"With economic conditions in developed markets improving so slowly, emerging markets are becoming much more important sources of growth for global retailers," said Hana Ben-Shabat, A.T. Kearney partner and co-leader of the study. "Leading global retailers must develop a portfolio strategy that balances big and developed markets with small and developing markets to manage risks across the globe."
Larger, resilient developing countries sit atop the 2009 GRDI as they are most likely to lead the economic recovery. For the fourth time in five years, India is the most attractive country for retail investment according to the Index. Russia, China, the United Arab Emirates, Saudi Arabia, Vietnam, Chile, Brazil, Slovenia and Malaysia round out the GRDI's 2009 top ten countries (see full ranking of 30 countries below).
Published since 2001, the GRDI helps retailers prioritize their global development strategies by ranking the retail expansion attractiveness of emerging countries based on a set of 25 variables including economic and political risk, retail market attractiveness, retail saturation levels, and the difference between gross domestic product growth and retail growth.
"Countries throughout Asia are well positioned for an early recovery from the economic crisis as domestic demand is holding up well, GDP growth continues and trillions of dollars of sovereign reserves are providing governments and state banks with tools for action," said Michael Moriarty, A.T. Kearney partner and co-leader of the study. "Asian countries continue to transform their economies with domestic consumption as a primary focus - a trend that should favor continued growth in retail over the long term."
In India, slower retail sales are causing Indian retailers to delay expansion plans and restructure their operations. But this has opened the window of opportunity for global retailers and many, including Wal-Mart, Carrefour and Tesco, are continuing expansion plans as Indian consumers grow increasingly affluent, brand-conscience and familiar with global retail formats. Low inflation and rent reductions of up to 40 percent in tier-2 and -3 cities also help make India the most attractive retail investment destination in the 2009 GRDI.
While Russia's GDP is expected to contract this year, the country still represents a strong opportunity for retailers and is the number two country in the GRDI. Retail sales are projected to grow at 15 percent annually over the next five years, with food and non-food sales bouncing back in 2010. The country's fragmented retail market - the top five retailers control just seven percent of sales - and reduced valuations provide growth opportunities for swift-moving retail leaders.
In China, the GRDI's number three country, a $585 billion stimulus package and efforts to boost economic consumption are showing early signs of success as retail sales have grown in early 2009. The country's tier-2 and -3 cities in the central and western regions are attracting foreign retailers' attention. These cities are less affected by the economic crisis and are more suitable for new expansion than larger Chinese cities. Both Wal-Mart (140 stores in China) and Carrefour (135) have continued their expansion throughout the downturn.
The United Arab Emirates made the biggest move in the 2009 GRDI, rising 16 places to fourth position as its oil-driven economy proved more resistant to widespread downturn than other countries. While the UAE's population of five million is relatively small compared to the three countries above it in the GRDI, it has the highest per capita consumer spending of any country in the Index. In fact, Dubai is on track to have the world's largest amount of shopping space per capita by 2010. Retailers in Dubai are focusing on local customers as tourism drops and that is creating entry opportunities for hypermarkets and discounters.
Yet while Dubai has recently been synonymous with retail expansion, Abu Dhabi is the rising star of the Emirates according to the study. It has remained well insulated from the global economic crisis because of its oil reserves and sovereign wealth fund. Several new museums and a Formula One race are planned and will help it attract tourists. Immigration is also expected to pick up as Abu Dhabi becomes a nearby alternative to Dubai. New city developments will increase real estate supply and strong awareness of global brands among the population will provide opportunities for foreign retailers.
Vietnam, the most attractive country in last year's GRDI, fell to sixth position because of inflationary pressures from its own real estate boom, consumer price inflation in the last half of 2008, and a significant drop in its export-driven economy. However, many global retailers are well established in Vietnam, including South Korea's Lotte, Japan's Seiyu, Malaysia's Parkson, Hong Kong's Dairy Farm and Germany's Metro.
"Vietnam has some short-term challenges, but our long-term outlook for the country remains positive as it continues to open its doors to international investors," said Ben-Shabat. "Its population is young and it continues to urbanize, making it easier for suppliers to fulfill the country's demand."
