Developing Markets Poised for Growth
Slow growth, heavy discounting and more fickle shoppers in recession-weary developed markets mean retailers should be increasingly focused on international expansion, according to the 9th annual Global Retail Development Index study from management consulting firm A.T. Kearney, Chicago.
“Retail executives have learned again that core markets like the United States and Europe are not the powerful engines of growth they would like,” said Hana Ben-Shabat, A.T. Kearney partner and co-leader of the study. “Reliance on developing countries for future growth is no longer a ‘nice-to-have,’ but a necessity. Establishing operations in a portfolio of countries both small and large offers the best path to global success for retailers.”
Developing economies in Asia, Latin America and the Middle East appear poised for remarkable growth, according to the study, which ranks the retail expansion attractiveness of emerging countries. Of the 30 markets studied, China came out on top. The country’s retail sales are projected to grow by more than 9% this year, as consumer confidence recovers, urbanization continues and the middle class keeps expanding, according to the study.
Forecasts call for GDP growth of more than 10% in China in 2010. Retail sales are expected to increase by more than 9%.
Demand for luxury products in China is so strong that analysts expect the country to become the world’s largest luxury market by 2015. In terms of formats, hypermarkets have experienced the strongest growth, and convenience stores are also growing fast.
India, the top-ranking destination in last year’s survey, fell to third this year. Despite the dip, A.T. Kearney notes that retail will continue to grow rapidly in India. But an influx of foreign players, limited and expensive desirable real estate, and foreign-investment restrictions have pushed the country’s retail market closer to maturity. A new concept making a big splash in the Indian market is “wedding malls,” which are devoted to nearly every aspect of weddings.
The Middle East and North Africa (MENA) region exhibits the most exciting retail-growth opportunities for international retailers. Eight MENA countries made it into the top 21 of this year’s study. They are Kuwait (2), Saudi Arabia (4), United Arab Emirates (7), Tunisia (11), Egypt (13), Morocco (15), Turkey (18) and Algeria (21). Retail sales are rising in this region, driven by higher disposable incomes, urban-population growth, a strengthening middle class and infrastructure investments.
Latin America, with four countries in the GRDI top 10, has remained resilient through the downturn. Higher personal incomes and improving business conditions are attracting foreign investors, and retailers are embracing trends toward organized retail formats.
As part of this year’s report, A.T. Kearney surveyed 60 retail executives from around the world. Nearly 80% have cited China, India, Brazil or Russia as part of their companies’ plans for short-term international growth.
Retailers from developed markets aren’t the only ones thinking expansion. Ninety-two percent of respondents from emerging markets say they are looking to expand beyond their home base, with nearly 30% citing a developed country as among their top three expansion targets.
“Expansion is no longer about retailers from developed markets moving into developing markets,” Ben-Shabat explained. “Now retailers from developing markets are using their unique insights into local business and culture to expand regionally in a trend that will shift the global retail competitive landscape.