From the coming Retailomania/MORM report: The Future of Retail 2011-2021, soon to be published:
Growth is an imperative for any company and even more so for most retailers. Globalization is a symptom that retailers have outgrown their home markets, making it necessary for them to grow outside the home turf. The reason could be either due to market saturation or government regulations prohibiting retailers to reach over certain market share levels. Globalization were an almost unknown phenomenon up until the 80s. But as more and more retailers went nationwide in the US and elsewhere, the need for crossing borders became more and more imminent.
But the world in the 80s was run by another set of rules. The Berlin Wall and Josef Stalin´s Iron Curtain divided Eastern and Western Europe, China was labeled a third world communist country and internet was unheard of. The first logical move aside from any peaceful neighboring country was the densely populated areas in the heart of Western Europe limiting the number of possibilities to grow. This dull existence came to an end when the Berlin Wall was torn down in 1989 and the Soviet Union was dissolved in 1991.
Until then the Eastern Europe had been a collection of puppet states under Soviet hegemony and deprived of most of the Western brands and products that were considered decadent and tools of capitalist indulgence. Jeans, home electronics and cars were something most people could only dream of. And standing in line waiting to buy essential supplies like bread and butter was the normal way of life. Retail as we know it were not a part of the life for the average citizens but only for selected high level communist party functionaries.
Globalization 1.0 The Retailization of Eastern Europe
This way of life happily came to an end when market economy succeeded the various socialist systems of the East, through the process of Glasnost and accelerating when the Berlin wall fell as a symbol for Communist dictatorship, thus making it possible to invest in modern retail infrastructure and provide the brand-starved citizen with the horn of plenty from Western retailers and brand manufacturers. The middle of the 90s saw fierce competition for market share in the large cities of the former Warsaw Pact countries. Carrefour, Tesco and most other major retailers took their chance to colonize this part of the globe during this period. However some markets in this area are still dominated by traditional, no chain based retailing, i.e. family-owned stores. This is mostly due to a large part of the population in still living in rural areas were there is no infrastructure for a modern retail operation.
Globalization 2.0 The Rise of the Dragon
The process of reforming the Peoples Republic of China began back in 1978, debilitating the mechanism and tools of the planned economy, and the process accelerated in 1992 and onwards. In the 90s a extensive privatization of state owned companies took place and in 2001 China entered the WTO as a symbol of complete conversion into capitalism. Since the end of the 90s China has attracted the interest of close to every major retailer in the world. In 2010 the Chinese population was expected to consist of some 1,4 billion citizens. Recent predictions of the economic growth indicates that in 2025 over 600 million people will be part of the still rising middle class, making China an interesting market in the years to come. However, environmental issues, a natural rise in investment costs and salary increases will make the competition tougher, and as such divert the interest to new and lesser developed markets. And of course, the Chinese retailers also want to invest outside of their own country as a part of their own globalization process.
Globalization 3.0 – The coming run for developing countries
While the US and Europe are mature markets and China is still growing steadily, there are still parts of the world that have not yet been a target for foreign retail investors either due to internal problems, such as political instability, population size or for the simple reasons that other markets have seemed more likely to deliver a better return on investments. However this is about to change for several reasons. If you want to be a part of the next big thing in retail, go south.
Where will growth strike next? How do one predict coming growth markets in retail? Well, here are some things to look for:
• Young, growing populations
• Emerging or existent middle class
• High level of urbanization
• Economic growth
This put certain regions in the spotlight. Deloitte pointed out several regions in the world in the report “Hidden Heroes”, stating that the following regions are candidates for the next big thing in retail., aside from BRIC-countries (Brazil, Russia, India and China); Turkey, Indonesia, Egypt, Mexico, Colombia, Ukraine and Vietnam. Vietnam for example is seen as a runner up to China as China is moving away from low value-added exports, and with a populations soon to reach 100 million, of which a third is under the age of 15 and a rapid economic growth and urbanization, we are most certainly going to hear a lot from this market over the following years.
But wait, there´s more.
Wal-Mart showed the way when they as the first major international investor made a $4,6 billion-bid for South African retailer Massmart, with 290 stores in 12 Africa countries. The French bank Société Générale points out Ghana, Nigeria, Angola and Kenya as interesting countries where rapid growth can be expected. The development in Africa will however not follow the patterns we are used to, for example slow emerging changes in technology, but rather take leaps forwards, skipping several steps in between yesterday and tomorrows technology. For example, chances are that large parts of Africa never will have land line based telephones, but will skip straight to cell phones. In 2003 5% of Africans had a mobile cell phone, in 2008 that figure was up to 30% and in 2010 around 45 %. This of course triggers economic growth as more and more people are able to start business with the help of new technology. Also 40% of the African population now live in urban areas.
Globalization 3.0 – The implications
Chances are that the winners of the Globalization 3.0-race will be others than those in 1.0 and 2.0, where the winners were big box, category killers that perfected their concepts for the Western consumer, and presented them to markets with little or no modern retail exposure, making it easy to define how to shop in order to be considered a modern citizen. A few decades later, some economic analysts are discussing if or when China will surpass USA in terms of economic and political power. Whether this will be true in the coming ten years or not, there is no doubt that the Chinese have ambitions to claim their share of the coming growth markets. Other than this, lessons learned from the first and second wave of globalization are likely to be implemented in practice.
Why will the winners are likely to be other than the retailers of yesterday?
1. The China Factor
•In 2020 China will have experienced 20 years of modern retailing and there will probably be several domestic retailers ready to take the leap over the border. European and US retailers have been flowing into Asian markets for decades, maybe the tide are about to turn due to the investment power of the Chinese economy.
•China is already investing heavily in Africa, and trade between African countries and PRC have been increasing steadily since the turn of the century.
2. The decline of “The Brand USA”- or “The George Bush Factor”
•While Roosevelt built “The Brand USA” as the liberator of the oppressed people of Europe and positioned the US as the center of the democratic world, Kennedy inspired a generation and Reagan´s foreign policy brought an end to the Soviet Empire, the saga of George Bush tells another story. While there have been ups and downs for “The Brand USA” over the years due to for example the Vietnam War and various scandals such as Nixon´s Watergate or Clintons “Cigar-gate”, the US has up until George Bush Jr been able to be a role model to most countries of the free world. However, due to the foreign politics and crisis management of Ex-President Bush, USA has lost many supporters around the world during and instead of inspiring the free world, he managed to inspire the dark forces of Islamic terrorism. This, of course, have implications to trade and economy, and as several of the new retail frontiers are Muslim countries, there is a risk that consumers will choose other sources of shopping pleasure than American, and that the security situation will prohibit US investments,
3. Bigger and stronger is not necessarily the best
Remember Darwin´s words:
”It is not the strongest species that survive, not the most intelligent but the ones most responsive to change”
•Global retailing puts a strain on resources in terms of management, sourcing and logistics. The first and second wave of retailing shows that there are not always that being big and global is the same as being big, flexible and right positioned, another prerequisite in a changing world.
•Food culture is mostly local. This means that global sourcing is not a solution for every problem, and thus, the competitive edge of being global is no longer relevant. Being glocal on the other hand could be an option.