Despite managing to lift their sales during the economic downturn, the world's largest retailers saw profits tumble as heavy promotions hit their bottom lines, according to the latest figures from Deloitte Touche Tohmatsu.

Profitability at the largest 250 retailers fell from 3.7% in fiscal 2007 to 2.4% in fiscal 2008, which took in financial years ending June 2009, the new '2010 Global Powers of Retailing' report says.

And fashion retailers were among the hardest hit, with sales growth falling into negative territory and profits cut in half to 4.1%.

Across the retail industry as a whole, the composite net profit margin fell to 2.4% from 3.7% a year earlier, bringing an end to improving retail profits in recent years.

While sales among the 'Top 250' rose 5.5% to exceed US$3.8tn in fiscal 2008.

Almost every geography and category was hit. Retailers in Europe saw their profitability fall from 4.1% in 2007 to 2.7% in 2008, while those in North America fell from 3.6% to 2.4%.

Only those in Africa and the Middle East saw increased profitability. 

Wal-Mart retained its spot as the world's largest retailer although Tesco slipped to fourth place from third, overtaken by Metro Group.

The TJX Companies Inc is the largest apparel/footwear specialty retailer, coming in at number 42 in the retail sales ranking in fiscal 2008, followed by Spain's Inditex SA (number 54) and The Gap Inc (55).

Sears Holdings Corp (number 20), Macy's Inc (35) and El Corte Ingles SA (41) are the highest ranking department stores.

Describing the year as a "tumultuous" one, Dr Ira Kalish, director of consumer business for Deloitte Research in the United States said: "Many retailers 'bought' sales with heavy promotions which hit the bottom line hard." 

But he added: "However, we are already seeing evidence that as economic recovery takes hold around the world retailers should be able to return to a path of improving profitability."