“Retailing in the UAE has changed beyond recognition in recent years, with the emergence of some of the most high profile retail developments anywhere in the world,” CB Richard Ellis said in a report titled ‘How global is the business of retail?’
The report cited a number of factors such as rapid population growth, rising affluence due to strong oil revenues, relative lack of competition from domestic brands and a desire to enhance the global profile of the country for retail growth in the country.
In order to examine the degree of internationalisation of the retail market, 250 of the world’s top retailers were selected for the study based on their retail sales and their brand strength.
The global footprint of each retailer was analysed to identify the countries in which the retailer’s fascia was present. After an initial appraisal, the analysis was narrowed to 61 nations that had the greatest presence of international retailers.
Of the original 250 retailers, 226 had some presence outside their domestic market – it is the international presence of these retailers that is the focus of the analysis in this report.
The 61 countries analysed were grouped into three broad regions – The Americas, Europe, Middle East and Africa (Emea) and Asia Pacific allowing analysis of broad regional differences.
The UK was the most highly penetrated global market. Of the non-UK retailers examined, 55 per cent were present in the market. The major European economies (Spain, France, Germany, Italy) attract the most ‘international’ retailers.
Indeed, European markets appear to have a more multinational retail offer than their Asian or American counterparts.
The particular geo-political context of Europe almost certainly has a significant influence on these results.
There are now 27 countries within the newly enlarged European Union (EU), 15 of which share a common currency (the Euro, introduced in 2002).
Within the EU there are effectively no barriers to trade or the movement of goods, thereby promoting cross-border trade and facilitating retailer expansion across the continent. With a large number of countries in close proximity, the emergence of a ‘single European market’ has encouraged many European retailers to move into new countries.
This process has been facilitated by – in global terms – strong cultural and historic ties between countries. Thus Austria and Switzerland are quite high in the ranking (sixth and seventh respectively) in large part due to the strong presence of German retailers, the report said.
Equally, retailers in some of the smaller European countries have also been encouraged to move into other markets due to the relatively restricted size of their domestic marketplace.
Analysis was also undertaken to understand the propensity of particular nationalities of retailer to expand into other countries.
Italian retailers were found to be the most international, on average having a presence in 25 countries outside Italy.
This was notably ahead of the next highest country, Spain, whose international retailers were operating in an average of 19 other countries. To some extent this reflects the historic dominance of luxury goods and clothing by European “haute couture” fashion houses.
It is this, rather than their nationality per se, that accounts for the high global presence of Italian retailers.
Several countries, which have not historically proven attractive to international retailers, have enjoyed increased interest over the last few years. Despite its second place global ranking of international retail presence, Spain is a relatively new destination for international retailers. The very strong recent performance of the economy has boosted retail sales, generating strong demand for space in high street and shopping centre locations from both domestic and international retailers.
Completing the top 10 rankings are China and Russia in ninth and 10th places respectively.
While average consumer spending per capita remains low, as is characteristic in emerging markets, the level of international retailer presence in these markets is similar to that of much more mature economies, which is explained by a number of factors. Politically and economically, both China and Russia have seen a significant relaxation of restrictions on investment as they have started to move towards free-market capitalism.
China’s commitment to the World Trade Organisation at the end of 2001 saw a huge influx of retailers into the country. The sheer size of their markets and the very strong growth in consumer spending per head (more than 10 per cent per annum in China and 7.5 per cent per annum in Russia) also makes them attractive, and their potential for further growth is clearly significant, according to CB Richard Ellis.
National averages are also highly misleading in these markets. Within the primary cities (such as Beijing, Shanghai and Guangzhou in China, and Moscow in Russia), there is a significant concentration of wealth and it is around these cities that much of the international retail activity is still centred. This strength of expenditure, and thus retailer demand (particularly from luxury brands), has seen Moscow emerge as the most expensive retail destination in Europe in terms of prime rental values.
It is interesting to note that two of the other major emerging markets, Brazil and India, appear far lower down the rankings in 42nd and 44th places respectively.
In the case of India, the immaturity and fragmentation of the retail sectors, together with restrictions on foreign investment, have limited penetration by international brands in the past.
Although this is beginning to change, with many overseas retailers entering India – often via franchise operations in the first instance, the restrictions on foreign investment still remain the key barrier, the report pointed.
In South America, Brazil is the largest and potentially most attractive retail market on the continent, and has also started to see increased penetration of foreign brand retailers. The size and growth potential of the country is likely to encourage many more new entrants over the next decade.
It is worth observing that, in 11th place, the US is absent from the top 10, with only 39 per cent of international retailers present. With a population of more than 300 million people, and retail sales generating more than $4 trillion (Dh14.75trn) annually, one would expect America to be a magnet for foreign retailers. However, while potentially very lucrative to those who succeed, the US is also one of the most mature – and thus competitive – markets in the world.
It is far easier for a US domestic retailer, with a strong local or regional presence, to expand its network nationally than it is for a new overseas entrant to adapt its offer to suit the American market.
Beyond China, only Singapore and Japan from the Asia-Pacific region make the top 20, with 38 per cent and 35 per cent respectively of international retailers present.
Japan, especially Tokyo, is a key commercial centre on both a regional and global basis. Japan’s wealthy consumers are eager to experience new retail brands, and with premium goods being especially desirable Japan boasts the highest number of international luxury retailers of any country in the survey.
Similarly, Singapore has a very mature retail market. As an affluent city-state, it also has a very high density of wealthy consumers.
Low presence in the Asia-Pacific region
All the European retailers were present in at least one Emea country (Europe, Middle East and Africa), which is also the most popular destination for retailers from Asia Pacific and The Americas.
However, less than half the retailers from Emea had any presence in Asia Pacific. This was significantly lower than almost 70 per cent of retailers from The Americas, who were present in the region. Asian retailers, by contrast, were almost twice as likely to be present in Emea than in The Americas.
For example, not one of the retailers in the survey came from the Czech Republic, and therefore it would be possible for all 226 ‘international’ retailers to be present in the country. In fact, 75 of them are. If these 75 were drawn from across the world in proportion to the distribution of the sample, all other things being equal, one would expect 69 per cent of them to come from Emea, 23 per cent from The Americas and eight per cent from Asia Pacific (the overall regional split of the retailers in the sample). In fact, 63 (or 84 per cent) of the 75 international retailers in the Czech Republic are from elsewhere in Emea, which is 15 percentage points more than expected.
Thus retailers from Emea are “15 per cent over-represented’ in the Czech Republic, whereas those from The Americas are correspondingly under-represented”.
The UAE is a magnet for international retailers