The globe's most attractive developing countries for retail

11 September 2017 Consultancy.uk

India and China are the most attractive developing markets for retail development, according to the 2017 Global Retail Development Index. The two countries offer huge consumer bases, relative stability and attractive economics – although competition from local businesses remains strong. Malaysia and the UAE too put in strong performances. While store entry is one way of capturing market share, mobile is found to play an important role in various emerging markets, most notably China, Nigeria and Indonesia.

Global retailers are facing increased pressure, with geopolitical changes, developments in local emerging markets and technology shift throwing up challenges and opportunities. In the latest edition of A.T. Kearney’s ‘The 2017 Global Retail Development Index: The Age of Focus’, the firm explores various trends affecting retailers globally, as well as the relative attractiveness of various developing countries in four key metrics: market attractiveness, country risk, market saturation, and time pressure.

Global retail development index - Top 15

Top 15 most attractive

India is overall the most attractive country for entry according to the overall score, at 71.7. The country has a strong performance in the saturation metric, being relatively unsaturated, although time pressure for entrance remains relatively high. China takes the number two spot, although market saturation of its almost 1.4 billion people is considerably higher than that of India. The relatively higher PPP and relatively stable risk outlook make it a key market, with a score of 70.4 in total.

Malaysia takes the number three spot, with low risk and high PPP. Turkey and the United Arab Emirates round off the top five, with low risk and high market attractiveness respectively – although the latter is relatively saturated. A range of countries from global regions completes the top ten, including Vietnam, which is enjoying strong growth, at number six, Morocco at number 7, Indonesia at number 8, Peru at number 9 and Colombia at number ten.

Global retail development index - Top 16 - 30

The bottom of the list of 30 countries analysed include Thailand, which remains saturated; Brazil, which tends to be relatively saturated, relatively attractive, and relatively low-risk. Bolivia, although noted for a lack of saturation, is considered high-risk, as is Nigeria. Other African countries too suffer from poor risk profiles, particularly Kenya and Tanzania, at 25th and 21st respectively.

“The 2017 GRDI is all about the geopolitical scene and how it affects business,” said Hana Ben-Shabat, an A.T. Kearney partner and a co-author of the study. “Retailers are thinking twice about expansion into places where there is uncertainty about future government actions or high political risk.”

GDRI window of opportunity

The research also considered the countries measured in terms of their relative maturity, as well as the kinds of entry required in the markets. A large number of countries, 11 in total, were ranked as opening – which denotes a growing middle class willing to explore new options.

Peaking markets are those in which consumers are seeking various shopping formats at which to acquire global brands. Growth for this group remains organic. Maturing countries, which is where China was last year, reflects increased consumer spending but also increased competition. Focus on top tier cities is a key way to engage with this type of market.

Finally, closing markets are those in which consumers have relatively high disposable incomes, competition among retailers remains fierce and real estate for the sector has become increasingly expensive. Acquisitions are the key way of entering this type of market.

2017 GRDI country attractiveness

Attractiveness versus Risk

The research also presents an analysis of relative country attractiveness against the relative risk in the respective countries. China and India both reflect strong market potential with relative stable risk outlooks – with the two countries having also performed favourably in research by Ecofys, showing them cutting down on emissions while growing their economies. As with other Asia Pacific countries, these countries tend to perform relatively well. Sub-Saharan Africa, outside of South Africa, perform relatively poorly in risk, and corresponding market potential reward.

Large Latin American countries perform relatively well, including Brazil and Colombia, although Paraguay and Bolivia come with considerable risks. The Middle East and North Africa are relatively well positioned, particularly the UAE and Saudi Arabia.

Mobile sales emerging vs. developed markets

One of the key market trends highlighted is mobile shopping. Interestingly, the research finds that a number of key emerging markets are performing relatively high when it comes to their shoppers’ use of mobile devices for shopping.

China leads the pack when it comes to mobile as a share of online sales, at around 75%, with growth between 2012 and 2016 jumping almost 200%. Nigeria and Indonesia too have high proportions of online sales revenue derived from mobile. Vietnam and India have seen relatively strong growth in the segment, but still relatively low uptake as a % of total online sales.

For developed countries, the UK leads the pack at almost 50%, followed by the US, Canada and Germany at smaller ~30%, ~25% and ~20%. “Mobile shopping is challenging the ways retailers think about global expansion, as well as about their role in the value chain,” said Mike Moriarty, an A.T. Kearney partner and co-author of the study. “We are expecting more retailers to use mobile as part of their future expansions plans.”

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