Retail has played a major role world over in increasing productivity across a wide range of consumer goods and services. The impact can be best seen in countries like USA, UK, Mexico, Thailand, and more recently in India and China. Economies of countries like Singapore, Malaysia, Hong Kong, Sri Lanka, and Dubai are also heavily assisted by the retail sector. These emerging countries significantly differ in market structure, resource availability, infrastructure and economic wellbeing of their citizens from developed countries. Nevertheless, these emerging markets are in general and retail industries of these countries, in particular, would be the major contributor to the world economy.

The size of retail sales worldwide, including both, store and internet purchase, reached $22.492 trillion in the year 2014, according to new figures from eMarketer.

The global retail market will see steady growth over the next few years, and in 2018, the worldwide retail sales are expected to increase by 5.5% to reach $28.300 trillion. Figure 1 illustrates the expected worldwide total retail sales and percentage change over the previous year. Now, when it comes to retail products and services purchased on the internet, e-commerce will account for 5.9% of the total retail market worldwide in 2014, or $1.316 trillion (eMarketer, 2014). By 2018, that share will increase significantly to 8.8%, yet retail e-commerce will still account for just a fraction of in-store purchases even as it nears $2.5 trillion by the end of our forecast.

The global retail industry has travelled a long way from a small beginning to an industry where the worldwide retail sales alone are valued more than $22 trillion (eMarketer, 2014). The top 200 retailers alone account for 30% of worldwide demand. Retail sales being generally driven by people’s ability (disposable income) and willingness (consumer confidence) to buy, compliments the fact that the money spent on household consumption worldwide increased 78% between 2005 and 2010. Positive forces at work in retail consumer markets today include high rates of personal expenditures, low-interest rates, low unemployment and very low inflation.

Figure 1: Total Retail Sales Worldwide, In Trilions and % Change

Source: eMarketer, December 2014

2. EMERGING RETAIL MARKETS:

Last fifteen years of world retailing industry has seen and passed through many turmoil and transitions within it (Deloitte, 2015). Some economies roared ahead and then rebounded, competition heated up and consumer spending cooled down. In developing markets from South America to Southeast Asia to southern Africa, international retailers and their regional rivals are expanding, buoyed by a more upbeat economy and growing retail environments. In particular, regional players are flexing their muscles, using their proximity as a competitive advantage to steal share in neighbouring markets (KPMG Report, 2014). To name a few, Chile’s Falabella and Cencosud have begun aggressive growth plans to widen their footprint across Latin America, and UAE-based LuLu Hypermarkets and Majid Al Futtaim have begun expanding in the Gulf region. South African retailers Shoprite and Woolworths have spearheaded Sub-Saharan Africa’s shift to modern retail, with expansion into Nigeria, Botswana, and Namibia. We expect stiff competition between Western players and regional retailers to continue in developing markets.

A.T. Kearney’s 2014 Global Retail Development Index prepares a list of top 30 developing countries for retail expansions and investment based on several macroeconomic and retail-specific variables such as market attractiveness, country risk, market saturation and time pressure. According to the report, Chile tops the list followed by China, Uruguay, United Arab Emirates and Brazil. India, whose rank was 14 in 2013, stands at 20^th place in the list in 2014 indicating attractiveness of Indian retail industry is going down. The following sections discuss a country-by-country look at some of the most emerging countries and their growth and developments of retail industry over the past few year.

Chile:

Chile also has one of the most politically stable, pro-business governments in Latin America. Years of economic and political stability have helped Chile build one of Latin America’s most sophisticated retail environments. Chile’s GDP grew 4.4 percent in 2013 and is expected to grow at roughly that rate through 2016. Physical infrastructure investments and a business-friendly regulatory environment also indicate that retail growth will continue into the future. Consumers with more money to spend are supporting modern retail expansion. Retail sales were $98.52 billion in 2013, and over the next four years, sales are expected to increase a total of 13 percent.

China:

China’s size has attracted international retailers for years, but the key to success has been in estimating the market’s true value particularly the growing middle class in the most populated regions. Understanding the Chinese consumer is important, which several high-profile retailers discovered, albeit too late, when they did not get their assortment, pricing or service models right. Retail sales in the world’s most populous country increased 13 percent in 2013 (to $2.6 trillion), and consumer confidence rose. Looking ahead, urbanisation, increasing disposable incomes and a loosening of the birth-control policy are expected to fuel future growth. Convenience stores are entering a high-growth phase (a 10 percent increase in store totals), drawing customers with long opening hours, proximity, and value-added services such as utility bill payments. Consumers prefer malls over department stores because malls offer shopping, food, and entertainment in one location.

Uruguay:

GDP growth of more than 5 percent per year for the past five years in Uruguay has translated into higher purchasing power, increased domestic demand, and dynamic retail activity. It's free-market policies and political and economic stability have helped it become a solid retail oasis while some of its neighbours struggle. Foreign investors are treated the same as domestic investors under the law, and there generally are no ownership limits. With risk relatively low and market potential high, Uruguay has one of the most attractive in the world.

United Arab Emirates:

Retail sales in the UAE grew 5 percent in 2013 to $66 billion. Dubai’s winning bid for Expo 2020 highlights the country’s bright future. On one hand, consumers are demanding more proximity, which is leading a shift to more community formats, such as MAF’s My City Centre, which offers a range of retail and lifestyle-oriented stores for local community residents. On the other hand, retail saturation has brought some interesting and innovative concepts.

Brazil:

Brazil’s retail growth slowed in 2013, While GDP growth picked up (2.3 percent in 2013, compared with 1 percent in 2012) retail sales growth fell by more than half to 4.3 percent, as accelerating inflation undermined real wage growth and household debt increased. However, low unemployment and bank default levels demonstrate a strong middle class that continues to make Brazil a popular retail location. Thus, several international players continue expanding.

Russia:

Russia has experienced a decade of remarkable double-digit retail growth and its large and wealthy population has long been an attractive proposition for international retailers. However, in recent years, the rate of growth of the retail industry has remarkably slowed down because of rising incomes, an urbanising population that is willing to spend more, improving infrastructure, and increasing investment in retail real estate. Although Russia’s GDP growth slowed to 1.2 percent in 2013, consumer spending remained the one bright spot in the economy, with real disposable incomes and retail sales expanding by 3.5 percent and 5.5 percent, respectively, and per capita consumer spending forecast to accelerate. Finally, near-term uncertainty about sanctions and the Ukraine issue will likely slow investment, but as long as demand for goods remains strong and spending power keeps growing, Russia remains a high-risk, high-reward retail development prospect.

India:

India’s sheer market size and the purchasing power of its growing middle class have contributed to its growing middle class have contributed to its prominence as a retail destination. The market remains quite fragmented, yet organised retail has made impressive gains in 10 years. However, recent economic growth has lagged the rates of the past decade’s boom times. Retail is still hindered by high consumer price inflation, currency fluctuations, high current account deficits, government debts, and strict foreign direct investment policies that have long been an impediment to growth. India remains an appealing long-term retail destination for several reasons, starting with its demographics, a population of 1.2 billion people, half of whom are younger than 30 and roughly one-third of whom live in cities. Indians’ disposable incomes are increasing, allowing them to spend more and try new products, brands, and categories while spending a lower proportion on food. Furthermore, the recently elected Government, which has promised more pro-business policies, has many experts feeling positive about India’s long-term GDP outlook and industry growth. Migration from traditional stores to modern retail continues, but modern formats account for only 8 percent of the total market. Concerns for the industry include an opaque real estate market with high prices and low availability, high borrowing costs, personnel shortages, expensive supply chains, and unpredictable politics both locally and regionally. More retailers today are focusing on improving operations and back-end processes to increase profitability. India’s e-commerce market is expected to grow more than 50 percent in the next five years, as its young population increases internet access and speed. Cash-on-delivery options have been an important step to growth.

3. CHALLENGES TO GROWTH OF RETAIL INDUSTRY IN EMERGING MARKETS:

The organised retail sector in India has been witnessing challenges which are proving to be a hurdle for its fast-paced growth. Some of the challenges which the Indian retail industry is facing are as follows:

Competition from the Unorganised Sector:

Organised retailers are facing immense competition from the unorganised retailers or kirana stores (mom-and-pop stores) that generally cater to the customers within their neighbourhood. The unorganised retail sector constitutes over 94 percent of India’s total retail sector and thus poses a serious hurdle for organised retailers. The organised retailers are facing stiff competition from kirana stores that offer personalised services such as direct credit to customers, free home delivery services, apart from the loyalty benefits. The traditional kirana stores are adopting various measures to retain their customers.

Yet To Be Recognised As an Industry:

The retail sector is not recognised as an industry by the Government even though it is the second-largest employer after agriculture. Lack of recognition as an industry affects the retail sector in two ways; firstly, due to the lack of established lending norms and consequent delay in financing activity, the existing and new players have lesser access to credit, which affects their growth and expansion plans. Secondly, the absence of a single nodal agency leads to chaos, as retailers have to oblige to multiple authorities to get clearances and for regular operations.

High Real Estate Costs:

Even though the real estate prices have subsided recently due to the slowdown in economies and the financial crises, these prices are expected to go up again in the near future. Presently the sector faces high stamp duties, pro-tenancy acts, the rigid Urban Land Ceiling Act and the Rent Control Act and time-consuming legal processes, which causes delays in opening stores. The profitability of retail companies was affected severely because real estate costs constituted a major part of their operating expenses. Now companies are moving out from prominent malls of tier I cities and are re-negotiating the rental agreements with landlords to reduce costs.

Lack of Basic Infrastructure:

Poor roads and lack of cold chain infrastructure hamper the development of food retail in India. The existing players have to invest substantial amounts of money and time in building a cold-chain network.

Supply-Chain Inefficiencies:

Supply chain needs to be efficiently managed because it has a direct impact on the company’s bottom lines. Inventory management is the first challenge that retailers face at the local store level as well as at the warehouse level. Supply chain management and information technology systems have helped retailers to plan their stockouts, replenish their stock on time, move stock from warehouse to stores and maintain adequate stock at a store to match consumer preferences. However, the retailer may still face a big challenge in terms of efficiently implementing the supply-chain software across stores and integrating it with the central warehouse, which can be a time-consuming process, requiring trained personnel. Logistics is another challenge related to the supply chain. It is imperative for any organised food and grocery retailer to establish a robust cold chain. The third challenge related to the supply chain is procurement. Big organised retailers enjoy economies of scale based on their size and expansion plans. The economic benefits of scale in procurement are achieved when procurement is made in thousands or millions of units; however, the main challenge here is to procure the adequate amount of stock according to customer requirements, failing which the resultant rise in inventory can affect bottom-lines.

Challenges with Respect to Human Resources:

The Indian organised retail players shell out more than 7% of sales towards personnel costs. The high HR costs are essentially the costs incurred on training employees as there is a severe scarcity of skilled labour in India. The retail industry faces attrition rates as high as 50 percent, which is high when compared to other sectors also. Changes in career path, employee benefits offered by competitors of similar industries, contribute to the high attrition.

Shrinkage:

Retail shrinkage is the difference between the book value of stock and the actual stock or the unaccounted loss of retail goods. These losses include theft by employees, administrative errors, shoplifting by customers or vendor fraud. According to industry estimates, nearly 3-4 percent of the Indian chain’s turnover is lost on account of shrinkage. The organised industry players have invested IT, CCTV and antennas to overcome the problem of shrinkage.

Unfavourable Government Policy and Regulatory Environment:

Favourable government policy and regulatory environment are required for better performance of any industry. The regulated labour market, reducing costly subsidies, boosting infrastructural development, negotiating free trade and ease of restrictions on foreign investment are some of the policies marketers expect from the current Government. Countries with highly developed retail industry have better foreign direct investment (FDI) policies. However, Indian FDI policy in the retail sector is still a gatekeeper for the industry.

4. CONCLUSIONS:

Portraying emerging markets as attractive destinations for multinationals, this study critically analyses the current status of the retail industry in different emerging markets. This literature will act as a ready reckoner for the retailers, managers and practitioners to understand the emerging markets. In a trend of multinational companies thirsting on entering into new markets, it is crucial to decide when to move, when and how to enter which market. A detailed elaboration of typical challenges from emerging markets in this study would help these corporations to make justifiable decisions.

5. REFERENCES:

1. A.T. Kearney (2014). The 2014 Global Retail Development Index, Website: https://www.atkearney.com/consumer-products-retail/global-retail-development-index/2015, Accessed on 21 December 2016.

2. Deloitte, (2015), Global Powers of Retailing 2015: Embracing Innovation, website: https://www2.deloitte.com/.../global/.../gx-cb-global-powers-of-retailing.pdf, Accessed on 21 December 2016.

3. eMarketer, (2014, December 23). Retail Sales Worldwide Will Top $22 Trillion This Year, Website: http://www.emarketer.com/Article/Retail-Sales-Worldwide-Will-Top-22-Trillion-This-Year/1011765, Accessed on 27 December 2016.

4. IBEF, (March 2015). Odisha: Scenic, Serene, Sublime, Website: http://www.ibef.org/states/odisha.aspx, Accessed on 11 May 2017.

5. ICRIER (2008). The impact of Organized Retailing on the unorganised sector. Website: http://siadipp.nic.in/policy/icrier_report_27052008.pdf, Accessed on 24 December 2016.

6. Knight Frank India (2010). India Organised Retail Market Q1 2010. Website: http://www.knightfrank.com/.../india---organized-retail--market-review-52.aspx, Accessed 14 December 2016.

7. Kotler, P., and Keller, K. L. (2006). Marketing management 12/e. PHI, New Delhi.

8. KPMG Report, (2014). Indian Retail: The Next Growth Story, website: www.kpmg.com/in/en/issuesandinsights/.../pages/indianretail.aspx, Accessed on 21 December 2016.

9. Levy, Michael and Weitz, Barton A., (2007), Retailing Management, TMH, New Delhi.

10. Messinger, P. R., and Narasimhan, C. (1997). A model of retail formats based on consumers' economising on shopping time. Marketing Science, 16(1), 1-23.

11. Pradhan, Swapna (2007), Retailing Management, Text and cases”, Second Edition, Tata McGraw-Hill Publishing Companies, New Delhi.

12. PWC and Kantar Retail, (2014). Retailing 2020: Winning in a polarised world, Website: www.pwc.com/en_US/us/retail-consumer/.../pwc-retailing-2020.pdf Accessed on 21st December 2016.

13. Reynolds, J., Howard, E., Cuthbertson, C., and Hristov, L. (2007). Perspectives on Retail

14. The Economics Times (2014, April 30), Website: http://articles.economictimes.indiatimes.com/2014-04-30/news/49523310_1_capita-income-third-largest-economy-world-gdp accessed on 29 December 2016

15. Tuli, R., Bajaj, C. and Srivastava, N. (2006) Retail Management, Oxford University Press, New Delhi.

Received on 10.05.2017 Modified on 23.05.2017

Asian J. Management; 2017; 8(3):479-482.

DOI: 10.5958/2321-5763.2017.00076.2