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Fung Global Retail Markets 2014 Fung Global Retail Markets 2014 Document Transcript

  • Global Retail Development February 2014
  • Global Retail Development Introduction 3 Overview of the global retail sector 4 Current and emerging global retail trends 14 Retail markets by region 20 Key challenges facing retailers 43 Conclusions and implications 45 Reference 48 Table of Contents
  • Global Retail Development Introduction In 2013, the global retail market is more dynamic than ever. Slow economic growth and chang- ing consumer behaviour have reshaped the retail landscape. With many developed economies continuing to trudge along the path to recovery, we expect the global retail sector will bring huge opportunities for retailers over coming years. That being said, retailers still need to take account of current challenges and unresolved problems. In this report, we provide an overview of the global retail sector and examine current and emerging global retail trends. We also review the retail markets of three regions, namely North America, Europe and Asia, and analyse the major challenges facing global retailers. 3
  • Global Retail Development Overview of the global retail sector 4
  • Global Retail Development 2013 is a pivotal year for the global economy. It’s recovered slowly from the downturn. The World Bank expects there will be less volatility in 2014, but growth will remain slow . The US economy is gaining momen- tum, and many economists predict 2014 will be the best year for growth since 2005, while joblessness is expected to fall below 7% in 2014 for the first time since 2008. Core economies in Europe also show some signs of recovery; there is improvement in the export growth to non-Eurozone countries, while investment spending is modestly rebounding. The worst of the Euro crises seems to be over. In Japan, Prime Minister Shinzo Abe’s economic reforms, or “Abenomics” – a combina- tion of monetary easing, government spending and promised structural reform – appears to be reviving the sluggish economy. Japan's economy will remain on Global economy is slowly recovering Exhibit 1: Global real GDP growth (% yoy), 2011-2014 (projections) Source: IMF, "World Economic Outlook", October 2013 track as the government prepares a five trillion yen stimulus package to offset the drag from a sales tax increase scheduled for April 2014 . Meanwhile, growth in emerging market economies is set to decelerate. According to a forecast by the International Monetary Fund (IMF) in October 2013 , GDP projections in 2013 and 2014 for emerging market economies have decreased compared with projections made in October 2012. Some structural factors will lead to slower growth potential in these economies. In particular, tightening external financing conditions and lower capital inflows will be major challenges. Exhibit 1 shows projected real GDP growth by the IMF. 1 2 3 4 5 5 World output Advanced economies US Euro Area Japan Emerging market and developing economies China 2011 2012 2013 projections 2014 projections 3.9 3.2 2.9 3.6 1.7 1.5 1.2 2.0 1.8 2.8 1.6 2.6 1.5 -0.6 -0.4 1.0 -0.6 2.0 2.0 1.2 6.2 4.9 4.5 5.1 9.3 7.7 7.6 7.3 India Brazil 6.3 3.2 3.8 5.1 2.7 0.9 2.5 2.5 4.3 3.4 2.1 3.4Russia
  • Unemployment in the Eurozone was stuck at 12.1% in November 2013, and stayed at that level from April 2013. Europe is still struggling to recover from the financial crisis and the sovereign debt debacle, that has caused unemployment to remain at high levels . In fact, unemployment in the Eurozone is expected to remain high at 12.2% in 2013 and 2014, before dropping to 11.8% in 2015, according to the European Commission. Meanwhile, US unemploy- ment has been steadily declining, down to 6.7% in December 2013 from 8.3% in July 2012. According to ADP, the American provider of business solutions, the private sector added 238,000 jobs in December 2013, marking the strongest month for hiring since Exhibit 2: Unemployment rates for selected countries, July 2012 – December 2013 Source: Trading Economics The consumer confidence index in the Euro Area improved from -23.9 in January 2013 to -13.6 in December 2013. Although the numbers are typically negative, they are gradually improving. On the other hand, steady job gains and a surging stock market have made Americans more optimistic about the economy and hiring. American consumers became more confident in December 2013 as hiring picked up, bringing a brighter outlook to 2014. Exhibit 3 shows the consumer confidence indices of selected countries. Global Retail Development 6 7 6 2012 Jul Aug Sep Oct Nov Dec Feb 2013 Jan Aug Sep Oct Nov DecMar Apr May Jun Jul 8.3 8.1 7.8 7.9 7.8 7.8 7.9 7.7 7.6 7.5 7.6 7.6 7.4 7.3 7.2 7.3 7.0 6.7 11.5 11.5 11.6 11.7 11.8 11.9 12.0 12.0 12.0 12.1 12.1 12.1 12.1 12.1 12.1 12.1 12.1 N/A 5.5 5.4 5.4 5.4 5.4 5.4 5.4 5.4 5.4 5.3 5.3 5.3 5.2 5.3 5.2 5.2 5.2 N/A N/A N/A 10.3 N/A N/A 10.5 N/A N/A 10.8 N/A N/A 10.8 N/A N/A 10.9 N/A N/A N/A 10.6 10.6 10.8 11.2 11.2 11.3 11.7 11.5 11.9 12.0 12.2 12.1 12.1 12.4 12.5 12.5 12.7 N/A 14.9 15.0 14.5 14.3 14.1 14.0 13.9 13.8 13.7 13.7 13.7 13.6 13.5 13.4 13.3 12.6 12.5 12.4 25.0 25.4 26.0 26.1 26.2 26.2 26.5 26.6 26.8 27.2 27.5 27.5 27.6 27.6 27.7 27.8 N/A N/A N/A N/A 25.0 N/A N/A 26.0 N/A N/A 27.2 N/A N/A 26.3 N/A N/A 26.0 N/A N/A N/A N/A N/A 4.1 N/A N/A 4.1 N/A N/A 4.1 N/A N/A 4.1 N/A N/A 4.0 N/A N/A N/A 4.3 4.2 4.2 4.2 4.2 4.3 4.2 4.3 4.1 4.1 4.1 3.9 3.8 4.1 4.0 4.0 4.0 N/A US Euro Area Germany France Italy Ireland Greece Spain China Japan South Korea 3.1 3.1 3.1 3.0 3.0 3.0 3.2 3.5 3.2 3.1 3.2 3.2 3.2 3.1 3.0 3.0 2.9 3.0 November 2012. Exhibit 2 shows unemployment rates for selected countries.
  • Developing markets are the driving force in global retail The ongoing debt crisis in the Eurozone and a slow recovery in the US continue to affect the global economic outlook and the world’s retail sector. The slowdown has imposed a negative impact on retail. According to the Economist Intelligence Unit (EIU) , global retail sales are projected to increase by 2.1% year-on-year (yoy) in 2013, down from 2.4% in 2012. Regional disparities will remain. Mature retail markets continue to struggle, while developing markets show strong growth momentum. Exhibit 4 shows the global retail sales by region. Sales growth in the Middle East and Africa, Asia and Australasia were expected to achieve the highest growth of over 4.0% yoy in 2013, compared with -1.3% in Western Europe and 1.4% in North America. Compared to the developed regions, many markets in the developing economies are less mature and highly fragmented, a large number domi- nated by domestic retailers. Looking forward into 2014, global retail market will move towards stable growth. Western Europe will see sales turning from negative to positive. Meanwhile, the biggest regional growth potential remains in Asia . Exhibit 3: Consumer confidence index of selected countries, January – December 2013 For US CCI, 1985=100 For Euro Area, positive number indicates being optimistic while negative number indicates being pessimistic. For Taiwan CCI, an index between 100 and 200 indicates being optimistic while an index between 0-100 indicates being pessimistic. For Japan, South Korea and Thailand, an index above 100 indicates an improving outlook and below 100 indicates a deterio- rating outlook. 8 7 FebJan Aug Sep Oct Nov DecMar Apr May Jun Jul US 73.8 77.6 78.6 76.4 84.5 84.1 85.1 82.1 77.5 73.2 75.1 82.5 Euro Area -23.9 -23.6 -23.5 -22.2 -21.8 -18.8 -17.4 -15.6 -14.9 -14.5 -15.4 -13.6 China 104.5 108.2 102.6 103.7 99.0 97.0 97.2 97.8 99.8 102.9 98.9 N/A Japan 43.2 44.2 44.8 44.5 45.7 44.3 43.6 43.0 45.4 41.2 N/A N/A South Korea 102 102 104 102 104 105 105 105 102 106 107 107 Thailand 72.1 74.3 75.0 73.9 72.8 71.8 70.6 69.5 67.9 66.6 65.0 N/A Taiwan 72.82 75.24 76.01 77.29 78.25 75.08 76.08 75.33 76.5 78.47 78.43 78.22 Source: Bloomberg, Statistical Bureau of respective countries, Trading Economics 9 Global Retail Development
  • Exhibit 4: Global retail sales (US$ billion), by region, 2010-2013 (estimates) Source: EIU, “World consumer goods and retail outlook”, August 2013 By country, the US is still the largest market in terms of retail sales, while China is growing fast (Exhibit 5). EIU predicts that China will overtake the US to become Exhibit 5: Global retail sales (US$ billion), by selected major countries, 2010-2017 (estimates) Source: EIU, “World consumer goods and retail outlook”, August 2013 US Canada Japan China Germany 5,000 4,500 4,000 2,000 1,500 1,000 500 0 3,500 3,000 2,500 2010 2011 2012 2013e 2014e 2015e 2016e 2017e 8 North America Western Europe Transition economies Asia and Australasia Latin America Middle East and Africa World Retail sales 2010 2011 2012 2013 (estimates) yoy growth Retail sales yoy growth Retail sales yoy growth Retail sales yoy growth 3.42 2.8% 3.68 4.0% 3.80 1.5% 3.91 1.4% 3.05 0.2% 3.26 -1.1% 3.07 -1.7% 3.09 -1.3% 0.93 2.2% 1.08 5.2% 1.11 4.7% 1.20 3.3% 5.28 6.4% 6.09 4.9% 6.48 4.9% 6.67 4.0% 1.12 2.6% 1.25 3.3% 1.28 3.7% 1.35 3.0% 0.44 4.0% 0.48 3.3% 0.52 5.3% 0.55 4.5% 14.25 3.4% 15.84 3.1% 16.26 2.4% 16.78 2.1% the world’s largest retail market by 2017, due to China’s speed of economic growth. Global Retail Development
  • Online retailing continues to expand fast, while m-commerce starts to gain traction Note: includes travel, digital downloads, and event tickets purchased via any digital channel (include online, mobile and tablet); excludes gambling. * includes sales from businesses that occur over C2C platforms; exclude Hong Kong. ** digital travel sales represent roughly 80% of B2C ecommerce sales; *** excludes event tickets Source: eMarketer, June 2013 9 Online retailing continues to attract the attention of both retailers and consumers. Exhibit 6 shows B2C sales growth by region. The growth of online sales in the Middle East and Africa will be higher than in other Exhibit 6: B2C sales growth in yoy by region and country, 2013 Central & Eastern Europe Others Russia Others Netherlands Latin America Others Brazil North America Others US *** Argentina Canada France Mexico Region/ Country Middle East & Africa Asia-Pacific Indonesia China* India** B2C yoy sales growth South Korea Australia Japan Region/ Country Spain Sweden Norway Finland UK Germany Denmark 20.9% 20.7% 21.1% 12.7% 22.1% 16.5% 28.6% 14.9% 29.6% 31.0% 23.1% 71.3% 65.1% 6.9% -7.2% 6.0% 64.6% Italy B2C yoy sales growth 12.4% 14.7% 12.5% 12.4% 14.2% 11.0% Worldwide Western Europe17.1% 14.0% 16.2% 16.2% 15.3% 13.7% 12.4% 12.8% 14.7% 22.6% regions in 2013, although from a smaller base . And the growth in mature markets in North America and Western Europe will be lower than for the global average of 17.1% in 2013. 10 Global Retail Development
  • According to the A.T. Kearney 2013 Global Retail E-commerce Index, which ranks the top 30 countries in both developing and developed markets for online market attractiveness, developing countries hold 10 of the 30 spots, with China occupying top position (Exhibit 7). Exhibit 7: The 2013 Global Retail E-commerce Index 10 Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Country China Japan United States United Kingdom South Korea Germany France Brazil Australia Canada Singapore Argentina Russia Hong Kong Italy Sweden Slovakia New Zealand Netherlands Chile Finland Turkey Venezuela Belgium United Arab Emirates Norway Ireland Denmark Switzerland Malaysia Region Asia Asia North America Europe Asia Europe Europe Latin America Oceania North America Asia North America Europe Asia Europe Europe Europe Oceania Europe Latin America Europe Europe Latin America Europe MENA Europe Europe Europe Europe Asia Source: A.T. Kearney, "Online retail is front and center in the quest for growth", October 2013 Global Retail Development
  • 11 After many years of robust sales growth, the global Luxury sales moderate Bain & Co. predicts that the Americas will have surpassed Asia as luxury’s main growth engine in 2013 with 4% yoy growth, as compared to the estimated 2.5% yoy growth for China (Exhibit 9). A steady pace of store openings in second-tier cities in the US has fuelled luxury sales growth in the country. Another reason driving up luxury sales is the increasing number of Chinese tourists buying luxury products in the US. By contrast, In China, the luxury goods market slowed from 7% yoy growth in 2012 to around 2.5% yoy growth in 2013. The significant decrease in luxury sales growth is partly attributed to the anti-corruption initia- tives of China’s new leadership. Moreover, many luxury retailers or brands are now scaling back their expan- sion in China to focus on improving existing store productivity. Source: Bain & Co., "2013 Luxury Goods Worldwide Market Study", October 2013 Exhibit 8: Worldwide luxury goods market, 2009-2013 (estimates) Billion euros yoy growth(%) 0 150 100 50 250 200 2009 2013e2010 2011 2012 153 173 192 212 21713% 11% 2% 10% 0 6 4 2 10 8 12 14 The emergence of smartphones and other mobile devices have driven the growth in mobile commerce (m-commerce). Recognising that m-commerce growth is outpacing that of e-commerce, even small retailers are now building their own m-commerce sites and mobile apps. Brands are experimenting with mobile merchandising trends. Consumers, especially the younger and tech-literate generations, are getting used to shopping online with smartphones and tablets. Moreover, “showrooming” is more appealing to young consumers; for example, they like to try on clothing and accessory products in stores and then purchase them online via their smartphones. The mobile revolution is set to continue, not necessar- ily in sales transactions via smartphones and tablets, but through the wider impact that mobile devices have in terms of “showrooming”, price comparisons, mobile payment and as consumer loyalty tools. luxury sector faced an overall decline in 2013. Accord- ing to Bain & Co. , global luxury goods spending was expected to grow by 2% yoy to reach 217 billion euros in 2013 (Exhibit 8). It will be the first time since the financial turmoil in 2008 that the yoy growth rate will have dropped below 10%. 11 Global Retail Development
  • Exhibit 9: Personal luxury goods – Top 10 countries, 2013 12 According to Deloitte and STORES Media , the world’s Top 250 retail chains achieved sales growth rates of 4.9% yoy, reaching US$ 4.29 trillion in 2012, with more than 80% posting an increase in retail revenue. The net profit margin was 3.1% in 2012, slightly lower than the 3.8% for 2011. The world’s Top 10 retailers accounted for 29.3% of aggregate retail sales posted by the world’s 250 largest retailers, slightly up from 29% in 2011. Wal-Mart continued to be the world’s largest retailer, while Tesco overtook Carrefour for second place. Costco rose from sixth place in 2011 to third in 2012; Carre- four was down from second place in 2011 to fourth in 2012 (Exhibit 10). Exhibit 10: Top 10 global retailers, 2012 Source: Bain & Co., "2013 Luxury Goods Worldwide Market Study", October 2013 Top 250 retailers expands steadily * Estimated value ** Sales-weighted, currency adjusted growth rate Source: Deloitte, “Global Powers of Retailing 2014: Retail Beyond Begins”, January 2014 Retail sales rank FY2012 Name of company Country of origin 2012 Retail sales growth (%) 2012 Retail sales (US$ million) Wal-Mart Stores, Inc. US Tesco PLC UK Costco Wholesale Corporation US Carrefour S.A France The Kroger Co. US Schwarz Unternehmens Treuhand KG Germany 1 2 3 4 5 6 7 Metro AG 469,462 101,269 99,137 98,757 96,751 87,236* 85,832Germany 5.0 0.5 11.5 -5.5 7.1 6.6 0.1 8 The Home Depot, Inc. US 9 Costco Wholesale Corporation Germany 10 Aldi Einkauf GmbH & Co. oHG US Top 10** Target Corporation 6.2 7.5 5.1 4.2 74,754 73,035* 71,960 1,257,892 Top 250** 4.94,287,587 Top 10 share of total 29.3% 0 30 20 10 50 40 60 0 62.5 US Japan Italy China France UK South Korea Germany Hong Kong Russia Billion euros yoy growth 4.0% 17.2 -12.0% 16.1 2.0% 15.3 2.5% 15.1 4.0% 12.1 4.0% 9.9 3.0% 8.3 1.0% 7.7 10.0% 5.8 5.0% 12 Global Retail Development
  • Sales for the top 250 retailers were driven primarily by developed countries in 2012. US retailers alone accounted for 42.2% of total retail sales among the world’s top 250 global retailers, up from 40.4% in 2011. European retailers’ sales share (including for Germany, France and the UK) dropped slightly to 37.1 % in 2012 from 38.4% in 2011. By contrast, the Asia-Pacific’s share of retail sales increased to 15.1% in 2012 from 15% in 2011 (Exhibit 11). Exhibit 11: Share of Top 250 retailers (revenue) by region/ countries, 2012 Source: Deloitte, “Global Powers of Retailing 2014: Retail Beyond Begins”, January 2014 Other Asia Pacific countries; 6.4% Latin America; 1.6% Canada; 3.0% Africa/ Middle East; 1.1% US;42.2% UK; 6.4% Japan; 8.7% France; 8.8% Germany; 10.0% Other European/ areas; 11.9% 13 Global Retail Development
  • Current and emerging global retail trends 14 Global Retail Development
  • Understanding “millennial” consumers is vital, as this group is expected to drive retail for the coming decades. The millennials generally refer to the genera- tion born between 1980 and 2000. There are roughly 80 million millennials in the US alone, and each year they spend approximately US$ 600 billion . Accord- ing to Accenture, millennials will represent 30% of the total retail sales in the US by 2020, with projected annual spending of US$ 1.4 trillion. The millennials have very different preferences compared to the preceding generations of Baby Boomers and Genera- tion X. In general, they demand an integrated and seamless experience, regardless of the channels. And very importantly, the millennials are highly “connected”; they like to engage in social media, collecting product information and peer feedback that way, and spending more time voicing their opinions than previous generation groups . Many retailers hoping to ride the wave of rising millennial spending have re-invented their businesses, as well as product and service offerings. For instance, to lure the attention of this generation, Gap’s new strategies not only aim to attract younger buyers but get the average Gap customer to “think younger”. Gap keeps investing to upgrade its merchandise and put more focus on product quality. Macy’s is another company making a huge and very public push for the millennials. Rather than taking a top-down approach, Macy’s is carving out niche areas for its target audiences. It has developed two sub-brands to reach millennial consumers - its mstyle- lab focuses on customers between 13 and 22, while its Impulse brand is designed to resonate with 19- to 30-year-olds. Macy’s “store within a store” features products and brands that the company believes will capture its target customers . However, retailers have to avoid treating all millenni- als the same. According to PricewaterhouseCoopers (PwC), the demographics and income gap between The millennials: The next generation of consumers Mobile and social media: shaping the future of retailing The mobile revolution is set to continue, not neces- sarily in sales transactions via mobile devices, but through the wider impact which mobile devices have in terms of “showrooming”, price comparison, mobile payment and as a loyalty tool. Indeed, many retailers also use such devices and tablets in their operations from warehouse to the shop floor. Together with mobile technology, the social media phenomenon is also changing the way brand owners, retailers and consumers interact. As mentioned earlier, consumers – particularly the millennials – are increasingly familiar with using mobile devices to shop online, and getting and exchanging product information on social networking websites. Most retailers have already jumped on the social media bandwagon (such as Twitter and Facebook) in devel- oped countries (or Wechat and Weibo in China) to offer consumers product information, promotions and exclusive deals. According to Internet Retailer’s report on the 500 most effective social media marketers in North Ameri- can e-retailing , revenues derived from visitors due to social media such as Facebook, Twitter, Pinterest and YouTube have increased 62.5% yoy to US$2.7 billion in 2013. Monthly unique visitors using such social media increased 41.9% yoy to 51.5 million in 2013. As social networks increasingly become mainstream marketing vehicles, how to use social media to engage customers becomes an important topic, especially for traditional retailers. 15 shopper segments will widen by 2020, with different segments having different expectations for product offerings and shopping experiences. Retailers have to be more focused and align themselves with the needs of specific shoppers. 13 14 15 16 Global Retail Development
  • The “omni-channel” is now a major buzzphrase in retail. Omni-channel retailing is a seamless approach to providing a coherent shopping experience across all channels. In recent years, the lines between physi- cal and digital have been blurring, as retailers seek to pull together multi- and cross-channel offerings, including physical stores, online platforms and social media, to create a highly convenient, unified and impactful shopping experience. Moreover, retailers are exploring different ways to enhance customer experience. For instance, Wal-Mart and Best Buy have added pickup stations for online customers to collect their merchandise ordered online. Without stores of its own, Amazon has partnered with grocery stores, convenience stores and drugstore outlets to provide space for their “Amazon lockers”, where customers can collect online orders. By launching these multi touch points with consum- ers, retailing becomes more complex. Integration between all channels across physical, digital, and social media is the key. By enabling a more personal connection with consumers, retailers can enjoy higher consumer satisfaction and stand out in a competitive retail market. Omni-channel retailing transforms traditional retail practices Retailers explore new formats tailored for niche markets Recently, retailers have been diversifying format portfolios to reach niche consumers and find new growth opportunities. Some major big-box retailers such as Wal-Mart and Best Buy have been shifting to smaller stores. Smaller stores are, in fact, often easier and faster to access, being located nearer to neigh- bourhoods. Small stores can also be used as fulfill- ment centres for online purchasing, thereby enabling the expansion of online sales. Another popular retail format is the “pop-up” store. This is a temporary shop that can be moved across different locations; the format is more flexible in terms of rental agreement, merchandise mix and store display. Some retailers are becoming landlords, turning excess space over to other businesses. Sears is a case in point: The retailer has subleased many stores across the US in recent years. It has a website called SHCRealty.com that showcases its Sears and Kmart stores available for sublease . Big Data helps retailers to get closer to consumers Huge volumes of data are created every day. Accord- ing to research conducted by the McKinsey Global Institute, analysing Big Data will become a key basis for sales in the future, driving competition, productiv- ity growth and business innovation. In fact, data management has become a competitive differentiator between retailers. Collecting or “mining” valuable data is the key. Mining Big Data enables retailers to understand and anticipate the needs of their target consumers, thus building consumer loyalty. A deeper understanding of the data available on individuals is highly significant in order to personalise and contex- tualise communication with consumers. Macy's Inc. adjusts pricing in near-real time for 73 million items, based on demand and inventory, using technology from the SAS Institute. Wal-Mart introduced a new search engine in 2012 for Walmart.com that uses semantic search technology to anticipate the intention of a shopper’s search, in order to deliver to them highly relevant results. The search engine relies on text analysis, machine learning and even synonym mining to produce relevant search results. Wal-Mart says that adding semantic search has improved online shoppers completing a purchase by 16 17 18 19 Global Retail Development
  • A more flexible supply chain helps improve competitiveness To stay competitive in the global market, retailers are striving to lower costs and provide better customer services. Retailers are applying the latest digital technologies such as 3D printing, data analytic tools, inventory tracking technologies and other tools, to provide consumers with a seamless solution, from manufacturing to delivery. At the same time, retailers are seeking ways to lower costs. Some have considered sharing warehouse space and logistics networks in exchange for a large, consistent customer base and lower costs. For exam- ple, Amazon.com is moving into P&G’s warehouse for household products like shampoos and toilet paper. The arrangement enables Amazon to cut delivery times to consumers and lower costs. Other retailers leverage more localised sourcing to improve the flexibility of their supply chains and improve consumer fulfillment, despite increasing costs. It is also a fact that consumers are gaining greater access to all aspects of the retail supply chain. Retailers are increasingly likely to need to keep prices low, reveal the origins of their products and their manufacturing processes in order to stay competitive and increase consumer trust. 17 20 21 between 10% and 15% . Collating data from a wide number of sources will generate a fully integrated market view. Data is becoming more transparent not only to retailers, but to consumers and all parties along the value chain too. With open access to Big Data, barriers have been minimised for entry up and down the value chain. Big Data can bring retail opportunities to retailers. However, data security could become a business risk if not managed properly, and this should not be ignored. Leaking personal data can damage the credibility of a company and cause a negative impact on the brand. Global Retail Development
  • Retailers think global Retailers now look more globally when exploring new sources of revenue. Many have started to expand beyond their existing store footprints or formats. As the growth of developed markets flattens, developing markets become more important sources of growth for many retailers. A.T. Kearney released the 2013 Global Retail Development Index in June 2013. It ranks the attractiveness of the top 30 developing countries for global retail expansion on an annual basis, by taking into consideration factors such as market attractive- ness, country risk, market saturation and time pressure. Brazil, Chile and Uruguay were the top three spots in the Index in 2013 (Exhibit 12). China dropped from third to fourth place in 2013, but its retail market remains important for global retailers. There are quite a few countries on the list with relatively small popula- tions but with particular characteristics of wealth and consumer focus such as Uruguay, Mongolia, Georgia and Armenia. Consumers are increasingly paying more attention to sustainable development and are willing to opt for a green option, if available. Sustainable consumption and production are both getting increasing attention. According to a survey by Nielsen, 46% of global consumers are willing, on average, to pay a premium for environmentally friendly products. As shown in Exhibit 13, consumers in the Asia-Pacific are the most receptive to making an ecological difference. Retailers step up efforts in sustainable development Source: A.T. Kearney, “Global Retailers: Cautiously Aggressive or Aggressively Cautious?”, June 2013 Exhibit 12: 2013 Global Retail Development Index, June 2013 Region2013 Rank 1 2 3 4 5 6 7 8 9 10 Country Brazil Chile Uruguay China United Arab Emirates Turkey Mongolia Georgia Kuwait Armenia Latin America Latin America Latin America Asia Middle East and North Africa Eastern Europe Asia Central Asia Middle East and North Africa Central Asia 2012 Rank 1 2 4 3 7 13 9 6 12 N/A 18 22 23 Global Retail Development
  • Global retailers are stepping up efforts to be more eco-friendly by focusing on sustainable procurement and by opening “green stores” with low power lighting systems. For example, Wal-Mart announced a sustainability programme, requiring its suppliers to achieve three sustainability goals: To be supplied 100% by renewable energy, to create zero waste, and to sell products that sustain people and the environ- ment. Sustainability has become a significant differen- tiator that retailers overlook at their peril. Source: Nielsen, “Global Survey of Consumer Shopping Behavior”, 3Q12 Exhibit 13: Consumers’ willingness to pay a premium for environmentally friendly products, 3Q12 19 24 Global average 0% 20% 10% 40% 30% 50% 60% 37% 46% 51% 46% 55% Asia-Pacific Europe Middle East/ Africa Latin America North America 30% Global Retail Development
  • Retail markets by region Observing the global retail market by region, North America, Europe and Asia remain the three most important. In this section, we take a closer look at the developments and major retail trends for these three regions. 20 Global Retail Development
  • North America – The US 21 Global Retail Development
  • With the largest national retail market globally, the US reaped retail sales of US$ 3.4 trillion in 2012, accord- ing to EIU estimates, up 3.7% yoy in terms of retail value. The EIU also forecasts that the country’s global leading position will be overtaken by China by 2017. Economic growth continued at a modest pace in the first half of 2013. Unemployment remained high and consumer confidence declined to a seven-month low in November 2013. Due to anaemic economic growth, retail sales growth is expected to be tepid looking forward. Overview Source: EIU, IMF, Bloomberg Recently, the US retail sector has undergone a continuing period of both consolidation and polarisa- tion. It has become increasingly split between value and premium categories. Sales performances have been better for mass retailers which target price- sensitive consumers, as well as luxury retailers. Exhibit 14: Country profile for the US, 2010-2012 2012 20102011 Population (million) 311.6314.0 309.3 Nominal GDP (US$ billion) 15,53416,245 14,958 GDP growth (%) 1.852.80 2.51 Retail sales growth (%) 7.53.7 4.8 Private consumption per head (US$) 34,37835,514 32,981 Consumer price inflation (average; %) 3.12.1 1.6 Unemployment rate (average; %) 8.98.1 9.6 Retail sales (US$ billion) 3,327.83,450.0 3,094.6 22 On the whole, mass market consumers remain conservative. According to a report by Nielsen, North American consumers are quite price-sensitive. Price comparisons are common. The Nielsen report indicates that when shopping for groceries, North Americans are the most active and regular coupon users, with 88% of respondents using these on shopping trips. Low-end dollar stores such as Dollar General, Dollar Tree and Family Dollar are flourish- ing, while mid-priced retailers are being increasingly squeezed. Department stores that target the middle- income bracket are less optimistic in their outlook. 25 26 Global Retail Development
  • Among the top global 250 retailers in 2012, 33.2% were based in the US, up from 30.4% in 2011. Indeed, US retailers occupy the largest market share among retailers globally. However, due to fierce competition and sluggish mass market performances, further consolidation in the US retail sector has been evident over recent years. Bricks-and-mortar retailers remain the sector’s major players. Among the top retailers in the US, only two pure-clicks retailers are able to get a spot on the list, namely Amazon.com (ranked 11 ) and Dell (ranked 83 ). This implies that most people in the US still do the bulk of their shopping at traditional retail stores such as Wal-Mart, Target, Macy’s and other supermar- kets, as well as home improvement chain stores. According to the US Census Bureau, online sales accounted for just 5.3% of total retail sales in 2Q13. Having said that, many traditional retailers now more intently focus on their online platforms, and online retail sales are set to grow exponentially. Forrester Research predicts that 60% of all US retail sales will involve the Internet, either as a direct e-commerce transaction or as online research prior to purchase; and 10.3% of all purchases are expected to happen online. Exhibit 15 lists the top retailers in the US. Competitive landscape Exhibit 15: Top retailers in the US, 2012 Source: Stores.org http://www.stores.org/2013/Top-100-Retailers 2012 stores Kroger Costco The Home Depot Walgreen 1 2 3 4 5 6 Wal-Mart Target yoy sales growth yoy stores growth 7 8 9 10 11 ... 83 Lowe's McDonald's Amazon.com CVS Caremark Safeway Dell 2012 US retail sales (US$ million) 328,704 92,165 71,960 71,042 66,022 65,014 63,688 49,366 37,532 35,593 34,416 4,369 4.0% 6.6% 5.1% 10.6% 6.4% -1.2% 6.7% 0.2% 1.6% 4.2% 30.4% -8% 3.3% -1.0% 0.9% 2.4% 0.1% 2.2% 1.7% 0.2% -2.4% 0.4% n.a. n.a. 4,570 3,538 1,778 435 1,965 7,821 7,472 1,715 1,418 14,146 - - 23 th rd Global Retail Development
  • By format, supermarkets and category specialists are expected to be the most influential channels by 2015 (Exhibit 16). However, in terms of sales growth, non-store retail is much more promising than other retail formats: From 2011 through 2015, this is estimated to reach a Compound Annual Growth Rate (CAGR) of 14.7%. The growth of discounters is also expected to speed up 7.9% (Exhibit 17). Exhibit 16: Retail sales by format, 2010 and 2015 (estimates) Source: PwC, “Retailing 2020: Winning in a polarized world”, September 2012 24 Supermarket Supercentre Department store Wholesale club Non-store retail Drug Convenience store Apparel specialty Mass merchandiser Discounter Category specialist 2,500 1,000 500 0 2,000 1,500 2010 2015e Sales(US$billion) 354 97 112 251 157 59 96 49 355 118 101 425 192 104 297 189 86 98 59 418 160 125 Global Retail Development
  • Exhibit 17: CAGR between 2010 and 2015 (estimates) by format An increasing number of retailers in the US provide shoppers with the option of ordering items online and collecting them from lockers in local stores. Customers can pick up their online orders at any time. For instance, Amazon’s lockers have been installed in grocery, convenience and drugstore outlets so customers can pick up their orders conveniently . Wal-Mart has also added the choice of collecting items from lockers at around 4,000 pickup spots in their US stores. Pick-up lockers provide shopping convenience as well as help retail- ers address the problems of delays or lost deliveries, while reducing staffing headcounts and costs. Latest developments Distinctions between grocery and non-grocery categorisations continue to fade Retailers test delivery lockers in stores Retailers are increasingly interested in stocking more grocery items such as fresh food in mass merchandis- ers, convenience and drug stores. For instance, Walgreen, the American drug store chain, plans to add more fresh food to its drug stores in areas where access is scarce to produce and other goods. Walgreen is positioning itself as a one-stop shop for health and daily needs. The company plans to increase the number of stores selling fresh food to between 300 and 500 stores over the next few years . On the other hand, supermarkets are adding more non-food items to compete with hypermarkets and discounters. So, the distinction between retail channels continues to diminish. Source: PwC, “Retailing 2020: Winning in a polarized world”, September 2012 25 27 28 29 CAGR 2010-2015e Supermarket Non-store retail Mass merchandiser Supercentre Drug Discounter Department store Convenience store Category specialist Wholesale club Apparel specialty 3.8% 14.7% -1.4% 3.4% 3.8% 7.9% 0.5% 4.0% 3.4% 6.3% 4.4% Global Retail Development
  • Smaller retail configurations are becoming more popular worldwide. There’s also a greater focus on customer needs, which is why US retailers are increas- ingly opening smaller and smaller stores. Wal-Mart, which operates more than 4,000 stores in the US, mostly in the supercentre format, is expanding into smaller operations, as with Neighborhood Markets, which currently number about 300, and Wal-Mart Express, which operate in around 20 locations, with growth in mind. Additionally, there are three Wal-Mart on Campus outlets, a 2,500-square-foot, college-based convenience-type store as part of a small-format test . Target is another example. In July 2012, the chain retailer opened a new format in Chicago called CityTarget, which is about two-thirds the size of a typical Target store in that city, aiming to reach more customers in tighter urban locations. Last year the company planned on three more CityTarget stores in Chicago, Los Angeles, Seattle and San Francisco . Marketing is highly personalised Retailers move towards smaller formats Mass advertising such as direct mail and newspapers are playing a diminishing role in retail marketing. Powered by increasingly sophisticated analytical tools, retailers can design more personalised advertisements. McKinsey found that 35% of what consumers purchase on Amazon come from product recommen- dations based on analytical tools . Advanced analytics tools can help turn data into practical opportunities and actions to increase revenues and reduce costs. Pop-up stores add flexibility for retailers Pop-up stores are becoming increasingly popular in Many retailers hope to use wireless networks and smartphones to drive customers into nearby stores. One way is to use “geofencing” technology to market their brands. Some retailers are launching opt-in mobile programmes to offer geo-targeted advertise- ments or coupons to consumers who are located in or near their stores. For example, North Face, the Ameri- can outdoor product company, not only geofenced its shops but also its outdoor areas such as sports fields, ski resorts and parks. It also imposed limits on the number of text alerts it sent out, in order not to annoy potential customers. The major objective of using geofencing is to keep people connected to the brand. Maurices, an American clothing retail chain, rolled out a mobile application in 2012 that uses push notifica- tions and mobile bar code scanning to let users interact with the brand and create a closer one-to-one relation- ship . Geofencing helps create a closer one-to-one relationship with consumers 26 the US. Many department stores have launched pop-up stores with distinctive themes to draw customer in. In October 2013 Nordstrom, for exam- ple, launched a number of pop-up shops called Pop-In @ Nordstrom, featuring trendy fashion brands and merchandise. The first theme was called the "French Fling" which featured famous high-fashion designers, included Proenza Schouler, Rodarte, A.P.C. and Kenzo. Pop-In offerings include exclusives, early- access designs and many items sold in the US for the first time . Nordstrom, featuring trendy fashion brands and merchandise. The first theme was called the "French Fling" which featured famous high-fashion designers, included Proenza Schouler, Rodarte, A.P.C. and Kenzo. Pop-In offerings include exclusives, early- access designs and many items sold in the US for the first time . 30 31 32 33 34 35 36 37 Global Retail Development
  • Europe – The UK, Germany, France 27 Global Retail Development
  • Overview Recently, the global economy is showing signs of recovery, but Europe is still lagging behind. Accord- ing to Eurostat, the Eurozone has emerged from recession after a record 18 months of economic contraction, with GDP growth of 0.3% in 2Q13. However, the unemployment rate in the Euro area remained high at 12.2% in September 2013 , higher than for the US and major economies in Asia. Challenges still lie ahead, with low economic growth and a high unemployment rate. This has a negative impact on the overall retail environment. In 2013, the weak economic outlook impacted retail markets across Europe. In particular, retail sales growth stagnated in Europe as the labour market lost momentum and the unemployment rate remained high, subduing consumer spending. -In the UK, although economic conditions were not favourable, the retail sector performed quite well in 2012 compared to other European markets, due to the positive impact of the Queen’s Jubilee celebra- tions and the Olympic Games. Total retail sales in the UK grew 2.9% yoy to reach 324.3 billion pounds in 2012 . According to Euromonitor, online retailing also registered significant growth with total online retail sales amounting to 31 billion pounds in 2012, up 13% yoy. Online retailing is already a significant sales channel in the UK. In 2011, 51 million of the UK’s 62 million population used the Internet, highlighting the importance of this channel to retail- ers . -In Germany, weaker confidence for consumer spend- ing amid the renewed threats of a Eurozone economic crisis imposed a negative impact on the retail sector in 2012. Overall growth in total retail sales dropped to 1% in current terms, lower than for growth rates recorded in the previous two years. Despite weaker overall retail sales, online retailing saw a strong performance. According to Euromonitor, total online retail sales increased 16% yoy to reach 21.3 billion euros that year. Although the Germans primarily use the Internet for communications and information, the consumer base for online retailing continues to grow – about 84% of the German population had access to and used the Internet in 2012. This bodes well for the further development of German online retailing. -In France, despite the on-going low GDP growth and high level of unemployment, the retail market still managed to witness positive sales growth, amounting to 395.6 billion euros in 2012, up from 390 billion euros in 2011. Online retailing continues to gain popularity in France. Euromonitor reports that online retail sales increased 12% yoy to reach 20,207 million euros in 2012. Online retailing is expected to continue its growth momentum as the number of online shoppers and retailers grow in tandem. 28 38 39 40 41 42 43 44 Global Retail Development
  • Exhibit 18: Country profile for the UK, 2010-2012 Source: EIU, IMF, Trading Economics Population (million) Nominal GDP (billion pounds) GDP growth (%) Retail sales (billion pounds) Private consumption per head (US$) Consumer price inflation (average; %) Unemployment rate (average; %) 20102012 2011 63.1 1,505 0.17 324.3 25,832 2.8 8.0 62.7 1,502 1.12 311.7 25,373 4.5 8.0 62.3 1,486 1.66 297.5 23,810 3.3 7.9 Exhibit 19: Country profile for Germany, 2010-2012 Source: EIU, IMF, Trading Economics Population (million) Nominal GDP (billion euros) GDP growth (%) Retail sales (billion euros) Private consumption per head (US$) Consumer price inflation (average; %) Unemployment rate (average; %) 20102012 2011 81.9 2,473 0.90 419.1 24,066 2.1 5.5 81.8 2,451 3.40 414.8 25,319 2.5 6.0 81.8 2,371 3.86 403.1 23,328 1.2 7.1 29 Global Retail Development
  • Exhibit 20: Country profile for France, 2010-2012 Source: EIU, IMF, Trading Economics Competitive landscape In 2012, the top five retailer positions in Europe were occupied by Tesco, Carrefour, Schwarz, Metro and Aldi (see Exhibit 21). According to the Deloitte and STORES Media , among the global top 250 retailers in 2012, 35.8% of them were based in Europe (including Germany, the UK and France). European retailers derived 39.1% of the total revenue from foreign opera- tions, far more than in other regions. Exhibit 21: Top 5 retailers in Europe, 2012 20102012 2011 Population (million) 63.4 63.1 62.8 Nominal GDP (billion euros) 1,809 1,809 1,773 GDP growth (%) 0.014 2.027 1.725 Retail sales (billion euros) 395.6 390.0 375.7 Private consumption per head (US$) 23,789 25,381 23,789 Consumer price inflation (average; %) 2.2 2.3 1.7 Unemployment rate (average; %) 10.3 9.6 9.7 Source: Deloitte, “Global Powers of Retailing 2014: Retail Beyond Begins”, January 2014 Country of origin UK France Germany Germany Germany 2007-2012 retail revenue CAGR 6.2 -1.3 6.6 0.7 6.0 101,269 98,757 87,236* 85,832 73,035* 2012 retail revenue (US$ million) EnterpriseGlobal Ranking Regional Ranking 1 2 3 4 5 2 4 6 7 9 Tesco PLC Carrefour S.A. Schwarz Unternehmens Treuhand KG Metro AG Aldi Einkauf GmbH & Co. oHG 30 45 *Estimates Global Retail Development
  • However, sales growth and profitability among retail- ers in Europe (including Germany, the UK and France) was generally below the global average (Exhibit 22). Exhibit 22: Sales growth and profitability by region/ country, 2012 Source: Deloitte, “Global Powers of Retailing 2014: Retail Beyond Begins”, January 2014 Latest Developments “Click and collect” shopping continues to gain in popularity Retailers often provide value added services to consumers to increase their loyalty. Already gaining popularity in the US and some parts of Europe, “click and collect” allows consumers to order online and pick up their orders nearby. Tesco, a grocery retailer in UK, has launched a trial run for its click and collect service where shoppers can pick up their shopping from schools, libraries, car parks and sports centres . ASDA, the British supermarket chain, launched its click and collect strategy as a “park-and-ride” scheme in late 2013. The service will allow commuters to order online and pick up their shopping from a delivery van when they return to their vehicles after work. 31 46 47 2012 retail revenue growth(%) 2012 net profit margin(%) 13.5 4.9 4.4 4.9 3.1 2.3 2.6 8.7 3 4.5 2.9 3.8 4.3 1.71.4 4 14.7 4.84.9 3.2 4.3 3.13.1 -2 2 0 6 4 8 10 12 14 16 Top 250 Africa/M iddle East Japan Africa/Pacific Europe O therAsia/Pacific G erm any France Latin Am erica U K N orth Am erica U S -0.1 Global Retail Development
  • Prime high-street space in short supply 2Q13, up by 4% yoy. Central Paris and Central London recorded the highest average prime rents in 2Q13, followed by Munich and Frankfurt (Exhibit 23). Indeed, the level of prime rents is linked to international retailers’ presence. According to Jones Lang Lasalle Cross Border Retailer Index 2012, London and Paris ranked first and second among 57 key European cities in terms of attractiveness to international retailers . Source: BNP Paribas Real Estate, "Retail Markets in Western Europe Property Report", 2Q13 City Area 2Q13 4Q12 2Q12 Paris London Munich Frankfurt Lyon Berlin Glasgow Cologne Hamburg Dusseldorf Manchester Cardiff Leeds Edinburgh Lille Barcelona Newcastle Avenue des Champs-Élysées Rue de la Rrpublique Tauentzienstraße Schildergasse Spitalerstraße St David's Trinity Shopping Centre Princes Street Rue de BSthune Oxford Street - West Kaufingerstraße Zeil Paseo de Gracia Königsallee Market Street Buchanan Street 19,000 3,500 3,360 3,290 3,240 3,240 2,848 2,784 2,531 2,200 10,251 4,380 3,840 2,160 3,120 3,037 3,354 18,000 3,200 3,300 3,290 3,240 3,240 2,848 2,784 2,531 2,200 10,251 4,320 3,840 2,160 3,000 3,037 3,354 18,000 3,200 3,180 3,290 3,240 3,180 2,848 2,784 2,531 2,200 10,124 4,020 3,840 N/A 2,940 2,784 3,354 32 Exhibit 23: High-street prime rents in major European markets (euros/ m / year), 2Q12-2Q13 2 In Europe, prime retail sites remain undersupplied due to strong demand from retailers, particularly fashion brands seeking to build flagship stores in key locations. Keen competition among retailers for prime retail space has pushed rents up in major cities. According to BNP Paribas Real Estate, the average prime rents for seven main markets in Western Europe, including Paris, London, Berlin, Frankfurt, Hamburg, Munich and Madrid, amounted to 6353 euros/m/year in2 48 49 Global Retail Development
  • New shopping mall construction projects remain limited; refurbishment is more common Shopping mall construction has not picked up momentum as the economic conditions in Europe is still not yet recovered; instead, refurbishment of existing shopping malls are prevalent. According to Cushman & Wakefield, Europe delivered 5.7 million sq.m GLA of new shopping centre floor space in 2012. Of this, Central and Eastern Europe accounted for almost 65% of all new shopping centre space added in 2012. It is evident that an increasing number of mature Western European markets are shifting focus towards refurbishing and extending existing schemes. Of all new space delivered in Western Europe in 2012, 35% was provided by extensions to existing schemes – this compares to just 8.5% for Central and Eastern Europe. Foreign brands eager to enter the European markets, while local brands turn to expan- sion in other countries In Europe, there has been an increasing number of cross border activities by retailers moving to and from other regions such as the Asia-Pacific and North America . International brands such as UNIQLO from Japan, UGG from Australia, Bosideng from China, and Discount outlets are increasingly popular The economic slowdown in Europe has negatively affected many retail segments, except one – discount outlets. This segment has not only been able to survive but thrive in the gloomy economic environment. Sales from discount outlets increase significantly during economic downturns as consumers tend to purchase fewer expensive designer products. Sales growth has also been driven by increasing numbers of tourists from the emerging economies of Asia, the Middle East, Eastern Europe and Latin America . According to FSP, a retail property consulting firm based in UK, outlet sales in Europe reached nearly 11 billion euros in 2012 . There are 205 such outlet centres in Europe, and 21 in the pipeline for 2013 and 2014. Around 60% of the planned projects are in France, Germany and Russia. 33 Victoria’s Secret from the US continue to establish their presence in Europe. On the other hand, facing fierce competition and low profitability in local markets, some European brands are keen to explore opportunities in other countries or regions; Asia is a popular destination for many. Burberry, Gucci Group, Hermès, LVMH and Richemont have expanded their store networks widely across the Asia Pacific region, where retail operations typically outperform the luxury goods business elsewhere in the world . 50 51 52 53 54 Global Retail Development
  • Asia – China, Japan, South Korea 34 Global Retail Development
  • Overview Asia continues to be one of the major growth drivers for global retail sales. Economic growth in Asia is generally faster than in Western Europe and North America. China remains Asia’s largest market, followed by Japan, while India is emerging fast. Many international retail companies now regard China and some emerging Asian countries as their most impor- tant markets. Exhibit 24: Country profile for China, 2010-2012 Source: EIU, IMF, Trading Economics Exhibit 25: Country profile for Japan, 2010-2012 Source: EIU, IMF, Trading Economics Population (million) Nominal GDP (billion yuan) GDP growth (%) Retail sales (billion yuan) Retail sales growth (%) Private consumption per head (US$) Consumer price inflation (average; %) 20102012 2011 1,354 51,894 7.7 20,717 14.3 2,246 2.6 1,347 47,310 9.3 18,123 17.1 1,980 5.5 1,341 40,151 10.4 15,455 18.4 1,584 3.2 Unemployment rate (average; %) 4.1 4.1 4.1 35 Population (million) Nominal GDP (trillion yen) GDP growth (%) Retail sales (trillion yen) Private consumption per head (US$) Consumer price inflation (average; %) Unemployment rate (average; %) 2012 127.6 519 1.96 136.9 28,792 0.0 4.35 2011 127.9 509 -0.59 134.8 28,216 -0.3 4.58 2010 128.0 512 4.65 135.6 25,682 -0.7 5.05 Global Retail Development
  • Exhibit 26: Country profile for South Korea, 2010-2012 Source: EIU, IMF, Trading Economics Exhibit 27: Retail sales in Asia (US$ billion), 2009 – 2016 (estimates) Source: PwC, EIU China is now the world’s second largest retail market. According to the Ministry of Commerce, Chinese consumers spent 1.3 trillion yuan (US$ 210 billion) online in 2012. Bain & Co. projects that China will surpass the US to become the No. 1 e-commerce market in the world in 2013, with e-commerce sales reaching US$ 277 billion, surpassing that of the US of US$ 254 billion. The growth of online retailing in China is phenomenal. Particular noteworthy is the massive online retail sales recorded on China’s “Singles’ Day” on November 11 – a day when many single people buy and give gifts, and retailers offer Population (million) Nominal GDP (trillion won) GDP growth (%) Retail sales (trillion won) Private consumption per head (US$) Consumer price inflation (average; %) Unemployment rate (average; %) 2012 50.0 1,104 2.04 311.8 12,088 2.2 3.2 2011 49.8 1,082 3.68 299.0 11,885 4.0 3.4 2010 49.4 1,044 6.32 278.7 10,798 2.9 3.7 36 China Hong Kong India Japan Taiwan 0 2,500 3,000 3,500 4,000 4,500 2,000 1,000 1,500 500 20102009 20122011 20142013 20162015 55 Global Retail Development
  • huge markdowns on products. The total value of goods sold on Alibaba, the country’s largest e-commerce platform, hit 35 billion yuan on Novem- ber 11, 2013, in just one day. This trend presents huge opportunities for retailers, with foreign and local firms alike continuing to expand into the China market. In Japan, consumer expenditure remained modest and retail sales continues to be flat in 2013, but is gradu- ally recovering. To curb the debt load and bolster economic growth, the Japanese government will increase the consumption tax rate from 5% to 8% in April 2014, and further increase it to 10% in October 2015. Retailers are expected to launch increased pre-tax sales promotions. Consumers may rush for last-minute purchase before the tax increase is imple- mented and retailers may possibly face declining sales after the tax increases are implemented. In South Korea, retail spending remained fairly weak in 2013 but retail sentiment has been gradually picking up. Although South Korea’s retail market ranks fifth in Asia after China, Japan, India and Indonesia, Korean consumers are still relatively wealthy, while over 80% of the population lives in urban areas . The market is attractive to both domestic and foreign retailers. In 2012, the South Korean government introduced a revised bill ahead of implementation of the Distribution Industry Development Act, aiming to protect local mom and pop stores and small and medium-sized retail enterprises. The revised bill expands the current compulsory closing days for big-box retailers and shorten operating hours. Moreo- ver, the bill also stipulates that super supermarkets established in shopping centres or multiplex shopping malls, which were previously free from regulation, will be subject to compulsory closing days and limitations on business hours. This has put pressure on perfor- mances of hypermarkets, supermarkets and discount stores. Competitive landscape According to Deloitte and STORES Media, most retail- ers in the region posted solid gains, but the growth was not at the double-digit levels seen in the previous two years. Japanese retailers performed better in 2012 than in the previous year, but growth continued to trail behind other countries. Aeon ranked top in the region in terms of retail sales, followed by Seven & I, Lotte, Yamada Denki, and AS Watson (Exhibit 28). Asian consumer markets are relatively fragmented and region-based, therefore there are relatively fewer leading retailers on the Top 250 list compared with other regions. 37 56 57 Global Retail Development
  • Source: Deloitte, “Global Powers of Retailing 2014: Retail Beyond Begins”, January 2014 When looking at online retailing sales in 2012, three of the top 10 Internet retailers in the Asia-Pacific were Chinese companies (Exhibit 29). The top player was Alibaba Group, which operates China’s top B2C platform Tmall.com, and C2C platform Taobao.com. With combined, active registered users numbering over seven million in 2013, Tmall.com and Taobao have far outperformed their major online competitors in China. JD.com, also an Internet retailer operating in 38 Exhibit 28: Top 5 retailers in Asia, 2012 2007-2012 retail revenue CAGR Country of origin Japan 63,100* 1.7 Japan 58,329* -2.9 South Korea 20,978 18.0 Japan 20,588 -0.8 Hong Kong 19,161 6.2 2012 retail revenue (US$ million) EnterpriseGlobal Ranking Regional Ranking 1 2 3 4 5 13 17 43 44 48 Aeon Co., Ltd. Seven & I Holdings Co., Ltd. Lotte Shopping Co., Ltd. Yamada Denki Co., Ltd. AS Watson & Company, Ltd. China, took fourth position and the company is the second-ranked Internet retailer in China. Diversity is also an important development strategy for JD.com: Apart from being the leading online shopping mall focusing on consumer electronics products in China, JD.com has been actively exploring other lucrative market categories and the company has launched a series of sub-brands in recent years. Exhibit 29: Top 10 Internet Retailers in Asia-Pacific, 2012 * Based on 2012 retail value sales ex VAT, USD, current prices Source: Euromonitor, “Internet retailing emerges as a rising star in Asia-Pacific”, October 2013 1 2 3 4 5 6 7 8 9 10 Retail CompanyRanking Alibaba Group Holding Ltd. Rakuten Inc. Amazon.com Inc. JD.com eBay Inc. Apple Inc. Dell Inc. Suning Appliance Co., Ltd. Yahoo! Inc. Lotte Group *Estimates Global Retail Development
  • Latest developments Online retailing continues to grow rapidly in Asia; competition in online grocery market is becoming fierce Online retailing is growing fast in the entire region. Currently, non-food items remain the most popular items purchased online in Asia. However, as more online retailers dip their toes into the grocery market, competition is expected to heat up over the coming years. For a start, more consumers are expected to purchase groceries online. For instance, Rakuten Inc., a leading Japanese e-tailer, entered the online grocery market in 2012, and has posed challenges to other major grocery chains such as Ito-Yokado Co Ltd . In China, competition in the online grocery market has also intensified. Many supermarkets and hypermarkets have launched online platforms selling food products. At the same time, express delivery companies such as SF Express have set up its own online retail platforms, (in SF Express’ case, sfbest.com), to sell high-end food products. M-commerce boom is set to continue Mobile is becoming an increasingly larger part of the e-commerce purchasing cycle in Asia. A major factor driving the growth of m-commerce is increasing smartphone adoption across the region. According to Nielsen, smartphone penetration in a number of Asian markets is approaching saturation point and surpass- ing penetration in the US and many European coun- tries. Asia Pacific smartphone penetration is highest in Hong Kong and Singapore at 87%, followed by Malaysia (80%), Australia (75%) and the Chinese mainland (71%) (Exhibit 30). 39 58 Global Retail Development
  • Source: Nielson, “Decoding the Asian Mobile Consumer”, September 2013 When it comes to m-commerce, South Korea and Japan take the lead with 89% of Japanese consumers and 67% of Korean consumers participating. Aside from these two markets, Singapore, Hong Kong, Malaysia and Australia exhibit the strongest m-commerce up-take (31%, 28%, 27% and 25% of consumers participated in m-commerce in the surveyed period). In the less developed markets, m-commerce activity trails at just 8% in India, 7% in Thailand and Indonesia, and 3% in the Philippines . With increasing mobile adoption and more user-friendly mobile apps, mobile shopping is expected to be more popular across the markets of Asia, and will play a key role in shaping the future of Asian retail. Convenience stores provide more fresh groceries An increasing number of convenience stores in Asia are selling fresh groceries in-store. Ministop, the Japanese convenience store chain, has begun to sell fresh vegetables in its 2,100 outlets since June 2012 . As of February 2013, Lawson operated more than 5,000 “Fresh food-type LAWSON” stores in Japan, which offer customers the choice of a variety of perishables and foods delivered daily. To ensure the stable supply of vegetables and fruit for sale in its stores, Lawson sources directly from its own farms . Another focus is on in-store hot meals. Some conveni- ence stores have added on-site catering to provide hot and cold food and drink. For instance, some Circle K outlets in China offer meals and drinks under its own Hot & In brand; and 7-Eleven in Taiwan also provides in-store hot meal services. Furthermore, in Japan, Lawson has installed in-store kitchens in 400 stores, and it plans to expand this feature to 1,200 stores by February, 2014 . Exhibit 30: Smartphone penetration in selected countries, September 2013 40 Smartphone Non-smartphone 13% 13% 20% 87% 80% 25% 29% 71% 51% 82% 49% 85% 15% 77% 72% 28% 36% 40%38% 87% 64% 60%62% 75% 18%23% H ong Kong Singapore China Austratia Indonesia Thailand U K Philippines India France U K G erm any U S M alaysia 59 60 61 62 63 Global Retail Development
  • In Japan, the problem of the aging population is increasingly drawing attention from retailers as an opportunity. Some grocers have started to cater to elderly consumers by introducing private label products specifically targeting that market. For instance, Daiei, a Japanese supermarket chain, launched 60 items in February 2013 for elderly consumers. Some convenience stores have started to provide delivery services for this consumer segment. FamilyMart stores are offering home delivery services to stimulate purchases by elderly shoppers. Mean- while, Aeon opened a shopping mall geared toward seniors in April 2012: The mall features a slower-speed escalator, large signage, Aeon’s first directly run opticians, Opt Value, as well as a variety of brands and products targeting elderly consumers. Retailers introduce products and services to target the elderly 41 64 65 Global Retail Development
  • Retailers seek to drive overseas expansion Asian retailers are increasingly active in seeking overseas expansion. Facing weak economic conditions in their local markets, some retailers have been striving to expand into foreign ones. For instance, leading Japanese convenience store operators such as 7-Eleven, Lawson and Family Mart have been making inroads overseas while leading general merchandise retail chain Aeon has also been strengthening its business in Vietnam, Malaysia and in smaller cities in China as part of its “Asia Shift” expansion strategy. South Korean retailers are also actively expanding overseas. For instance, E-mart Supermarket/ Hypermarket, Lotte Department Store and Shinsegae Department Store have entered the China market over recent years. At the same time, Chinese retailers are also seeking overseas expansion. Bosideng, the seller of down jacket, opened its first overseas flagship store in London in July 2012, and the retailer is reportedly ramping up plans to open another store in New York. Metersbonwe, a Chinese apparel retailer, also plans to expand its business in London, Paris, New York and Tokyo over the next five years. Maker of homespun scarves Shanghai Woo has also unveiled plans to open outlets in Paris, London, Milan and New York over the next three years. Food and other product safety remains a concern Despite the rapid development of Asia’s retail markets, food safety and product quality issues remain a major concern in many Asian countries. For instance, the recent oil scandals in Taiwan have sparked concerns among Taiwanese consumers: Here, a number of edible oil producers and soft drink makers had used industrial plasticiser as a clouding agent in some of its products. To address rampant food and product safety issues, governments across the region are tightening industry regulations and stepping up efforts to ensure that products are safe before reaching consumers’ hands. 42 66 67 68 69 Global Retail Development
  • Key challenges facing retailers Despite the global economy appearing to emerge slowly from its hangover after the downturn of the last five years, challenges to global retailers remain significant. 43 Global Retail Development
  • High unemployment rates affects consumer spending Employment rates in many countries have not yet recovered, which greatly impacts wage growth and consumer confidence. Consumers’ concerns about personal finance and spending are reflected in their purchasing decisions. Shoppers may, indeed, become more price sensitive and rational; they certainly tend to purchase more discounted items. Threat of “showrooming” is here to stay Retailers are facing a growing threat of “showroom- ing”, whereby consumers visit a physical store to examine or try on a product but then buy it online at a lower price. The practice of “showrooming” has brought the e-commerce threats directly to bricks- and-mortar retailers. Moreover, increasing smartphone adoption raises the “showrooming” threat to a new level, since price comparisons are available to shoppers immediately, as they make decisions and browse e-commerce websites even as they physically visit stores. Managing the flood of data is challenging Data collection programmes are now very sophisti- cated, and retailers can store huge amounts of consumer data – consumer browsing behaviour, purchasing patterns, transaction details are all known by using powerful data-capturing tools. Managing the flood of data is actually becoming a challenge. Data security issues also pop up. Companies that suffer a security breach in which customer data is lost or stolen can face widespread negative publicity, lost business, and even lawsuits that can threaten their businesses. Online retailing offers huge opportunities but logistic bottlenecks remain The robust growth of online retailing has generated increasing demand for logistics services. However, last mile delivery is a significant challenge to retailers. This is especially the case in emerging markets, as distribu- tion and transportation networks are less developed. Moreover, the quality of express delivery companies in these markets is also a concern. High costs of rebuilding the business model The recent retail trends will put considerable strain on the traditional retailers’ business model, with challenges from “top to bottom” lines. Retailers may have to redesign store layouts to foster greater customer involvement, invest in technologies, and team up with data analytics providers to offer the new shopping environment that consumers are demanding. Challenges for penetrating emerging countries Retailers expanding into emerging markets may face significant challenges, as these retail markets may still be unorganised and fragmented. Every market is fraught with its own challenges and could need unique strategies for success. Strategies that are well adopted in one market may not easily be replicated in others. Also, retailers need to deal with different logistics and payment arrangements, which further complicate their operations. 44 Global Retail Development
  • Conclusions and implications The retail industry is more dynamic than ever. Slow economic growth and changing consumer behaviour are together reshaping retailers’ strategies. Also, challenges lie ahead amid the fast-changing retail scene. To secure a place on the list of top retailers, enterprises have to keep a close eye on current trends and make full use of available retail technologies to win market share. 45 Global Retail Development
  • Increasing a global presence Many leading retailers have struggled to achieve growth domestically, leading to a faster pace of expan- sion overseas, especially in emerging countries: It is a case that emerging markets will lead the way with the support of a burgeoning middle class. Some retailers may choose to pursue a franchise strategy to expand faster, at lower risk. However, retailers have to bear in mind that every market has its unique characteristics, and the one-size-fits-all approach may not work. Hence, understanding local consumers and adapting to their needs and preferences are both crucial. Winning the “showrooming” battle, enhancing consumer experience Instead of seeing it as a threat, retailers should regard “showrooming” as an opportunity to improve service standards and accordingly revamp their stores as environments where consumers really want to spend time and money. Retailers most at risk from this consumer “showroom- ing” must look to develop their stores as destinations with enough appeal to draw consumers back from shopping online to buying in their physical stores. While customisation, store design, and ambiance are all important to attract foot traffic, a well-trained staff with exceptional customer service skills is essential to generate in-store sales. Drawing valuable data from the database In the modern retail world, many businesses will eventually become data-driven. With limited capital, choosing what data to be analyzed is the key. Data volumes are increasing exponentially and retailers have to select the content and analytic tools that will best support their business goals. Communicating with empowered consumers Social media is expected to influence an increasingly larger proportion of sales into the future, driven both by consumers and emerging technologies. Technol- ogy has given consumers more choice, with greater transparency along the supply chain. Consumers have rising expectations and they demand more of retailers. Very often they expect a two-way “dialogue” with brands and through personalised advertising relevant to their needs . Transforming supply chains Supply chains will undergo a complete transforma- tion, as the retail world becomes more seamless and retail borders between countries overlap. Retailers have to deal with more complicated supply chains and work with multiple partners across the globe, while at the same time balancing costs. When retailers have to decide on their delivery model for fulfilling interna- tional markets, they have to consider balancing the higher costs of international delivery with the risks and inherent costs of establishing hubs abroad. 46 70 71 72 73 Global Retail Development
  • Going Green Green retail inevitably delivers business sustainability. It can also demonstrate corporate social responsibility. Lowering carbon emissions, reducing waste, imple- menting green operations such as energy-efficient panels and lightings, cutting packaging costs and other issues are among the initiatives that retailers have commonly applied. As some surveys find, consumers switch brands if given a more ethical alternative, so retailers which take account of green issues have an added competitive advantages. 47 74 Global Retail Development
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  • 51 Fung Business Intelligence Centre 10/F,LiFung Tower, 888 Cheung Sha Wan On Ping Road, Kowloon,Hong Kong Tel:2300 2470 Fax:2635 1598 Email:lfdc@lf1937.com http://www.lifunggroup.com/ © Copyright 2014 The Fung Business Intelligence Centre.All rights reserved. Though the Fung Business Intelligence Centre endeavours to ensure the information provided in this publication is accurate and updated, no legal liability can be attached as to the contents hereof. Reproduction or redistribution of this material without prior written consent of the Fung Business Intelligence Centre is prohibited. Global Retail Development