Economic growth in the US and Europe is expected to hover around 3% and 1% respectively and most retailers in developed markets have realised it is not enough to rely on their core markets for growth.
Instead they are eyeing developing markets, whose retail sectors recovered relatively quickly after the financial crisis.
According to research conducted by management consultants AT Kearney, of the world's top 60 retailers, nearly all intend expanding into at least one of the Bric countries (Brazil, Russia, India and China) in the near future.
The researchers also note the growing attraction of smaller countries whose economies were insulated from the global recession, like Bosnia & Herzegovina and Albania.
For the first time SA featured in the annual survey, known as the Global Retail Development Index. It ranks the top 30 most attractive emerging markets for retailers, and SA entered in 24th position.
"We think this could indicate a window of opportunity for the SA retail sector," says Benoît Nachtergaele, a principal with AT Kearney.
Of course China and India present the greatest retail opportunities and will do so for decades to come. In China, competition is already tough in the biggest cities, so retailers are moving to smaller (by Chinese standards) but equally fastgrowing cities.
Chinese consumers are growing more positive about their economy and China is expected to become the world's biggest luxury market by 2011, according to the research. The mass marketers are also there.
Walmart opened 52 stores in 2009 while French supermarket group Carrefour opened 22. Not to be outdone, Chinese retailer WuMart opened 323 stores. US-based Macy's is also considering entering China, as is Germany's Metro.
But there are challenges. The Chinese government stimulus focused on infrastructure development rather than domestic consumption. In the process it crowded out small and medium businesses.
There are also concerns about inflation, a real estate bubble, rising labour rates and growing competition from cheaper countries like Vietnam.
Further west, in India, the retail market is worth US410bn but only 5% of this is channelled through formal retail.
"India's growing middle class is demanding higher quality shopping and more branded merchandise," says Nachtergaele.
"The opportunities are immense." The recession did force some domestic retailers into bankruptcy, but retail expansion did not stop.
Bharti Retail, part of the enormous Bharti Enterprises which attempted to buy MTN, strengthened its position. The company also entered a joint venture with Walmart in 2006 to open 10-15 huge wholesale cash-and-carry stores by 2013.
Marks & Spencer is looking at opening new outlets in the next few years. In apparel, Zara opened a store in India this year while Polo-Ralph Lauren and Diesel also expanded their presence there.
Regulatory issues, as Shoprite knows well, are a hurdle. Some retailers would rather forgo the opportunity. Ikea cancelled plans to open in India because of the restrictions on foreign-owned firms.
"In India it is the cash-and-carry formats that will thrive first as foreigners are allowed 100% ownership," says Nachtergaele. Walmart and Metro have entered through this route and Carrefour and Tesco plan to follow.
A well-balanced global expansion increasingly includes a mix of bigger and smaller countries.
Vietnam's relatively high GDP growth and young population make it an attractive destination. Retail sales are expected to grow to US$85bn by 2012, says AT Kearney. In addition, foreign companies can now wholly own companies without a local partner.
Indonesia, which accounts for onethird of Southeast Asia's retail sales, is also on the radar screen, as is the Philippines, where an expanding outsourcing industry and remittances from overseas have bolstered spending.
Not all countries are rich with opportunity. According to AT Kearney, Malaysia is now suffering from overexpansion in retail and empty shopping space is evident in all major centres.
Closer to home, the Middle East and North Africa offer interesting opportunities for retailers. Eight countries from this region made it onto the index this year. These include Kuwait, Saudi Arabia, Tunisia, Morocco and Egypt.
Their economies were affected by the recession to varying degrees but it seems fiscal stimuli offset the damage. Some, like Kuwait, are small when compared to India or China, but the population is wealthy and urbanised, with solid purchasing power.
Retailers like Saudi Arabia's Panda and the UAE's Emke Group were first to spot the regional opportunities. International retailers have followed them, mostly through partnerships and franchises. "This is driven by regulation as well as a desire to gain local knowledge," says Nachtergaele.
The North African retail sector offers more potential than one might imagine. Tunisia, for instance, has a diversified economy, high per capita income and strong local demand. Carrefour is present and Swedish modular furniture maker Ikea plans to enter the country.
In Egypt, outdoor markets are giving way to shopping centres as foreign retailers are lured by a population of 80m people and economic growth around 6%.
South of the Sahara, certain countries, such as Angola, are experiencing foreign retail investment. But at this stage it is limited to mostly Portuguese retailers.
Despite the maturity and competitive nature of SA's retail segment, the country is attractive to foreign investors, arguably because of the "Walmart effect". SA's retail sector is expected to grow 60% in five years to $100bn. "Some opportunities are more obvious than others," says Nachtergaele.
"We think there are opportunities in the hard discount space, for instance. The likes of German discount chain Aldi may be attracted to the mass market potential of SA. The Internet is another opportunity that remains relatively unexplored in SA," he says.
Brazil, Latin America's largest economy and host of the 2014 soccer World Cup and the 2016 Olympic Games, is as attractive as ever. Foreign brands lie just behind the local brands in popularity, Carrefour and Walmart occupy third and fourth position after local retailers.
Expansion is not just about retailers from developed markets moving into emerging markets. Retailers from developing economies are not sitting still either.
"They have unique insights into regional conditions and they learn fast," says Nachtergaele.
This trend, if continued, will shift the global retail landscape.
Source: Financial Mail
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