RETAIL SECTOR REPORT www.pbit.gop.pk PUNJAB BOARD OF INVESTMENT AND TRADE Project & Policy Research Wing 1 OVERVIEW OF PAKISTAN’S ECONOMY 1 2 Importance of Retail in Pakistan 2 3 PAKISTAN’S RETAIL INDUSTRY- AN OVERVIEW 3 4 Retail Formats in Pakistan 4 5 i. Small Retailers 5 6 ii. Supermarkets and Wholesale Centers 6 7 Demand Drivers 7 8 Important Sectors 8 9 i. Food & Beverages 9 10 ii. Apparel 10 11 iii. Footwear 11 12 iv. Health & Beauty 12 13 v. Electronics 13 14 vi. Home Furnishings 14 15 Retail Formats by Regional Concentration 15 16 Commercial Real Estate vis-à-vis Retail sector in Pakistan 16 CONTENTS 17 PUNJAB’S POTENTIAL 1 18 Lahore’s Real Estate and Retail Potential 2 19 Changing Face of Lahore 3 20 Map of Commercial Activity in Lahore 4 21 RETAIL OWNERSHIP FORMATS IN PAKISTAN 5 22 Independent Retailer 6 23 Franchising 7 24 Joint Ventures 8 25 Strategic Licensing Agreements 9 26 FUTURE OUTLOOK 10 27 PBIT SERVICES 11 OVERVIEW OF PAKISTAN’S ECONOMY Despite internal and external factors like political volatility, energy shortages and climatic disasters threatening its economic stability, Pakistan has emerged with encouraging positive real GDP growth rates throughout the previous decade. Even after the global recession hit in 2008, it managed a positive growth rate in all the years thereafter. Many global analysts remain positive of Pakistan’s exponential growth potential in coming years. Goldman Sachs’ Jim O’Neill, for instance, counts Pakistan among his ‘next eleven’ economies which he believes will be the drivers of global growth in future times. Indeed, with the 6th most populous country in the world recording growth in real per capita income (2.9% in FY2010), real private consumption (7%) and global imports (14.7%), it is likely that the global market for goods and services will draw significant contributions from it. A particularly encouraging aspect about Pakistan’s growth is the heavy contribution of the services sector during recent years. The following table displays a continuously growing trend in Other demographic factors leading to increased Currently contributing 53.30% to real GDP, the services sector has maintained a majority’s average since at least a decade. The the employment-to-population ratio for ages 15 years and consumerism and growth of services include a rise in both continuous growth in Pakistan’s services sector since 2004-05 is indicative of many positive changes in the economy. It signifies above in the past decade. total and urban population. The increase in the proportion overall economic growth and hints at the presence of an increasing consumer base with expanding incomes or purchasing of urban population in the country indicates that a greater power to enjoy a larger share of services in their consumption bundles. number of people now have access to the wide range of Employment to Population Ratio by Sex and Age (%) goods and services available in urban centers. Real GDP (at Services Share of 1999-00 2001-02 2003-04 2005-06 2006-07 2007-08 2008-09 2009-10 Services in 15 years and above Total Population (millions) Urban as % of Total Population constant factor Sector (PKR Total 180 37.50% Highlights cost) (PRK billion) billion) Real GDP Population 46.8 46.5 47.0 49.7 49.8 49.9 50.3 50.7 (%) Male 78.6 77.6 77.6 79.6 79.6 79.1 78.5 78.3 37.00% Female 13.7 13.6 15.6 19.0 19.4 19.9 21.0 21.9 175 Pakistan is among the next eleven economies 2002-03 77.1 36.50% 3,992 2,054 51.50% 15-24 years 1 Total driving global growth’ – Goldman Sachs’ Jim 6.87% Population 170 36.00% 3 2003-04 4,216 2,174 51.60% 35.1 37.6 38.5 41.9 40.9 40.3 40.6 41.1 73.51 O’Neill 1 Male 61.6 61.8 62.7 66.1 64.2 62.3 61.4 61.3 6.34% 35.50% 3 2004-05 4,593 2,359 51.40% Female 7.2 11.8 13.7 16.8 16.8 17.1 18.3 18.8 69.94 • Pakistan is a resilient economy, its real GDP, 165 1 35.00% 5.82% Source: State Bank of Pakistan 3 showing positive growth in recent years 2005-06 4,860 2,512 51.70% 66.41 1 88% . 34.50% 4 despite significant challenges like the global 160 3 2006-07 5,192 2,687 51.80% 5.30% 34.00% 3 62.91 recession Pakistan has, thus, been experiencing an encouraging trend in 1 2007-08 5,383 2,847 52.90% 155 • The services sector contributes %53 to the key indicators like real GDP, labor force and employment in 33.50% total economy 2008-09 5,476 2,895 52.90% recent years. The following graph exhibiting indices of such 2006-07 2007-08 2008-09 2009-10 2010-11 • The share of wholesale and retail in services is 2009-10 5,682 2,979 52.40% selected indicators confirms this. An increasingly large pool of around %33, and in overall GDP, around %18 income earners also contributes to the formation of a growing 2010-11 5,817 3,102 53.30% Source: Economic Survey of Pakistan • Retail is the 3rd largest sector in Pakistan after middle income class. Defining the middle class as daily agriculture and manufacturing and the Source: State Bank of Pakistan income/expenditure ranging from USD 2 to USD 20 per person second largest employer, employing %16 of Indeed, with nearly 73% of the Pakistani population less than per day, it is estimated that Pakistan respectively comprises as At a broader level, external factors like increased the total labor force 35 years of age, the country is recording an increase in active many as 76.7 million/81.3 million within this category. globalization and liberalization of trade and investment • Pakistan’s retail market is estimated at USD42 earning members of society. have also increased opportunities for commodity exchange billion with expected annual sales in excess of and provided great impetus to consumerism across Indices of Selected Indicators (Index 1999-00=100) USD 105 million by 2012 end Population Composition by Age -2010 countries. Easy availability of credit, convenience of online 14.00% Real shopping and increased access to social media by small and Year Labor Force Employment GDP large retailers are other contributing factors. • Important contributing factors include a 12.00% young population (%73 under 35 years), 1999-00 100.0 100.0 100.0 12.57% 10.00% 11.64% growing middle income class (currently 81-77 11.62% 11.46% 2001-02 105.1 109.1 108.6 million), increasing total and urban 9.92% 8.00% 2003-04 118.3 114.1 113.8 population, and overall globalization and 8.54% 2005-06 136.5 125.3 126.7 liberalization of trade 6.00% 7.20% 2006-07 145.8 126.9 129.6 4.00% 6.05% 4.98% 2007-08 151.1 130.1 133.3 4.09% 2.00% 3.80% 3.35% 2008-09 153.7 135.7 138.5 2.70% 0.00% 2.10% 2009-10 159.5 138.9 142.0 4 9 14 19 24 29 34 39 44 49 54 59 64 69 0 0 - - - - - - - - - - - - - - 5 0 0 0 0 0 2010-11 163.3 145.3 147.7 10 15 25 35 45 50 55 65 2 3 4 6 0 0 Source: State Bank of Pakistan Source: State Bank of Pakistan IMPORTANCE OF 40.00% 35.00% 30.00% RETAIL IN PAKISTAN 25.00% 20.00% All the factors thus far explained like increasing income, urbanization and consumer awareness hint at a potentially large market 15.00% for goods and services in Pakistan. It, therefore, comes as no surprise that within the services sector, the country’s wholesale and 10.00% retail trade sector has gained momentum in the past decade. Estimates for Pakistan’s retail market today vary widely, the 5.00% industry mostly reported to the tune of USD 42 billion with annual sales in excess of USD 105 billion (The Economist Intelligence 0.00% 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Unit). Share of Wholesale and Retail in Services (%) Share of Wholesale and Retail in real GDP (%) The word retail is derived from the French word ‘retailer’ meaning ‘to cut a piece off’ or ‘to break bulk’. Retailing involves a direct Since wholesale and retail trade comprises more than a third of Pakistan’s service sector which itself constitutes more than 53% interface with the customers and the coordination of business activities from end to end. Not only has Pakistan experienced a of Pakistan’s GDP, a strong correlation exists between growths of the three. As it appears, Pakistan’s wholesale and retail trade transition from small retail clusters to large wholesalers and shopping malls in the recent past, it has undergone a massive retail bears potential to steer the country’s overall economic growth by possessing a strong influence over contraction and expansion revolution in becoming home to a wide array of international brands (like Next, Mothercare, Body Shop, Charles & Keith, Swatch) of services and GDP growth. and famous international wholesale chains (Like Metro, Makro and Carrefour). Retail giants like Marks & Spencer are expressing interest in establishing operations in Pakistan while the popular UK retail store, Debenhams has already announced its debut in Thus, given the significance of Pakistan’s retail sector in the economy’s overall growth and the immense potential it carries, it is Pakistan.