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Global Retail Development - The Age of Focus

Adel Belcaid

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Country Risk

Window ofOpportunity

Market Saturation

Are macro risks (political, economic) acceptable?

How much will business be hindered by corruption, bureaucracy, poor or infrastructure?

Are incumbent players concentrated such that a new player will face high competition?

Are there attractive targets for acquisition?

Are consumers accelerating adoption of modern retail?

Is the retail industry in a high growth phase, or maturing?

Country Attractiveness

Are wealth levels and size supportive of market entry?

Do demographics, spending patterns and growth prospects indicate an expansion of demand?

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The Global Retail Development Index™ – Brief Overview

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Emerging markets continue to drive growth in retail space

Retail sales area (2014-2016, million square meters)

1. Computed as the average of all countries individual CAGR for the period 2014-2016Source: Planet Retail, A.T. Kearney

790.2

210.1

2017F

754.4

171.8

781.2

2016

182.8

20152014

192.1

762.2

201.4

773.9

2018F

Emerging markets

Developed markets

2016-2018F Expected CAGR

4.6%

1.1%

+1.9%

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However, shifting geopolitics and increasing power of local retailers are changing expansion dynamics

Source: A.T. Kearney

Increasing anti-global sentiment

• Growing protectionism in developed markets:

– Brexit in June 2016

– Trump election (pull-out from the TPP, questions about NAFTA)

Local players gearing up

• Some regional and local players can deal with culture, risk and uncertainty better than a player with a global portfolio

• Some of them have been quite successful in one country / region and expand to neighboring markets

• E.g. Lulu Hypermarket and Majid Al Futtaim in the UAE, Cencosud in South America and Bailian in China

Time to Focus

Global retailers in 2017 focus on optimizing their store network through closing down some stores, acquiring local players’ network or selectively opening new ones in areas with high demand

E-commerce is gaining more importance in international and local expansion, but also as a way to engage more with existing and new customers

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As a result we have seen limited international expansion, mostly in the apparel segment (VS, H&M)

Select Retailer Entries, Expansion, ClosuresRussia (#22)Entries: Victoria’s Secret, Urban Decay, Superdry, JilSander, ClaireExpansion: H&M, Decathlon, Media Markt, Fendi, Valentino, BulgariExits: Finlayson, La Senza, Magnolia Bakery, Plus

China (#2)Entries: Top Shop and Victoria’s Secret planned for 2017Exits: Marks & Spencer Closing stores: Carrefour, Walmart, Louis Vuitton, Burberry

Indonesia (#8)Expansion: eBay, AmazonAcquisitions: Alibaba acquired Lazada

India (#1)Entries: Armani Exchange, Muji, Massimo Dutti, Kate Spade

Peru (#9)Entries: Victoria Secrets, Tiffany Co. and Children’s Place planned for 2017Expansion: H&M

Colombia (#10)Expansion: Ara, Justo y Bueno, Mercaderia SAS, Zara, Home SentryExirs: Ripley

Nigeria (#27)Entries: Pick n Pay

Côte d’Ivoire (#17)Expansion: Carrefour, Fnac, Prosuma

Saudi Arabia (#11)Entries: Abercrombie & Fitch and Mui planned for 2017

UAE (#5)Expansion: Tonymoly, E-City

Turkey (#4)Expansion: A101, BİM, Şok Market Exits: TESCO, GNC, Douglas, C&A

Source: A.T. Kearney

Number of entries compared to our last year tracker (red if less entries, green if more entries, yellow if the same number)

-4

-3

-3

-1

-6

0

0

0

0

-4

+1

2016-2017

6

25

75

60

45

65

40

55

50

185 195

70

0

5

10

15

20

30

35

85 125 130 135 140 145 150 155 160 165 170 190175 180

75

0 105 8015 20 25 30 35 40 45 50 55 60 65 70

GermanyCanada

US

Nigeria

India

Indonesia

Vietnam

Mobile Shopping Sales Growth (%, 2012 – 2016)

UK

France

Mo

bile

Sh

are

of

On

line

Sal

es

(%, 2

01

6) China

At the same time, e-commerce is thriving via mobile, with developing markets outpacing developed ones

Mobile shopping trends (%)

Source: Euromonitor data, A.T. Kearney

Emerging Markets

Developed Markets

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Mobile is the preferred device for e-commerce in emerging markets…

Online shoppers who prefer to shop via mobile (% of online shoppers, 2016)

Source: News releases, Euromonitor data, A.T. Kearney

70%60%

50% 50%

83%

Indonesia Nigeria Vietnam IndiaChina

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Role in Retail Value Chain

Approach to Market Entry

Influencing Shopping Behavior

…and mobile commerce is challenging three traditional assumptions retailers have about emerging markets

• Traditional market entry (Own/JV/franchised stores) is time-consuming, risky and expensive vs. new mobile-enabled online-only models

• New models leverage a dominant online partner and give retailers visibility to millions of customers without the cost of a store network, training, etc

• E.g. Aldi will mark its debut in China this year exclusively on the T-mall app

Source: A.T. Kearney

• Traditionally international brands looked at local partners as franchise operators

• Activities higher up in the value chain (e.g., brand strategy, store network design and footprint expansion) were retained by the brand, but not anymore

• E.g. Spanish fashion retailer Mango has partnered with Myntra (e-commerce subsidiary of FlipKart) to manage all online/offline distribution

• Traditional methods to influence customer behavior, especially in emerging markets, are often based on sales and promotions that are static and not tailored to individuals/location

• Mobile shopping, with the customer and location data it embeds, presents new opportunities for retailers to influence shopping behavior dynamically

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All in all, a number of questions come to mind…

Is the time right for retail expansion?

How to expand? Geographical, E-commerce or Omni-channel?

What works in expansion and what doesn’t? Key Success Factors to keep in mind…

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…To discuss them and more…