Global Retail Expansion: Keeps On Moving
Global retail is finally growing into its name and becoming “global.” While the largest developing markets continue to attract most leading retailers, a handful of smaller untapped countries are getting a second look.
While Europe faced another year of economic turmoil in 2011, developing countries forged full-speed ahead. With consumer confidence improving and spending increasing, global retailers continued their expansion into these markets. 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 revenues in their home markets.
The 2012 A.T. Kearney Global Retail Development Index™, the 11th annual edition, finds a wide array of possibilities for retailers seeking to capture an immediate impact and a growth advantage in developing countries. Possibilities abound not only in the biggest markets, but also in many smaller countries around the world. The GRDI ranks the top 30 developing countries for retail investment. Figure 1 highlights the rankings, while the study methodology is the appendix at the bottom of the page.
Global Retail: An Evolving Profile
The 2012 GRDI finds global retail expansion with a different profile than it had a decade ago when we published findings from the first Index. 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, many smaller, untapped markets are providing new profit frontiers, particularly for regional and specialty players. New entrants in the 2012 Index include several small gems such as Georgia, Oman, Azerbaijan, and Mongolia that are becoming attractive destinations for global retailers, particularly specialty and luxury players. These markets, though small in total retail market size, appeal to retailers targeting a concentration of wealth and seeking to be first movers in fast-growing markets.
For the second year in a row, Brazil holds the top position in the GRDI, leading the way for Latin America, which has seven markets represented in the Index. Botswana, new on the Index, stands as a precursor to steady development of Sub-Saharan Africa, which could emerge as a major player in the GRDI in coming years.
Additionally, technology is transforming the way retailers operate in developing markets. Shoppers’ expectations and behaviors are evolving, driven by both the economic climate and increased access to information through technology. Consumers are more connected than ever to brands, merchandise, and their fellow shoppers. The proliferation of channels and media outlets for retailer-consumer interactions has forced retailers to approach international expansion from a multi-channel perspective. Even in developing markets, people are increasingly willing to purchase online. Growth in e-commerce and mobile commerce outpaces physical retail in nearly every market, demonstrating that the Internet is both a viable complement to bricks-and-mortar operations and a pure-play channel for market entry.1
Lastly, this year we highlight retail talent as a crucial differentiator in developing markets. Attracting and retaining talented workers is a core component of success for retailers in developing markets. As consumers become more sophisticated, the retail talent pool must keep up. Retail, more than other industries, is finding it more challenging to attract and retain skilled workers. The new generation joining the labor force is vastly different from just 10 years ago in terms of the opportunities and the workers’ values and workplace expectations. Cheap labor is not always good, and available labor is not always what you need. The A.T. Kearney Retail Talent Index offers a more in-depth discussion of this issue.
Mongolia: a thriving economy. Mongolia enters the GRDI for the first time, landing in 9th place overall. The International Monetary Fund (IMF) predicts that Mongolia’s economy will grow 14 percent yearly through 2016, behind a thriving mining industry and China’s increased demand for coal. 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.
Although the population is small, wealth is concentrated. Luxury retail is rising with numerous companies developing a presence there, and boutique hotels, restaurants, and pubs expanding to Ulan Bator, as it becomes a modern city. LVMH was the first luxury brand to open an outlet in Mongolia (2009), and it was soon followed by Zegna, Hugo Boss, Cartier, L’Occitane, and Dunhill, among others. Burberry is planning to open its second store in Mongolia in a new Shangri-La Hotel complex.
Much of the population is slowly moving out of poverty and entering the ranks of lower-middle-income earners. Mongolian consumers are following Western trends gathered from fashion magazines and the Internet. As the population becomes more urban, more people are buying Western goods and shopping in modern retail formats.