GLOBAL: China, India Top Global Retail Development Index

China and India have been named as the top two countries in the 2016 Global Retail Development Index (GRDI) by A.T. Kearney.  The GRDI ranks the top 30 developing countries for retail investment worldwide, and analyses 25 macroeconomic and retail-specific variables to help retailers devise successful global strategies to identify emerging market investment opportunities.

The 2016 Index, titled “Global Retail Expansion at a Crossroads”, is the 15th annual edition of the report.  The report noted that in that period, developing markets have seen their retail sales grow by 350% to represent more than half of total global retail sales.

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.”

Overall, Asia accounted for four of the top five countries in the Index, with the others being Malaysia (#3) and Indonesia (#5), helped by a combination of large populations and high growth. E-commerce continued to grow in Asia, rising 35.7% to $878bn in 2015.  Asia is now not only the largest e-commerce market, but it also holds a majority share of global online sales (52.5%).  The report also noted that the official launch of the ASEAN Economic Community (AEC), which created a $2.6trn market with a population of more than 622 million, was an important milestone, although implementation will be a long process.

In Central Asia and Eastern Europe, economic growth flattened and currencies devalued, creating struggles for mass-market retailers and leading grocery retailers to focus on smaller formats. Turkey (#6) rose 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. In Russia (#22), the turmoil continues, but a weak ruble has boosted some sectors, particularly luxury.

The Middle East and North Africa retail market 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 UAE (#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.

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) moved into the top 10 behind free trade stimulus and steady growth, as retailers expand to emerging neighbourhoods 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.

The Sub-Saharan Africa region’s massive potential is reflected in the six 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.

The full 2016 GRDI report is available here.