2015-16 Outlook for the Retail and Consumer Products Sector in Asia
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www.pwc.com 2015-16 Outlook for the Retail and Consumer Products Sector in Asia Foreword One doesn’t have to live in Shanghai or particularly active users of mobile products. Not a bad place to start for Mumbai to understand that the most technology and social media, and the global retailers looking for new paths dynamic markets – and many of today’s use of these technologies for to growth. most creative retailers – reside in Asia. purchasing, while still nascent, is Just this past November the Western bound to increase as screen size and I invite you to read this report to learn press was filled with stories touting security issues are resolved. In fact, more about the retail opportunities in China’s 2014 Singles Day sales of China will soon overtake the US as the Asia. Finally, I would like to express my US$9.3 billion, which beat out the world’s biggest retail market, and most great appreciation to Mr Chitranjan Dar combined US’s Black Friday and Cyber of the rest of the region will see retail of ITC Limited, Ms Lixia Tan of Haier, Mr Monday shopping days by more than spending growth far in excess of the Masaaki Kanai of Ryohin Keikaku, and two times. global average over the next five Mr Weiming Cao of Hermès, for their years.3 time and sharing their business insights The genius of Singles Day is that it’s the and visions. I am sure you will enjoy perfect microcosm for the scope and Then there is the urbanisation factor. reading their interviews as much as I energy that define the opportunities in In 2015, the UN estimates that there have. Asia for global retailers. Our PwC 2014 will be 22 mega-cities with populations APEC CEO Survey recently showed that over 10 million; 12 of those cities are in they are aware that they need to pay Asia. New, more densely-packed city more attention to the region, with most dwellers will fuel a rise in respondents – 67% in fact – intending discretionary spending, prompt to increase investments in the region development of modern retail outlets next year.1 and require investment in urban infrastructure, while new, modern February 2015 But do they really appreciate the nature retail space will in turn bring new of the opportunity? Online sales in Asia retailers to the region. Pacific are expected to reach US$1.3 trillion by 2019, growing at a So, in a nutshell, what is the outlook compound annual growth rate of for Asia? Millions of connected, 18.5% over the next five years.2 Both sophisticated, urban dwellers – India’s and China’s shoppers are consumers who will readily buy 1. New vision for Asia Pacific, PwC 2014 APEC CEO Survey 2. Forrester Research Online Retail Forecast 2014 to 2019 (Asia Pacific) 3. “Asia Rising” Economist Intelligence Unit, 2014 Michael Cheng Asia Pacific & Hong Kong/China Retail and Consumer Leader 2015-16 Outlook for the Retail and Consumer Products Sector in Asia 1 Table of contents 4 6 9 Executive Introduction Retail summary 10 Food and general retail 11 Hypermarkets, supermarkets and convenience stores 14 In-depth interview with Chitranjan Dar of ITC Limited 16 Food, beverages and tobacco 20 Fashion and apparel 24 In-depth interview with Masaaki Kanai of Ryohin Keikaku (MUJI) 26 Online retailing This report was written in cooperation with the Economist Intelligence Unit’s industry and management research division. The economic and industry forecasts included are those of the Economist Intelligence Unit. Due to a change in methodology some historical figures may be significantly different to those published in past years’ reports. 2 PwC 30 46 60 Consumer goods At a glance: Indonesia, Conclusion Malaysia, Singapore, South Korea, Thailand and Vietnam 31 Fast-moving consumer goods 34 Luxury brands 38 In-depth interview with Weiming Cao of Hermès 40 Durable consumer goods and electronics 44 In-depth interview with Lixia Tan of Haier 2015-16 Outlook for the Retail and Consumer Products Sector in Asia 3 Executive Summary Executive summary Asian retail sales are expected to amount to over US$10 trillion by 2018 4 PwC Executive summary Set against a distinctly mixed global may remain eye-watering by Western drive inflation and consumption growth, backdrop, the outlook for Asia’s standards, but the economy is slowing with only partial success. Spending sprees consumer goods and retail sector markedly from the double-digit highs of ahead of a sales tax hike have been represents a bright spot. Sales growth the past decade. This slowdown in followed by steep declines, and fiscal in the region will be the fastest in the growth is set to continue as the market loosening only appears to have had a world over the next five years, matures and is being compounded by a temporary impact. Still one of the world’s averaging 8.5% in US dollar terms and number of factors, including renewed largest markets, Japan is struggling to 4.6% in average volume terms. This weakness in consumer sentiment, a move on from a second “lost decade” of compares to global average rates of government crackdown on displays of weak growth, while continuing to decline 5.6% and 3% respectively and to wealth and fears of a property bubble. in significance as the likes of India and Western European rates of 0.6% and Bricks and mortar retailers which have China rise—not helped by a weak yen, 0.8% respectively.1 By 2018, Asian invested heavily in China are having to which has detracted further from its retail sales are expected to amount to rethink strategies—especially luxury appeal. Two of the region’s other over US$10 trillion,2 almost half of the firms, with store closures, consolidation developed economies, Taiwan and Hong US$23 trillion in sales generated by the and even market exits becoming more Kong, are faring better. However, both world’s 60 largest economies and twice common. have become reliant on investment and that of North America, the next largest visitor numbers from mainland China to region. Much of this will be driven by In India, there seems to be little prospect bolster their consumption growth, the regional economic powerhouses of for deregulation of the type necessary to exacerbating the potential fallout of any India and China which are continuing fully unleash growth. The government weakness in China. to deliver on some of the expectations which came to power in May 2014 is surrounding BRIC markets,3 even as opposed to the liberalisation of foreign This report discusses the outlook and Brazil languishes and Russia suffers direct investment in multi-brand retail. trends affecting six retail and consumer from the economic fallout and This will ensure that multinational product sub-sectors in Asia: food and sanctions related to its intervention in retailers are denied access to a market general retail, fashion and apparel, online Ukraine. Added to this is a new wave of expected to pass the trillion dollar mark retailing, fast-moving consumer goods interest in other Asian economies. in 2015, and will also starve brands of (FMCG), luxury brands and durable Indonesia has joined Turkey, Mexico shelf space and discourage much-needed consumer goods and electronics. It and Nigeria to form the latest investment in infrastructure and focuses in particular on the key markets emerging-markets acronym, “MINT”,4 distribution. When combined with low of China, India, Japan, Taiwan and Hong while retail liberalisation and rapid per capita incomes, the lack of reform Kong with further profiles of Indonesia, growth in markets such as Vietnam are will leave India a difficult market despite Malaysia, Singapore, South Korea, also attracting investment. its obvious potential. Thailand and Vietnam. The report looks at the state of each sub-sector in 2014 and While the macro picture is bright, Elsewhere, Japan is see-sawing how the industry is expected to develop expectations must be tempered by some between spikes and troughs in in the five years to 2018. micro realities. China’s size and growth consumption as “Abenomics”5 seeks to The main findings of this report include: China is expected to become the world’s largest Food safety is becoming an increasingly prominent retail market by 2018,6 but growth is slowing concern in Asia, especially in China, where efforts and attention within China’s retail markets is to assuage consumer fears are prompting greater increasingly shifting away from physical retail regulatory scrutiny and driving the acquisition of towards fast growing e-commerce channels. more trusted firms in mature markets. E-commerce is becoming a focus for retailers and Luxury firms across the region will need to revisit brand owners, with China becoming the world’s strategies, as a crackdown on corruption and largest e-commerce market and its leading weakening consumer sentiment in China leave them e-commerce player, Alibaba, launching a record- vulnerable following their recent aggressive expansion. 7 setting IPO. Other Chinese and Indian Other regional factors such as currency weakness in e-commerce IPOs are also set to generate Japan are also hitting profits. significant investment, with a number of incubator projects also in place across the region. Fast fashion firms will continue to expand rapidly, plugging the gap between luxury and standard Interest in India will remain significant but will apparel products. This is particularly the case in be hampered by government opposition to China and India, with competition becoming foreign investment in multi-brand retail. As a fiercer as H&M, Gap, Fast Retailing and Inditex all result, foreign investors will be focused on pursue broad store-opening strategies.