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Middle East and North Africa Region Most Exciting Destination for Retail Growth According to 9th Global Retail Development Index

Emerging Market Retailers Target Developed Markets for Expansion.

CHICAGO: Slow growth, heavy discounting and more fickle shoppers in recession-weary developed markets mean retailers should be increasingly focused on international expansion, according to the 9th annual Global Retail Development Index study from management consulting firm A.T. Kearney.

“Retail executives have learned again that core markets like the United States and Europe are not the powerful engines of growth they would like,” said Hana Ben-Shabat, A.T. Kearney partner and co-leader of the study. “Reliance on developing countries for future growth is no longer a ‘nice-to-have,’ but a necessity. Establishing operations in a portfolio of countries both small and large offers the best path to global success for retailers.”

While many retailers are focused on expansion to larger emerging markets like Brazil, India and China, the GRDI found smaller countries including Kuwait, Uruguay, Albania and Macedoniarepresent increasingly attractive expansion opportunities for international retail expansion. Some of these countries represent good opportunities for retailers to establish regional beach heads (Macedonia, Guatemala), serve as test markets because of their similarities to other countries in the region (Uruguay) or benefit from heavily urbanized and wealthy populations (Kuwait).

Published since 2002, the GRDI helps retailers prioritize their global development strategies by ranking the retail expansion attractiveness of emerging countries based on a set of 25 variables including economic and political risk, retail market attractiveness, retail saturation levels, and the difference between gross domestic product growth and retail growth.

The top 10 countries in the 2010 GRDI are the most diverse mix of large and small markets in the Index’s nine-year history: China,Kuwait, India, Saudi Arabia, Brazil, Chile, United Arab Emirates,Uruguay, Peru and Russia.China returned to the top of this year’s GRDI for the first time since 2002. Chinese consumers are becoming increasingly comfortable with Western-style retail formats and the country’s size continues to provide retailers with opportunities.

India, last year’s top GRDI destination, fell to third. Retail growth will continue in India, but an influx of foreign players, limited and expensive desirable real estate and foreign investment restrictions have pushed the country’s retail market closer to maturity.

The Middle East and North Africa (MENA) region exhibits the most exciting retail growth opportunities today for international retailers and MENA countries placed eight countries among the GRDI’s top 21:Kuwait (2), Saudi Arabia (4), United Arab Emirates (7), Tunisia (11),Egypt (13), Morocco (15), Turkey (18) and Algeria (21).  Fiscal stimuli in some markets and the region’s rich oil supply offset the damage of the economic downturn across the region and its retail market has proven resilient. Retail sales are rising, driven by higher disposable incomes, urban population growth, a strengthening middle class and infrastructure investments.

“Local retailers have begun expanding within the region and international names are rushing in as well, many through partnerships using a franchise model due to government regulations,” said Mike Moriarty, A.T. Kearney partner and co-leader of GRDI. “Some local partners have also created retail business models by franchising numerous international brands across the region.”

Also resilient through the downturn is Latin America, which has four countries in the GRDI top 10. Higher personal incomes and improving business conditions are attracting foreign investors and retailers are embracing trends toward organized retail formats. Local retailers are expanding to other markets within the region, creating challenges to established global retailers.

What Retailers Say

As part of this year’s GRDI, A.T. Kearney also surveyed 60 retail executives from around the world to identify emerging competitive trends and confirm the GRDI rankings.

China, India, Brazil and Russia remain the highest priority markets for retail expansion according to these executives, with nearly 80 percent of respondents citing one of these markets as part of their firms’ plans for short-term international growth.

Expansion is also on the agenda for many emerging market retailers. Ninety-two percent of respondents from emerging markets are looking to expand beyond their home market, with close to 30 percent of those saying a developed country is among their top three expansion targets.

“Expansion is no longer about retailers from developed markets moving into developing markets,” said Ben-Shabat. “Now retailers from developing markets are using their unique insights into local business and culture to expand regionally in a trend that will shift the global retail competitive landscape.”

In addition, retailers are looking for fast success from their expansion efforts, with most saying they expect expansion to be profitable within three years of new-market entry.In a similar survey in 2005, retailers were looking for a profit between five and seven years of market entry.

Tags:Franchising In Middle East, Global Development Strategies,foreign investments,franchise models,global management consulting firm, franchise development,  franchise expansion, franchise growth, franchising worldwide.

Source: PRNEWSWIRE/JUNE 21

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