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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Lack of high street openings sees UK retail in precarious state

11 March 2019 Consultancy.uk

Changes in consumer behaviour, particularly in favour of online shopping, are starting to take their toll on shop-fronts in the UK, while stagnant wages are hitting peoples’ willingness to go out for food and drink. As a result, the rate of closures is more than four times that for the same period in 2017, although largely reflecting of a lack of new openings.

The retail market has fallen under a cloud of uncertainty in the UK; consumer confidence has dipped, while wages have continued to malinger in negative territory. Retailers are also under pressure from disruptive technology, as consumer sentiment shifts to more online shopping and at-home leisure. While retailers have been able to weather the storm for the past years, transformations, low consumer spending and technology have begun to take their toll.

New analysis from PwC explores the current market conditions in the UK for retail shops, focused on net openings and closings. The market changes in the UK have seen the net closures to date hit 1,123 in H1 2018 across the UK’s top 500 high-streets. The rate of closures was considerably above openings for the first half of 2018, at 1,569 openings and 2,692 closures. Compared to H1 2017, more than four times as many shops closed than opened.

Openings and closures for retail industry

The study considered the most prominent areas to see a reduction in openings and net closures across the retail landscape. Overall, fashion stores were the hardest hit in absolute terms, with a total of 104 closures for H1 2018, followed by public houses and inns, which saw 99 closures in the same period. Electrical goods stores saw a net -44 decline, with a total of 8 openings for the period. Meanwhile charity shops were in a state of relative flux, with 80 openings to 117 closures. The firm notes that service sector shops, including estate agent, banks, recruitment agencies and travel agents, among others, too have begun the process of moving online.

Not all areas of retail saw closures, with coffee and ice cream shops seeing a small net increase in openings over all. Book stores – predictions of their total obliteration appear to have waned – saw a net 18 openings, while supermarkets drew the highest overall growth relative to closures, at 18 opened and 6 closed.

Regional figures for the UK

Not all areas have seen the same level of closures, with the Greater London area and the South East the hardest hit by the current wave of closures, at -268 and -197 net change, respectively, compared to -23 and -25 closures for the same period in 2017. The middle of England too saw considerable closures, with the West Midlands clocking a net -89, and Yorkshire and the Humber down -117 stores overall.

Commenting on the figures, Lisa Hooker, consumer markets leader at PwC, said, “Openings simply aren’t replacing closures at a fast-enough rate. Specifically, the openings across ‘experiential’ chains, such as ice cream parlours, beauty salons and vape shops, haven’t been enough to offset closures in the more traditional categories. Looking ahead, the turmoil facing the sector is unlikely to abate. Store closures already announced in the second half of the year due to administrations and CVAs already will further intensify the situation.”

Related: Artificial Intelligence offers $340 billion opportunity to retail sector.