The shape of retail is changing and nowhere is this more apparent and rapid than in emerging markets. Parts of Asia and South America have witnessed colossal changes away from traditional manufacturing economies towards greater consumer consumption. AT Kearney predicts that in China the retail market is expected to grow to $8 trillion by 2022, with India reaching a worth of $1.3 trillion by 2020. So what are the trends behind these numbers and what are the critical success factors?
Chinese retail: technology driving change
Retail in China has changed significantly in the past few years as populations have moved from rural areas to cities, and new urban centres have developed. In fact 45% of China’s population is now middle class. Increased disposable incomes and the growth of tier 1 and 2 cities has led to greater attention from international retailers. eCommerce has had a major impact, linking international brands with a keen market of Chinese consumers. However whilst online growth has been rapid, physical retail outlets still dominate the marketplace. However despite a few years of substantial change, China has experienced slower growth during 2016, and therefore only the strongest and most relevant brands are likely to flourish.
Retailers have been forced to re-think strategy away from aggressive pricing strategies to focus more on the customer buying journey, especially the vital point of purchase at the shelf edge. Loyalty is now key in order to dominate the long term retail game. Also younger generations are now very tech savvy and have a high expectation of being able to access product information and inventory via a smartphone and are keen to use mobile commerce, social media and apps to help navigate the buying journey.
The government’s decision to end the one child policy is also expected to have a positive impact on retail. According to WPP this will result in a 4.8 billion yuan boost to the economy.
Foreign entrants have been growing in this market, especially in the luxury sector. Apple is also continuing to expand its footprint. It currently has 28 stores but is looking to grow this adding 12 more stores during 2016.
India: Gaining retail ground
Changes to personal income, urbanisation and buying habits have all propelled Indian retail into the spotlight. It is now the world’s fifth-largest global destination in terms of retail space and has a young thriving population keen to consume goods. Whilst local players still dominate the market, international competitors are taking note. India is the second biggest smartphone market in the world, with Samsung leading the supplier landscape with 20% market share. Therefore technology is at the heart of retail growth.
At present 35% of international brands come from the US with 12% from the UK (source: Knight Frank). Apparel is the biggest market followed by department stores, grocery and electricals.
Like China, the customer experience is growing in importance and therefore retailers are having to transform their businesses with integrated technology in order to blend the online with the bricks and mortar experience so that customers have access to information at the shelf edge and beyond.
Latin America: Retail continues to evolve
This region has also experienced great changes and the UN predicts that by 2050, 89% of all Latin Americans will be urban-dwellers. This opens up a substantial market to retailers both inside Latin America and elsewhere in the world. The young, wealthy middle class are now demanding access to information at the touch of a button and as they are now time poor due to longer working hours, want access to products and services whenever they need it. The rate of change is rapid as without the history of legacy systems, retailers can be more agile to adapt.
The Annual report from Deloitte on The Global Powers of Retailing: Navigating the New Digital Divide looks in depth at different areas of the emerging market and is a must read. This reports emphasises the need for retailers to plug the gaps from online to offline in order to serve the new generations of retail customers.
The global retail landscape is transforming and younger, agile , technology savvy shoppers are coming through. They are more demanding than previous generations and so now the challenge is on for retailers to be relevant, with a strong shopping experience that services across all touchpoints. Loyalty will be harder than ever to achieve and so being in touch with customers at the vital point of purchase will be critical.