Retail’s Hottest Emerging Markets

Brazil tops rankings for second consecutive year

Economic uncertainty throughout Europe and the United States and political instability in the Middle East are putting an increased spotlight on developing markets, which are forging full-speed ahead and show no signs of slowing down, according to the 11th annual Global Retail Development Index by consulting firm A.T. Kearney.

Possibilities for retailers abound not only in the biggest developing markets, particularly the BRIC nations (Brazil, Russia, India and China), but also in many smaller, more far-flung countries around the world, including Georgia, Oman and Mongolia.

The report makes a strong case for global expansion.

“Given the accelerated growth rates of developing countries compared with the anemic growth in European and North American markets, global retailers must have a strategy for expansion into developing markets. In the past five years, U.S.-based Wal-Mart, France-based Carrefour, U.K.-based Tesco and Germany-based Metro Group saw their revenues in developing countries grow 2.5 times faster than in their home markets,” said Michael Moriarty, partner, A.T. Kearney, and co-leader of the study.

The report ranks the top 30 developing countries for retail investment worldwide. For the second consecutive year, Brazil took the top spot, driven by its growing middle-class economy. High consumption rates, a large urban population, and reduced political and financial risk also make Brazil a top destination for international retailers. In 2011, retail sales accounted for 70% of Brazil’s consumer spending.

Chile, which ranked second on the Index, has one of the most sophisticated and fastest-growing economies in the region, according to A.T. Kearney, with an expected gross domestic product (GDP) growth of 6.2% in 2012. Plus, the country has low financial risk — its inflation rate of 3.3% is close to the Central Bank’s target — and country risk is roughly the same as such developed nations as the United States, France and the United Kingdom.

In all, seven Latin America countries made the Index (see chart), reflective of the region’s expanding, dynamic retail sector and strong economic growth.

NEW: New countries making the Index include such “small gems” as Georgia, Oman, Mongolia and Azerbaijan. These markets, although small in total retail size, are making progress as attractive destinations for global retailers, particularly specialty and luxury players.

Also new to the rankings is the country of Botswana, seen as a precursor to steadily developing nations in the Sub-Sahara African region that could emerge as favorable retail markets in coming years.

New markets are only as effective as their work forces, and harnessing the local talent pool is key for reaching customers, A.T. Kearney advised. According to the GRDI’s Retail Talent Index, the developing markets with the top retail talent are Malaysia, China, Chile, Indonesia and Azerbaijan.

“Talent identification and development is just as important to successful market expansion as an underserved market and a growing consumer base, said Hana Ben-Shabat, A.T. Kearney partner and study co-author. “Wage inflation and staff turnover are significant obstacles for retailers entering many of the top development countries.” 

The A.T. Kearney Index incorporates four criteria — market attractiveness, country and business risk, market saturation, and time pressure — to assess the opportunities for foreign retailers to develop business in various markets.

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