Expanding Opportunities for Global Retailers the 2010 A.T
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Expanding Opportunities for Global Retailers The 2010 A.T. Kearney Global Retail Development IndexTM Figure 1 The 2010 Global Retail Development IndexTM Change Market Country Market Time in rank 2010 attractiveness risk saturation pressure GRDI compared rank Country Region (25%) (25%) (25%) (25%) score to 2009 1 China Asia 50.6 85.8 32.9 86.6 64.0 +2 2 Kuwait MENA 75.4 94.3 56.2 24.5 62.6 N/A 3 India Asia 35.4 51.3 62.2 97.8 61.7 –2 4 Saudi Arabia MENA 65.3 86.5 50.7 31.0 58.4 +1 5 Brazil Latin America 73.5 74.3 46.6 36.9 57.8 +3 6 Chile Latin America 71.8 92.3 27.5 38.3 57.5 +1 7 United Arab Emirates MENA 79.1 100.0 18.8 32.0 57.5 –3 8 Uruguay Latin America 67.7 74.3 58.6 23.1 55.9 N/A 9 Peru Latin America 43.4 54.6 72.2 49.2 54.9 +9 10 Russia Eastern Europe 63.5 55.1 32.0 61.8 53.1 –8 11 Tunisia MENA 45.3 77.1 61.3 26.3 52.5 +3 12 Albania Eastern Europe 30.4 30.2 82.2 61.7 51.1 N/A 13 Egypt MENA 30.9 45.5 85.7 41.6 50.9 +2 14 Vietnam Asia 12.3 49.4 50.2 89.1 50.2 –8 15 Morocco MENA 31.8 60.6 56.0 46.9 48.8 +4 16 Indonesia Asia 40.9 46.6 59.9 47.5 48.7 +6 17 Malaysia Asia 54.9 67.5 15.6 48.9 46.7 –7 18 Turkey MENA 64.6 52.5 40.5 28.9 46.6 +2 19 Bulgaria Eastern Europe 49.7 60.8 18.8 56.7 46.5 +2 20 Macedonia Eastern Europe 41.7 28.0 60.8 52.2 45.6 N/A 21 Algeria MENA 26.1 21.3 96.0 38.2 45.4 –10 22 Philippines Asia 35.6 35.6 72.7 37.0 45.2 +3 23 Dominican Republic Latin America 41.2 27.4 69.8 35.4 43.5 N/A 24 South Africa Sub-Saharan Africa 52.4 73.0 25.2 16.0 41.7 N/A 25 Mexico Latin America 64.3 69.6 11.1 20.9 41.5 –13 26 Colombia Latin America 45.0 44.0 48.8 21.9 40.0 +2 27 El Salvador Latin America 43.8 43.1 55.3 15.9 39.5 +2 28 Romania Eastern Europe 46.0 61.8 0.0 49.4 39.3 –5 29 Bosnia and Herzegovina Eastern Europe 27.3 30.2 21.4 77.4 39.1 N/A 30 Guatemala Latin America 29.3 30.5 70.4 11.9 35.5 N/A Notes: MENA = 0 = low attrac- 0 = high 0 = saturated 0 = no time Middle East and On the radar Lower tiveness risk pressure North Africa; screen priority Scores are rounded Key 100 = high attrac- 100 = low 100 = not 100 = urgency To consider Legend tiveness risk saturated to enter Sources: Euromoney; Population Reference Bureau; International Monetary Fund; World Bank; World Economic Forum; Economist Intelligence Unit; Planet Retail; A.T. Kearney analysis s the dust settles from a turbulent 2009, retailers in developed markets face a changed landscape that features fewer stores, Aheavier discounting and more fickle shoppers. In contrast, retail in most developing markets quickly got back on track after the recession. Desirable real estate is still difficult to obtain, competition remains strong both from domestic and foreign players, and the middle class continues to grow. If global retailers ever questioned the wisdom of balancing their domestic holdings with investments in developing markets, the recession certainly reaffirmed its value. Retailers in developed markets are cautiously pects. The oil-rich Middle East continues its optimistic about 2010 after an extraordinary year explosive growth, thanks to largely urban popula- marked by the collapse of major retailers (such as tions and relatively underpenetrated organized Circuit City in the United States and Quelle in retail markets. Latin America, meanwhile, has Germany) and financial lenders (such as CIT shown resiliency throughout the downturn. As Group in the United States). Most retailers pruned one retail executive says, “Global expansion is not their store footprints, cleaned up their invento- for the faint-hearted. If you get it right, you will ries, reduced corporate overhead and revamped be able to balance your portfolio and compensate management with a laser focus on profitable for the low growth rate in your home market.” growth. Survivors emerged with improved pro- This changing competitive environment high- ductivity and balance sheets. lights the need for companies to compare different Retail executives have learned again that their markets for entry prospects—which A.T. Kearney’s core markets are not the powerful engines of 2010 Global Retail Development Index™ (GRDI) growth they would like—United States and can help them do. The annual study ranks the top European GDP growth in 2010 is expected to 30 emerging countries for retail expansion, based hover around 3 percent and 1 percent, respec- on 25 macroeconomic and retail-specific variables tively. Today, reliance on developing countries for (see figure 1). This year we include for the first future growth is no longer a “nice-to-have,” but time the findings of a survey of roughly 60 execu- is a necessity. Although developing giants China tives from global retail companies, who were asked (10 percent expected GDP growth) and India about their company’s international expansion (8 percent) continue their rapid expansion, Asia- plans and their lessons learned (see sidebar: What Pacific is not the only region with bright pros- Are Retailers Saying? on page 6). A.T. Kearney | EXPANDING OPPORTUNITIES FOR GLOBAL RETAILERS 1 Small Countries, Big Opportunities This trend is highlighted by our window-of- The top of the rankings, where Kuwait sits in 2nd opportunity analysis, which compares this year’s place, highlights one major trend in this year’s growth opportunities to those from the recent GRDI: the success of smaller countries. The global past. A country’s window of opportunity opens recession has truly changed the landscape and has when the government opens their doors to foreign left some small but more “insulated” markets in a investment, real estate is still inexpensive, modern relatively better position. The newcomers to the formats are evolving, consumers are beginning to rankings this year include several smaller markets, spend disposable income on branded products, including Albania, Macedonia, Dominican Repub- and there is little competition. The window closes lic, and Bosnia and Herzegovina. The implications when competition is fierce, consumers desire for retailers are clear: When expanding, a portfolio more specialized retail formats, and real estate of countries both small and large may offer the best prices are high and still going up. A closed window path to success for global retailers to “go global.” can still mean there is solid retail entry potential Figure 2 The GRDI window-of-opportunity analysis Opening Peaking Maturing Closing Highgh prioripriorityt Poland (1995) Vietnam (2010) China (2003) China (2006) Russia (2003) India (2010) India (2003) Vietnam Russia (2006) Russia (2010) (2006) Colombia (2010) India (2006) China (2010) Kuwait (2010) South Africa (2010) Poland (2000) GRDIGRDI China (1995) ppriorityriority Hungary (2005) Hungary (2010) Russia (1995) India (1995) Slovenia (2010) Guatemala (2010) Czech Republic (2010) Poland (2005) Poland (1990) Loww pprioritriority Definition Middle class is growing; Consumers seek organized Consumer spending has Consumers are accustomed consumers are willing to formats and greater exposure expanded significantly; to modern retail; discretion- explore organized formats; to global brands; retail shopping desirable real estate is more ary spending is higher; government is relaxing districts are being developed; difficult to secure; local competition is fierce both restrictions real estate is affordable and competition has become from local and foreign retail- available more sophisticated ers; real estate is expensive and not readily available Method Minority investment in local Organic, such as through directly Typically organic, but Acquisitions of entry retailer operated stores focused on tier 2 and 3 cities Labor Identify local skilled labor Hire and train local talent and Change balance from Use mostly local staff strategy for management positions balance the expatriate mix expatriate to local staff Source: A.T. Kearney analysis 2 EXPANDING OPPORTUNITIES FOR GLOBAL RETAILERS | A.T. Kearney in a country, but retailers need to be more thought- GDP growth of 8.7 percent, and forecasts call for ful about their entry strategy and operations in GDP growth of more than 10 percent in 2010.1 order to turn a profit. As demonstrated in figure 2, Retail sales increased 8.2 percent in 2009 and Vietnam’s position in this analysis is near its peak, should grow by more than 9 percent this year as similar to India and Russia in 2006. consumer confidence recovers, urbanization con- tinues and the middle class keeps expanding. The 2010 GRDI Findings For the first time since 2002, China is first place The following highlights the major findings of in the GRDI. the 2010 GRDI, including the top opportuni- The retail market is highly fragmented, but ties for global retailers to invest in developing consolidation through organic growth by foreign markets (see sidebar: About the Global Retail players and mergers and acquisitions (M&A) Development Index on page 16). remain major trends. The top 20 retailers’ mar- ket share increased from 4.9 percent in 2004 to Asia-Pacific 8.6 percent in 2009, leaving plenty of opportu- China and India remain among the leaders in the nity for new entrants to capitalize on Chinese GRDI.