do not plan on a significant improvement in market conditions in 2015," said Chief Executive Officer Paul Polman, announcing a 2.9 percent increase in underlying sales last year. That under-performed analyst estimates after growth slumped to just 2.1 percent in the final quarter.

Emerging markets were "weak," sales in North America saw a "modest pick-up," and Europe suffered an outright "market contraction." While fourth-quarter underlying sales, excluding currency shifts and takeovers, expanded by more than 4 percent in the Americas, Asia and emerging markets (including Turkey, India and China), Unilever saw a 3.1 percent drop in Europe.

Consumers who stepped up global purchases of personal-care products at a 4 percent pace last year are now curbing their spending, restricting the market's scope for expansion to 3 percent, Chief Financial Officer Jean-Marc Huet told Bloomberg News.

Retailers should be especially worried about food sales. Unilever's volume declined by 0.6 percent. If comestible prices continue to slide, pressure on margins can only increase. Global food prices have dropped by a fifth since peaking in February 2011, declining at an annualized pace of more than 6 percent, according to the United Nations:

“We had the biggest monetary stimulus the world has ever seen but we still have not solved the problem of weak demand,” former Bank of England Governor Mervyn King told an audience at the London School of Economics yesterday. Stagnant economies combined with consumer price deflation are a deadly combination for companies trying to sell products to consumers. That's monetary-policy food for thought as policy makers in Europe ponder how much stimulus to provide to their economy, and their counterparts in the U.S. and the U.K. contemplate higher rates this year. 

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Mark Gilbert at magilbert@bloomberg.net

To contact the editor on this story:
Paula Dwyer at pdwyer11@bloomberg.net