Emerging markets more compelling for global retailers: report

Though more than one-third of world's largest retailers suffer declining sales, profitability shows a marked improvement

One-third of the world’s large retailers suffered a decline in sales as the global economic downturn led to more cautious consumer spending and a drying-up of available credit. Considering that successes in growing developed retail markets have become more challenging, large global retailers are increasingly being compelled to look at the emerging markets to pursue their growth ambitions.

However, as the 2011 Global Powers of Retailing report from Deloitte Touche Tohmatsu Ltd (DTTL) reveals, though pursuing growth in emerging markets will never be easy, many more retailers are now ready to take the plunge.

While, in urban India modern retailing now accounts for roughly 15% of retail sales and is likely to continue to rise in the coming 5 years to an estimated over 20%, India as yet remains largely closed for global retailers since the current policy prohibits Foreign Direct Investment (FDI) in multi-brand retail (though upto 100% FDI is permitted in the Cash and Carry sector/Wholesale trade and upto 51% FDI is permitted in single brand retail.

“While there are signs that the Indian retail sector may open up to FDI in multi-brand retail in the next few years, global retailers should be prepared to make significant investments for the long-term, particularly in upgrading the back end infrastructure and supply chain and in helping to convince local suppliers and vendors that they are here to stay and build a following among consumers”, said Rajan Divekar, Senior Director, Deloitte in India.

“The experiences of some global players have taught the industry that it is not sufficient simply to enter a promising market; there has to be a cohesive and holistic strategy given the diversity in Indian shoppers and their unique shopping habits. It is also important that global retailers make the most of local knowledge: understanding local tastes and culture, using mostly local managerial talent, and developing local relationships with vendors, suppliers and service providers.

The efforts of many global retail companies to cut costs and adjust their inventory levels have paid off, with net profit across the top 250 global retailers increasing from 2.4% in 2008 to 3.1% in fiscal year 2009 (encompasses June 2009 through June 2010).

Global retailers are thus again looking at investing beyond their home markets as indicated by the fact that the global retail sector saw 38 retailers begin operations in a new country for the first time, with a combined total of 57 new market entries involving 42 countries. How soon India figures on this list would critically depend on the pace of FDI liberalisation in the Indian retail sector and the developments in this regard are being keenly tracked by many of the large global retailers.