China and India Top 2016 A.T. Kearney Global Retail Development Index

In a report released today by A.T. Kearney, China, one of the most dynamic retail markets in the world, is ranked as the top country in the 2016 Global Retail Development Index (GRDI), titled “Global Retail Expansion at a Crossroads.” India’s high market potential, fast growth, improved regulatory environment, and ease of doing business pulled it up to second in the rankings.

The 2016 GRDI marks the 15th annual edition of the report. During the past 15 years, developing markets have seen tremendous growth both in terms of population, which has grown 21 percent to 6.2 billion, and in terms of retail sales, which have increased 350 percent in developing countries and now represent more than half of total global retail sales.

The GRDI ranks the top 30 developing countries for retail investment worldwide (see chart below). The Index analyzes 25 macroeconomic and retail-specific variables to help retailers devise successful global strategies to identify emerging market investment opportunities. The study is unique in that it not only identifies the markets that are most attractive today, but also those that offer future potential.

Hana Ben-Shabat, A.T. Kearney partner and co-author of the study, commented, “Despite China’s slowing economic growth, the GRDI’s top-ranked country remains one of the most attractive global retail markets. The economy is gradually shifting from an investment-driven model to one driven by consumer consumption. The growing middle class coupled with strong demand from inland and lower-tier cities and the loosening of the one-child policy will continue to drive growth over the next 10 years.”

Mike Moriarty, A.T. Kearney partner and co-author of the study, said, “India’s high ranking is driven by GDP growth, improved ease of doing business, and better clarity regarding FDI regulations. India is now the world’s fastest-growing major economy, overtaking China, and retail demand is being fueled by urbanization, an expanding middle class, and more women entering the workforce.”

GRDI Regional Results
(The full GRDI report includes detailed commentary for each one of the 30 countries ranked in the Index.)

Asia
Overall, Asia is a regional winner in 2016, with four of the top five countries in the Index—China (#1), India (#2), Malaysia (#3), and Indonesia (#5) due to a combination of large populations and high growth.

The official launch of the ASEAN Economic Community (AEC), which created a $2.6 trillion market with a population of more than 622 million, is an important milestone, although implementation will be a long process. The Trans-Pacific Partnership (TPP), if ratified, could boost GDP in several Asian countries, including Vietnam (#11) and Malaysia (#3).

E-commerce continues to grow in Asia, rising 35.7 percent in 2015 to reach $878 billion. Asia is now not only the largest e-commerce market, but it also holds a majority share of global online sales (52.5 percent).

Central Asia and Eastern Europe
Economic growth flattened and currencies devalued in this region, creating struggles for mass-market retailers and leading grocery retailers to focus on smaller formats. Turkey (#6) rises into the top 10 of the GRDI thanks to solid growth and a young and urban population, but rising unemployment, limited disposable income, and recent security challenges are threatening its broader retail development.

Despite the plunge in oil prices, Azerbaijan (#10) has remained a luxury hot spot behind its fast-growing tourism sector. InRussia (#22), the turmoil continues, but a weak ruble has boosted some sectors, particularly luxury.

Middle East and North Africa
The MENA region retail market has generally fared well in this year’s index, with two of the large Gulf economies ranked among the top 10 most attractive retail markets in the world, and Egypt (#30) opening up as an opportunity for retail investments. Despite challenges in the United Arab Emirates (#7), where tourism has slowed and the market is reaching maturity, and Saudi Arabia (#8), which is reeling from depressed oil prices, absolute retail sales still grew over the past year. With the expected stabilization of Egypt in the medium term, the market offers access to a large and still relatively fragmented retail market. Many strong local retail champions have moderate expansion plans in the region, but foreign players are becoming a little more reticent about adding stores.

Latin America
Although Latin America has fewer countries at the top of the ranking this year, the region remains a vibrant and exciting retail investment opportunity. Mexico and Chile have graduated from the GRDI due to market saturation. Peru (#9) moves into the top 10 behind free trade stimulus and steady growth, as retailers expand to emerging neighborhoods and secondary cities. Brazil’s(#20) position continues to drop as the recently booming market suffers the impact of increasingly eroding political and economic conditions.

Retailers are adapting by adjusting store formats in large cities, investing in promotions, and seeking out relatively untapped markets with steady GDP growth, such as Paraguay (#25) and the Dominican Republic (#17).

Sub-Saharan Africa
The region’s massive potential is reflected in the six Sub-Saharan African countries ranked in this year’s GRDI. Opportunities for retailers continue to open up as household incomes rise, countries become urbanized, and the rising middle class embraces organized retail and demands more and better services. However, informal trade still dominates and expanding into the region remains far from easy.

Retailers experience different levels of success in different markets. Nigeria (#19) has a population of 180 million people, but with a challenging business environment and a deeply rooted informal trade market it remains a high risk, high reward bet.South Africa (#27) is big and highly urbanized, but it also has strong local players and a saturated market.

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