With eight countries—Chile, Uruguay, Brazil, Peru, Panama, Colombia, Costa Rica, and Mexico—included in the 2014 A.T. Kearney Global Retail Development Index™ (GRDI), Latin America continues to show strength as a regional retail growth market. Sub-Saharan Africa is turning into another exciting regional retail opportunity, with Nigeria, Botswana, and Namibia in this year's Index.
Published since 2001, the GRDI ranks the top 30 developing countries for retail investment worldwide (see chart below). The Index analyzes 25 macroeconomic and retail-specific variables to help retailers devise successful global strategies to identify emerging market investment opportunities.
Mike Moriarty, A.T. Kearney partner and co-author of the GRDI, noted, "With GDP growth of 5 percent, rising household incomes, fast urbanization, and a growing middle class, sub-Saharan Africa is a region of massive potential for retailers."
Most global retailers are continuing their push into developing markets, 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.
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 years past. 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."
Another key finding in the report is that regional retailers are becoming important players in emerging markets by using their proximity as a competitive advantage to steal share in 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 GRDI, in its fourteenth year, includes a special retrospective report that covers the countries that have moved out of the GRDI over time. Some of these countries have matured and evolved into modern retail markets while others have stalled due to slower than expected economic development or increased political risk. The list 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.
Latin America
The South America and Latin America markets keep their dominating position in the GRDI, with three of the top five countries in the Index, as an expanding middle class offers lucrative opportunities. This diverse retail ecosystem includes Brazil's (#5) huge market, Chile's (#1) sophisticated mid-sized market, and small gems such as Uruguay (#3), where high consumption levels are attractive to luxury brands. While some countries in the region 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
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 (#2), which rebounded into second place; Malaysia (#9), which re-entered the top 10 for the first time since 2009; and Indonesia (#15), which moved up four places from last year's ranking. Other Asian countries in this year's Index include Sri Lanka (#18), India (#20), Philippines (#23), and Vietnam (#28).
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, 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.
Central Asia and Eastern Europe
This region's highest-ranked countries are some of the GRDI's shiniest small gems—countries such as Armenia (#6), Georgia (#7), Kazakhstan (#10), and Azerbaijan (#30), whose location and unsaturated retail environment make them attractive options for international retailers. On the other end of the spectrum is Russia (#12), which leaped back up the rankings this year as its retail potential outweighed the country's lingering risks.
Sub-Saharan Africa
Africa is marked by distinct regional differences. 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.
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