UK retailers missing out on opportunities by not targeting South America warns A.T. Kearney

South American Countries Occupy Top 3 Positions, leading to questions as to why UK retailers are not investing more in emerging markets

A.T. Kearney yesterday released its 2011 Global Retail Development Index of the top developing countries for global retail expansion, which identifies that UK retailers are missing out on opportunities for growth by overlooking South America. In A.T. Kearney’s 10th annual Global Retail Development Index (GRDI) Brazil jumped to first place from #5 in last year’s study. 

The 2011 GRDI ranking mirrors the dramatic changes that have taken place in global markets, and the impacts those changes have had on different emerging economies.  South American countries have fared well during the recession posting an impressive 6 percent growth in 2010.  In addition to Brazil’s top ranking, three other South American countries, Uruguay, Chile and Peru, made the Top 10 of the GRDI. 

            Emmanuel Hembert, principal at A.T. Kearney said, “It is clear to us that UK retailers may be missing out by not actively considering South America.  Tesco, M&S and Sainsbury’s are present or planning developments in Eastern Europe and Asia, which are emerging markets, but have not shown plans to open stores in South America.  This is despite the fact that it is the number one growth market for international retailers.  When one considers that among the top global food retailers, Wal-Mart has a developing presence in Brazil, Argentina and Chile and Carrefour has hugely successful developments in Brazil, Argentina, and Colombia, it is a concern that major UK retailers have not jumped at the opportunity.  Brazil is a particularly attractive target expansion market given expected GDP growth of 5 per cent per year over the next five years, a large and highly urban population, and surging retail sales”. Hembert also noted, “In addition to the substantial investment in infrastructure the Brazilian government is planning, inflows of foreign capital are rising dramatically as well.”

Uruguay climbed up the rankings to #2 this year, from #8 in last year’s GRDI. The country is riding Brazil’s coat-tails, and experienced significant GDP growth of 8.5 percent in 2010. The country’s limited scale combined with positive macroeconomic conditions makes it an interesting choice for retailers looking to expand into more contained markets.

Chile rose to #3 in the ranking after a strong recovery from the 2009 recession. It is now considered one of South America’s most competitive markets. The government created incentives to stimulate retail consumption, and as a consequence Chile’s GDP grew 5.2 percent in 2010 and is expected to grow another 6.1 percent in 2011.

Another region that ranked highly in the 2011 GRDI was the Middle East and North Africa. While the political unrest may affect immediate plans to enter countries such as Egypt and Tunisia, the region’s extraordinarily young population (more than 60 percent between the ages of 15 -39) could result in greater economic stability and integration into the world economy in the long run. Kuwait, Saudi Arabia, and the UAE (all top 10 GRDI markets in 2011) have not experienced the turmoil of some of their neighbors and are expected to remain stable going forward.

The 2011 Global Retail Development Index marks the 10th anniversary of this global study. The key learning from an analysis of the last 10 years is that global retail expansion is a portfolio game. Retailers must have an optimal mix of countries, formats and operating models to succeed.

Hana Ben-Shabat, A.T. Kearney partner and  co-leader of the study said, “The past ten years of experience in global retailing shows that there is no ‘one size fits all’ formula for global expansion. Different countries are at different levels of development and have different risk/ return profiles, which require retailers to tailor their approaches accordingly and assemble a portfolio of markets to balance short-term risk with long-term growth aspirations.”

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. A detailed analysis and country-specific results for the 2011 GRDI is available at www.grdi.atkearney.com.

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