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Chile No. 1 Destination for Emerging Market Retail Expansion: A.T. Kearney Global Retail Development Index

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Chile ranked first place in the 2014 A.T. Kearney Global Retail Development Index (GRDI).  With Uruguay, Brazil, Peru, Panama, Colombia, Costa Rica and Mexico also in the index of top emerging economies ready for retail expansion, Latin America continues to show strength as a regional retail growth market. Published since 2001, the GRDI ranks the top 30 developing countries for retail investment worldwide. The Index analyses 25 macroeconomic and retail-specific variables that help retailers devise successful global strategies to identify emerging market investment opportunities.

With Nigeria, Botswana, and Namibia also ranking in the index, Sub-Saharan Africa is also expanding into another exciting regional retail opportunity, too. Mike Moriarty, A.T. Kearney partner and co-author of the GRDI noted, “With GDP growth of 5 percent, rising household incomes, fast urbanisation, and a growing middle class, Sub-Saharan Africa is a region of massive potential for retailers.”

Although there were some notable retail contractions in the past year – Walmart pruned its portfolio in China and Brazil, and Tesco took a more cautious approach to China – most global retailers are continuing their push into developing markets.  Hana Ben-Shabat, A.T. Kearney partner and GRDI co-author said: “In our analysis we found that there were fewer emerging market expansion retail failures than in past years Global retailers have learned from past mistakes and have become much more adept and successful with their emerging market expansion strategies. E-commerce is also helping with global expansion as retailers are able to test a market and build their brand through e-commerce before they expand with brick and mortar stores.”

The report also found that regional retailers are becoming players in emerging markets by using their proximity as a competitive advantage to gain share in the neighboring markets. Chile’s Falabella and Cencosud have begun aggressive growth plans to widen their footprint across Latin America, and UAE-based LuLu Hypermarkets and Majid Al Futtaim have begun expanding in the Gulf region. South African retailers Shoprite and Woolworths have spearheaded Sub-Saharan Africa’s shift to modern retail with expansion to Nigeria, Botswana, and Namibia.

The 2014 GRDI also includes a special report on the countries that have moved out of the GRDI rankings over time. Some of these countries have matured and are no longer considered emerging markets, while others have stalled due to economic issues or political risk. The list of exits from the GRDI includes Poland and South Korea, which developed into modern retail markets; Bulgaria and Romania, where stalled economic growth delayed retail development; and Algeria and Ukraine, where social and political unrest unraveled retail growth.

GRDI Report includes detailed commentary for all 30 countries ranked in the Index. Some of the highlights include:

Latin America
Latin America keeps its dominating position in the GRDI, with three countries in the Index’s top five positions, as an expanding middle class offers lucrative opportunities. The diverse retail ecosystem includes Brazil’s (number 5) huge market, Chile’s (number 1) sophisticated mid-sized market, and “small gems” such as Uruguay (number 3), where high consumption levels are attractive to luxury brands. While some Latin American countries face economic and political challenges, continued economic and political stability in leading countries has led to increased consumer and investor confidence and created a favorable environment for retail.

International retailers are entering and gaining ground in a highly competitive environment with local and regional leaders. This battle is most intense outside of the region’s capital cities, where new markets are emerging as consumers opt for modern retail formats.

Asia has a number of fast-growing economies that offer fertile ground for retailers, as growing populations, rising incomes, and increasing affinity for modern formats helps retail sales increase rapidly. Modern retail is spreading beyond the largest urban centers to smaller, untapped cities and regions.

The region saw several improvements in the rankings, led by China (number 2), which rebounded into second place, Malaysia (number 9), which re-entered the top 10 for the first time since 2009, and Indonesia (number 15) which moved up four places from last year’s ranking. Other Asian countries in this year’s Index include Sri Lanka ( number 18), India (number 20), Philippines (number 23), and Vietnam (number 28).

According to the Index, even with less-bullish economic growth, China remains impossible for retailers to ignore. Retail sales in the world’s most populous country increased 13 percent in 2013 (to $3.7 trillion), and consumer confidence rose.

Middle East and North Africa
The Middle East is a dynamic retail region – with a growing and young population, strong GDP growth, and increasing consumer confidence and spending. With Qatar scheduled to host the FIFA World Cup in 2022 and Dubai recently winning the Expo 2020 bid, the region’s construction and infrastructure boom should continue, thereby benefiting retail.

Middle East and North Africa (MENA) consumers are becoming increasingly more demanding, seeking formats to better meet their needs along with more interesting creative concepts. Some markets are saturating, particularly Dubai, and local developers are now expanding across the region. Fewer international companies entered in 2013, but those in the region focused on expanding their footprint and growing local brands. E-Commerce in MENA is predicted to grow from $9 billion in 2012 to $15 billion by 2015, according to a PayPal study.

Central Asia and Eastern Europe
This region’s highest-ranked countries are some of the GRDI’s most shining “small gems” – countries such as Armenia (number 6),Georgia (number 7), Kazakhstan (number 10), and Azerbaijan (number 30) whose location and unsaturated retail environment makes them attractive options for international retailers. On the other end of the spectrum is Russia (number 12), which leaped back up the rankings this year.

Sub-Saharan Africa
In the West, Africa’s most populous region, international retailers including Walmart and Carrefour, have succeeded in navigating the challenging business landscape, targeting middle- and high-income consumers who are brand conscious and want convenience, quality and variety.

The East is untapped and increasingly attractive, as the largely informal markets feature few international retailers. Regional retailers dominate the region targeting all income segments.

In the South, the most developed region with stronger infrastructures, high incomes, and macroeconomic stability, South African retailers lead the growth with their close proximity and cultural alignment. Regional and local retailers are leading the e-commerce push, particularly among affluent consumers.

2014 Global Retail Development Index Ranking

Country 2014 Rank 2013 Rank Change
Chile 1 2 +1
China 2 4 +2
Uruguay 3 3
United Arab Emirates 4 5 +1
Brazil 5 1 -4
Armenia 6 10 +4
Georgia 7 8 +1
Kuwait 8 9 +1
Malaysia 9 13 +4
Kazakhstan 10 11 +1
Turkey 11 6 -5
Russia 12 23 +11
Peru 13 12 -1
Panama 14 22 +8
Indonesia 15 19 +4
Saudi Arabia 16 16
Oman 17 17
Sri Lanka 18 15 -3
Nigeria 19 New Entry
India 20 14 -6
Colombia 21 18 -3
Jordan 22 20 -2
Philippines 23 New Entry
Costa Rica 24 New Entry
Mexico 25 21 -4
Botswana 26 25 -1
Morocco 27 27
Vietnam 28 New Entry
Namibia 29 26 -3
Azerbaijan 30 29 -1
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