Global management consulting firm A.T. Kearney takes an annual look at which emerging markets are ripe for retail expansion.
Its study ranks the top 30 emerging countries and grades them on many factors, including an assessment of country risk, population size, wealth as well as the country’s current retail saturation.
With anemic growth in the U.S. and Europe, retailers realize that global expansion is more important than ever. This has prompted retailers to search the globe for untapped consumer markets.
“While the world’s largest developing markets — particularly the BRIC nations of Brazil, Russia, India, and China — still tempt the largest global retailers and show no signs of slowing down as a source of growth, many smaller untapped markets are providing new growth opportunities,” A.T. Kearney’s report says.
The firm’s research uncovered growing potential in such countries as Georgia, Oman, Mongolia and Azerbaijan, which all made their debut on the list.
The emergence of these newer markets as well as the Arab Spring uprisings, which hurt the rankings of a number of countries in the Middle East and Northern Africa, led to a shake-up in the rankings. Lebanon, Morocco and Tunisia all slipped. However, several countries in the region remained high on the list and continue to be attractive markets for retailers.
“Given the accelerated growth rates of developing countries compared to the anemic growth in European and North American markets, global retailers must have a strategy for expansion into developing markets,” said Michael Moriarty, A.T. Kearney partner and co-leader of the study. “In the past five years, U.S.-based Wal-Mart, France-based Carrefour, U.K.-based Tesco and Germany-based Metro Group saw their revenues in developing countries grow 2.5-times faster than in their home markets.”
Click ahead to see which countries are the most attractive for retail expansion.
By Christina Cheddar Berk,
Posted 12 June 2012
Country rankings are from A.T. Kearney’s 2012 Global Retail Development Index. Population and GDP per capita data are from the Central Intelligence Agency’s World Factbook.
Ranking last year: 7
Population: 29,549,517 (July 2012 est.)
GDP per capita: $10,000 (2011 est.)
Latin America’s expanding, dynamic retail sector and strong economic growth have driven strong results in the region. Seven Latin America countries were included in this year’s top 30 rankings.
Peru, which came in 10th place, has benefited from its strong economic growth. Its GDP grew 5 percent in 2011 and its retail sales rose 13 percent.
Since modern retailers still make up only a small share of the retail business in Peru, A.T. Kearney said there is a lot of potential for regional players to enter the market. Gap; luxury retailers Giorgio Armani, Chanel and Brooks Brothers; and sporting goods retailer Puma are among the retailers that either have recently entered the country or are planning to expand to Peru.
Ranking last year: Not applicable
Population: 3,179,997 (July 2012 est.)
GDP per capita: $4,500 (2011 est.)
Mongolia debuts in ninth place. A thriving mining industry, which has benefited from China’s increased demand for coal, has boosted Mongolia’s economy and is helping much of Mongolia’s population to slowly move out of poverty and enter the ranks of the lower-middle-income earners. The International Monetary Fund predicts that Mongolia’s economy will expand by 14 percent through 2016.
“Despite a relatively small GDP and retail market, Mongolia's tremendous growth potential and democracy present an opportunity for retailers seeking a steady base of wealthy customers and a stable political environment,” the report said.
At the moment, wealth in the country is very concentrated, which makes it easier for luxury retailers to target their consumers. LVMH entered Mongolia in 2009 and has since been followed by Zegna, Hugo Boss, Cartier, L’Occitane and Dunhill, among others. Burberry is planning to open a second store in Mongolia in a new hotel complex.
Ranking last year: Not applicable
Population: 3,090,150 (July 2012 est.)
GDP per capita: $26,200 (2011 est.)
Now on the radar of many international retailers, Oman debuts in eighth place.
Modern retail stores are slowly replacing the traditional open-air marketplaces and small shops, especially in the country’s capital, Muscat, A.T. Kearney said. Although the pace of change is slower than it is in some other Middle Eastern countries, Oman allows foreign ownership, which makes it a more favorable investment environment than others in the region.
Ranking last year: 8
Population: 5,314,317 (July 2012 est.)
GDP per capita: $48,500 (2011 est.)
A.T. Kearney said the United Arab Emirates has a “bright future.”
Amid the turbulence in the region, the UAE gained a reputation as “a safe and welcoming nation” for tourists and investors and climbed up a rung in the rankings this year. The Dubai Mall is the world’s most-visited shopping and leisure destination, with more than 54 million visitors in 2011, up 15 percent from 2010, according to A.T. Kearney. The 12-million-square-foot mall is expanding by 1 million square feet to serve even more retailers. The nation’s second-largest mall also is expanding.
However, these top destinations also have pricey rents, and many retailers are starting to look to lower-tier malls. In addition, convenience formats are becoming more popular in the UAE.
Ranking last year: Not applicable
Population: 4,570,934 (July 2012 est.)
GDP per capita: $5,400 (2011 est.)
While many European nations have seen their credit ratings slashed, Georgia has received an upgrade. That’s one sign of the nation’s promise, according to A.T. Kearney. The country has benefited as its taxation and customs have become less complicated and more transparent. Consumers in the region also are switching from shopping in bazaars and corner shops to supermarkets and larger retail outlets.
Ranking last year: 4
Population: 1,205,073,612 (July 2012 est.)
GDP per capita: $3,700 (2011 est.)
Big changes in India’s foreign direct investment regulations have caused retailers to scurry and revamp their strategies. However, India remains “a high-potential market,” A.T. Kearney said.
With a fast-growing economy, higher disposable incomes and rapid urbanization, there is growth to be found, and there is a low penetration of organized retailers, which also indicates room for growth.
Despite changes in the regulations, Starbucks and Dunkin’ Donuts have recently entered the country, and Wal-Mart, Carrefour, Metro, Zara and Mango are planning to expand their operations in India.
Ranking last year: 3
Population: 3,316,328 (July 2012 est.)
GDP per capita: $15,400 (2011 est.)
Although Uruguay slipped down one spot in the rankings, the country has seen its retail sales grow an average of 30 percent a year since 2008. Even outside the capital, retail real estate development is rising, according to the report. The market remains highly fragmented, A.T. Kearney said. But with unemployment at an all-time low and poverty levels falling, retailers stand to benefit from improved consumer purchasing power.
Ranking last year: 6
Population: 1,343,239,923 (July 2012 est.)
GDP per capita: $8,400 (2011 est.)
“The Chinese consumer is willing and able to spend,” said Hana Ben-Shabat, A.T. Kearney partner and a study co-leader. Ben-Shabat expects double-digit retail sales growth to continue, even though retailers face both opportunities and challenges in the country.
“Despite its size, attractiveness, and many success stories, China remains a battlefield for some retailers as they struggle with location, suppliers, and regulations,” the report said. In addition, Chinese consumers have become more price-sensitive, and local retailers are more sophisticated.
Competition is especially fierce in China’s largest cities, but smaller cities are maturing and still provide retailers with opportunities for growth.
China is now the world’s largest luxury-goods market, with $12 billion in sales and growing. That’s why so many luxury retailers are watching China’s economy closely for signs of slowing.
Retailers also face a few inflationary pressures in China. Rent prices are rising, especially in larger cities, and labor costs are starting to climb.
Still, China remains a top destination for global expansion, and the country climbed three spots in the rankings this year.
Ranking last year: 2
Population: 17,067,369 (July 2012 est.)
GDP per capita: $16,100 (2011 est.)
Chile held steady in the second spot in the retail index.
“Chile has one of the most sophisticated and competitive retail markets in the region,” the report said. GDP is expected to grow 6.2 percent in 2012. Inflation is low, as is country risk. As a result, many retailers often choose to enter Chile as their first market in South America, according to A.T. Kearney.
Ranking last year: 1
Population: 205,716,890 (July 2012 est.)
GDP per capita: $11,600 (2011 est.)
Brazil ranks third in retail sales per capita among the developing countries in the study, and that, combined with expectations for robust economic growth, help Brazil hold on to the top spot in the rankings.
“Brazil is No. 1 for the second year in a row, driven by a growing middle-class economy, high consumption rates, a large urban population, and reduced political and financial risk,” the report said. “In addition, Brazil’s relatively young population and high per-capita spending in the apparel and luxury sectors make this country a top destination for specialty retailers.”
In the past year, retailers such as Topshop, Sephora, Lanvin and Debenhams have all entered the country. A.T. Kearney said Starbucks is expected to double its store count to 64 by the end of the year.