Sub-Saharan Africa continues to build momentum, with Botswana and Namibia in the rankings and a few other nations ranked just outside the top 30. Africa is a dramatic retail opportunity if business and political risk can be managed.
A number of small countries with unique characteristics of wealth and consumer focus including Uruguay (ranked 3rd) Mongolia (7th), Georgia (8th), and Armenia (10th) are ranked in the Index, or GRDI. For luxury retailers, these are new-found hubs. For general retailers, these countries can be the beginning of a regional strategy.

"As developed markets face flat or anemic growth, developing markets are sources of important growth, and the GRDI helps our clients identify when windows of opportunity for retail investment open up in some country markets that are pretty hard to anticipate," says Michael Moriarty, A.T. Kearney partner and study co-leader.

Published since 2002, the GRDI ranks the top 30 developing countries for retail investment worldwide. The Index analyzes 25 macroeconomic and retail-specific variables to help retailers devise successful global strategies and to identify emerging market investment opportunities.

Partner and study co-leader Althea Peng says, "Shopping centers and malls are driving much of the progress in organized retail in developing countries, as they solve regulatory and real estate issues for many retailers. The Village Mall in Rio de Janeiro and JK Iguatemi in Sao Paulo, and Chile's Costanera Center Mall have served as platforms for the launch and expansion of international brands in Latin America."

GRDI Results

Brazil tops the GRDI for the third consecutive year. Despite a slowdown in GDP growth (1 percent in 2012), retail spending remains strong and is expected to rise 11 percent in 2013 thanks to continued expansion investments, organic growth, infrastructure improvements in advance of the 2014 FIFA World Cup and the 2016 Olympics, and a rise in consumer confidence. Rising employment raters and increased credit access for Brazil's large and growing middle class are proving attractive to retailers.

Luxury retailers continue to flood into Brazil. Luxury malls, such as JK Iguatemi in Sao Paulo and Village Mall in Rio de Janeiro, have served as the platform for the launch of several international brands in Brazil, including Valentino, Miuccia Prada, Miu Miu, Goyard, Sephora, Gucci Lanvin, Van Cleef & Arpels, Bare Minerals, Topshop, Dolce & Gabbana, and Nicole Miller.

Mexico (21st) moved up seven spots in the GRDI behind renewed optimism about the economic and political environment. Per capita spending grew 5.3 percent year-over-year, boosted by increased consumer confidence, a stronger peso, lower interest rates that led to more credit availability, and moderate inflation. Mexican retail sales were $211bn in 2012 - half through traditional channels such as mom-and-pop stores. Wal-Mart Soriana, Comercial Mexicana, and OXXO account for roughly 60 percent of the modern retail market and each has plans to expand. Modern retail is heavily concentrated in Mexico's largest cities, so mid-sized cities offer a prime opportunity for expansion. E-commerce sales, while still a small portion of the retail market, grew 23 percent in 2012 to reach $3bn.

China (4th) falls one spot in the rankings, but its retail market remains impossible to ignore for global retailers: double-digit sales growth, rising consumer demand, and a dynamic retail environment.

Shopping malls are growing more popular as more shopping and entertainment alternatives are added to the mix. The number of shopping malls in China has reached 3,100 with 288 new malls added in 2012, most in tier 2 and 3 cities. 
China's luxury segment has suffered recently. More luxury goods are being purchased abroad, and tighter regulations on gifting have been placed on government officials. Major luxury brands are re-thinking their expansion plans in China. E-commerce is expanding rapidly, representing as much as 10 percent of retailers revenues in some categories. Total online sales reached $207bn in 2012, and robust growth is expected in the near future.

India #14 dropped nine places in the ranking. The global slowdown did not spare India, whose GDP growth rate slipped to 5 to 6 percent.

Same-store sales volume growth slowed in 2012 across all retail segments. High operating costs, low bargaining power with vendors, and a need to discount heavily to improve sales have put pressure on margins and, therefore, retailers' expansion plans. Real estate cost and space availability have been important issues as well. Many players are actively looking at improving sales productivity, cutting operating costs, and reducing store size to improve profitability.

Despite these declines the long-term fundamentals for India remain strong. A large population coupled with an increasingly brand- and fashion-conscious population of young Indians, the retail sector remains attractive. Retail growth of 14 to 15 percent per year is expected through 2015.

Sub-Saharan Africa is emerging as a market for regional and global wholesalers and retailers seeking high-growth opportunities. The population is young (one-third is between 10 and 24 years old) and fast-growing (2.4 percent per year), and GDP is growing steadily as well. The region has unique and challenging obstacles. The infrastructure is largely underdeveloped, which makes building a sustainable supply chain difficult. The region depends heavily on agricultural products, and modern retail has made a dent in only a few countries due to price-sensitive consumers and high inflation.

Botswana #25 and Namibia #26 are ranked in this year's GRDI, but the region as a whole bears watching.

Click here to read the full 2012 GRDI Report.

Source: A.T. Kearney