SEATTLE — Since 2002, the Global Retail Development Index published by the trusted global management-consulting firm, A. T. Kearney, has guided international retailers to the most promising emerging markets. The index for 2015 indicates that retailers are sticking to long-term strategies. Despite the regional and macroeconomic challenges of this past year, retailers have made significant inroads into many previously untapped markets, including smaller countries like Qatar and Mongolia. The top 10 developing countries for international retailers according to the GRDI are China, Uruguay, Chile, Qatar, Mongolia, Georgia, the United Arab Emirates, Brazil, Malaysia and Armenia.
The GRDI is calculated every year to reflect the retail environment in developing markets. It’s a valuable resource to companies looking to expand into new markets, but it is also a valuable gauge of how developing countries are faring in the realm of economic development. If citizens of a country are well off enough to attract the attention of retailers like Adidas and Target, it is a good indication that the quality of life is rising in that country. In some developing economies, luxury retailers such as Gucci and Ralph Lauren are starting to set up shop.
An index like the GRDI encompasses many different dimensions of emerging markets. To give retailers a good idea of what to expect from the country, A. T. Kearney accounts for four different variables: market attractiveness, time pressure, market saturation and country and business risk. Each of these variables is in turn an index number that takes into account different aspects of the market.
Market attractiveness has the most variables included in its calculation. To determine market attractiveness, analysts take into account the total population of the country, the urban population of the country, the total annual sales of retail enterprises per capita and the business efficiency of a country. Business efficiency is a measure of infrastructure quality, level of regulation, ease of doing business and government efficacy. That last criteria may feel a little broad, but it is just meant to give an estimate of how hard it would be to set up a business in a given nation. For example, a highly efficient bureaucracy with low taxes and well-developed infrastructure would merit a higher rating than a country with a high crime rate, no roads and a corrupt government.
Time pressure gives an estimate of whether the retail sector is rapidly growing or not. If the market is in the beginning of a boom, investors will want to move quickly and establish a niche for themselves before the boom subsides. High urgency like that was found in counties like Mongolia and China, both of which experienced a rapid expansion of their markets in the past few years.
Market saturation measures the amount of opportunity in a developing market for a retailer to get itself established. It takes into account things like number of international retailers, the market share of leading retailers and the number of modern retail sales per urban inhabitant. If a market is highly saturated, there is little opportunity for a new retailer to join—think about a Nike store setting up shop across the street from an Adidas store. Competing with similar retailers in a relatively small market is not very good for business.
Country and business risk gives an estimate of how likely a business is to be forced to close. It takes into account both violent and non-violent causes. A country rife with corruption and violence is a bad place to open a store, but so is a country with a high rate of debt default or a poorly performing currency.
The top 10 countries on this year’s GRDI all had a score over 55, marking them as very positive to retail investment. China, which ranked number one for the first time since 2010, had an overall score of 65.3. Healthy retail investment can lead to job creation, a jump in the standard of living and a new wave of international trade. Hopefully over the next year, we will see these top-ranked countries continue to grow.
– Marina Middleton
Sources: A.T. Kearney, CNBC
Photo: Wikipedia Commons