International chains look to emerging markets

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International chains look to emerging markets

September 15, 2008

New York—International retailers are looking at emerging markets such as Latin America to drive their growth through 2012, according to a recent study by CB Richard Ellis Group.

Of the 300 retailers polled—which have a combined global portfolio of 25,000 stores—40 percent identify emerging markets as the expected main source of growth during the next four years. Thirty-one percent will look for growth in developed countries, while 25 percent point at their home countries.

Argentina, Brazil, Chile and Mexico are among the top 16 emerging markets retailers are looking to invest in, as well as India, Malaysia, Russia, Turkey and Ukraine.

The top 16 emerging markets account for 21 percent of the world's gross domestic product.

"Diversification is a key element for retailers," Jonathan Riches, the firm's London-based director of European retail research, said in a media release. "Malls play a major role since more than half of surveyed retailers said real estate is the most important factor to finding a market attractive. If they can't find the right format, such as shopping centers or stand-alone high-street locations, four out of five retailers say they will not enter the market at all."

Two-thirds of the world's top retailers are based in Europe, so they are turning first to Eastern Europe for expansion opportunities. Besides cultural affinity and a high fashion culture, retailers cite improved transportation and infrastructure as positive factors. But they also say it is one of the most difficult emerging markets because of corruption and opaque real estate, Riches said.

The attractions of Africa, according to Riches, are the low penetration of organized retail and past colonial ties to the region. But retailers also find a weak cultural fit and many markets that are slow to develop.

Asia is attractive for the low penetration of organized retail, but in some countries, such as India and Vietnam, foreign direct investment is difficult, Riches said.

Latin America's assets include a good cultural fit, ease of foreign ownership and a mature and transparent real estate market, according to Riches. Main drawbacks are the presence of U.S. retailers and the competition posed by very strong domestic retailers. Retailers also point at high taxation on imports brought into Latin America.

Brazil and Mexico are among the top 10 markets retailers identify as having a more international retail business. The top two are China and Russia.

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