As more U.S. retailers look to expand globally, there’s a new focus on smaller emerging markets in South America and the Middle East.
According to a survey to 60 global retail executives in A.T. Kearney’s ninth annual Global Retail Development Index study, about 80% of retailers still consider Brazil, Russia, India and China (known as BRIC) as key to their short-term international growth plan.The study uses 25 macroeconomic and retail-specific variables, including country risk and market saturation, to rank the top 30 emerging countries attractive for retail expansion.
This year, however, the BRIC countries were only part of the story: Kuwait emerged as No. 2 on the list, while Chile, Saudi Arabia, United Arab Emirates, Uruguay and Peru also surfaced in the top 10 along with their BRIC counterparts. The top 10 list represents the most diverse mix of large and small markets in the index’s nine-year history. Other countries including Albania and Macedonia, which weren’t placed in last year’s top 30 rankings, also surfaced on the chart.
“Don’t underestimate the smaller markets,” said Deepa Neary, a retail consultant at A.T. Kearnet.”There are huge opportunities there as well.”
In fact, such smaller markets can serve as an entry point for further expansion into a new region. For instance, Bloomingdale’s opened its first stores outside of North America in Dubai this year and Williams-Sonoma this month opened its first Pottery Barn Kids store in Kuwait.
Collective Brands Inc. ,which owns Payless ShoeSource stores, has said it plans to open stores in the Philippines by the middle of this year. The Gap Inc., the U.S.’s No. 1 clothing store, opened franchised stores in markets from Turkey and Saudi Arabia to Romania and Mexico in the past two years. Moreover, Walmart Stores Inc. bought a controlling stake in Chilean grocer Distribucion y Servicio D&S S.A. in 2009.
“The last two years with global economic downturn, people thought retail expansion is going to come to a halt,” Neary said. “As their home market is seeing declining growth, retailers are capitalizing on the emerging markets. There’s been a lot of global expansion.”
China, Others Strategic to Expansion
Expansion also has become more strategic. Retailers have increasingly focused on the bottom line with most saying they expect their new markets to be profitable within three years. In 2005, they had expected to make money between five and seven years of market entry, the survey showed.
The potential of BRIC countries remains enormous, the study showed. China, the world’s third largest economy behind the United States and Japan, took the top slot in the survey for the first time since 2002.
Chinese consumers have become more comfortable with Western-style retail formats, and its size continues to provide retailers with opportunities, the study showed. Brands including Burberry, Armani and Nike Inc. have increasingly expanded to smaller Chinese cities.
China’s announcement this weekend that it would ease its currency’s de-facto peg to the dollar suggests its consumers’ purchasing power will only increase, Neary added.