Fears of European debt contagion are still fresh in many minds, but a study by retail consultants A.T. Kearney reinforces the message that retailers need to diversify their investments internationally to guard against economic risk in their native country, by blunting the impact of economic blows.
This is particularly true if retailers look to several smaller markets that are more "insulated" from others on the world stage.
The research was conducted as part of the firm's annual assessment of global retail development opportunities. After ranking 30 emerging markets based on 25 macroeconomic and retail-specific variables, the group added several newcomers to its list including Albania, Macedonia, Dominican Republic and Bosnia and Herzegovina.
Kuwait also bounded to the top of the list.
"Kuwait is an attractive opportunity," said Deepa Neary, a retail industry consultant at A.T. Kearney. She cited the country's location in the Middle East, which is quickly becoming an exciting region for retailers, and its highly concentrated urban population, which helps make the market more accessible for retailers.
According to Neary, Kuwait can serve as an entry point into the Middle East.
"It would be part of a regional strategy," she said. (A complete listing of the top 10 emerging countries for retail is included in this slideshow.)
Despite the new entries to the list, there are countries that continue their long runs as desirable markets for retail expansion. Two of these are China and India.
China was ranked the most attractive nation for retail expansion, a place it last held in 2002.
China's retail market is highly fragmented, and it serves as a good illustration of why careful analysis of a market is needed before retailers enter. While some parts of rural China are just beginning to open to retail opportunities, other more urban, coastal cities are further along in their maturation.
According to Neary, determining the stage of development of a country is a key part of understanding the approach—whether that be joint venture, acquisition, organic growth, or other means—that needs to be made when entering the country.
For the first time, A.T. Kearney also surveyed 60 executives of retail companies about their expansion plans and the lessons they've learned, and highlighted five takeaways from these discussions:
- BRIC is still a growth center. These countries—Brazil, Russia, India, and China—are still the highest priorities for expansion.
- Expansion is also a two-way street. Retailers from developing markets are now beginning to expand to developed markets.
- Control is everything—some 65 percent of respondents—said they prefer organic growth or acquisition in order to retail authority.
- Retailers want fast success, with many saying they expect to be profitable in a new market within three years of entering it. But they are realistic, and also expect to encounter challenges that are unique to the market.
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