Friday, May 21, 2010

Deloitte and planet retail identify retail’s emerging market bright spots

London 19th of May — A new report from Deloitte Touche Tohmatsu and Planet Retail has identified eight of the most attractive emerging markets for global retailers, beyond China. Developed economies are coming out of recession, but retailers in those countries face competitive and consolidated markets, suggesting a future of slower growth domestically. Emerging markets have the potential for more rapid growth and the report, ‘Hidden Heroes: Emerging retail markets beyond China’, highlights Brazil, Egypt, India, Indonesia, Mexico, Russia, Turkey, and Vietnam as potential bright spots for the industry.

Bryan Roberts, Global Research Director at Planet Retail, said: “While the other BRIC economies (Brazil, Russia and India) feature in our report, our view is that some of the most exciting opportunities for global retailing lie beyond the BRICs.

“Vietnam, for example, is a tremendous prospect. It has enjoyed rapid economic growth over recent years and should benefit as China sees a structural shift in its economy away from low value-added exports. Further, the country’s population is expected to hit 100 million in the next decade, with about a third of people under the age of 15, there is rapid urbanization and a consumer move away from wet markets, partly as a result of food safety concerns following the avian flu crisis. This all bodes well for retailing.”

Ira Kalish, Director of Consumer Business for Deloitte Research, part of Deloitte Services LP in the United States, added: “Turkey and Indonesia have similar characteristics to Vietnam with young, growing populations, but they also have established or already emerging middle classes. In Turkey the half a million small, independent shops is rapidly declining as modern retail formats proliferate. In Indonesia, while foreign investment in retail has increased, the number of foreign retailers remains lower than might be expected. There is opportunity for foreign retailers to become stronger, despite ambitious expansion plans of a number of local players.”

Roberts added: “The other BRIC economies should not be forgotten. Brazil continues to represent a significant opportunity with one of the largest middle classes of any emerging economy – around 40 million people living in a manner comparable to developed countries. Although food retailing is already highly consolidated and dominated by foreign companies, non-food retailing remains fragmented. The country’s many popular malls are populated by large numbers of relatively small chains. An opportunity exists – both for foreigners and for home-grown retail concepts.”

The report argues that Russia and India present global consumer businesses with a conundrum. Russia has experienced strong economic growth over the past decade and has been relatively open to foreign investment in retail. However, its population is declining, corruption remains a problem, and future growth is dependent on the volatile resource sector. India has a youthful population and a rapidly increasing middle class, but foreign investment has been restricted in retail. The low level of investment in infrastructure, protectionism, and the lack of a single market are also concerns.

Kalish said: “Russia’s retail industry is dominated by domestic players as foreigners have been relatively few and far between. In the years ahead, the degree to which foreigners invest more in Russia will depend on its economic growth and stability. For now, the regulatory environment is relatively benign and foreigners don’t face many formal obstacles to market entry.”

“Retailers seeking to enter the Indian market have some serious challenges, but the retail opportunity remains alluring. The middle class is showing signs of adopting modern shopping behavior as the savings rate declines and the market for consumer credit expands rapidly. Large purchases are becoming more accessible and middle class families generally have less time to shop at street markets and small shops. The one-stop convenience of large, modern stores is increasingly appealing.”

Roberts concluded: “The emerging markets highlighted in this report represent some of the biggest and brightest opportunities for global retailers. However, the search for growth doesn’t end here. Other markets are starting to appear on retailers’ radar screens. Colombia is likely to become a strategic priority for international retailers already trading in other Latin American markets. South Africa, as the leading economy on the African continent, is seen as an excellent base from which to launch continent-wide initiatives. Ukraine, with roughly 50 million people, is seen as a next step after entering the Russian market.”

Download the report here.

Source: Deloitte.como