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Report: Geopolitical Instability is Having a Chilling Effect on Retailers’ Supply Chain Moves

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The nationalist ideals coming out of Brexit and America First have many retailers on pause when it comes to new market entry or expansion.

A report out Monday by A.T. Kearney called “The Age of Focus” looks at the 2017 Global Retail Development Index and finds that the uncertainty on a global scale has fostered uncertainty at retail and that many companies are rethinking their strategies as a result.

“The 2017 GRDI is all about the geopolitical scene and how it affects business,” Hana Ben-Shabat, an A.T. Kearney partner and a co-author of the study, said. “Retailers are thinking twice about expansion into places where there is uncertainty about future government actions or high political risk.”

To heed this uncertainty, some retailers are closing stores, some are exiting markets altogether (like Marks & Spencer in China and Galeries Lafayette in Morocco), and others are introducing innovative e-commerce solutions to keep pace with the changing tech times. In the past year, fewer retailers have entered new markets or expanded in existing markets, and more retailers have started reexamining their footprints and logistics networks to reduce store counts or leave certain markets entirely.

In ranking the top 30 developing countries for retail investment, the 2017 GRDI points to Asia as the leader in global retail expansion right now—and more specifically, India, which bumped China out of the first place spot. Last year alone, brands like Armani Exchange, Cole Haan, Kate Spade, Massimo Dutti and Muji entered the Indian market.

The top 10 countries for retail investment in 2017 are: India, China, Malaysia, Turkey, United Arab Emirates, Vietnam, Morocco, Indonesia, Peru and Colombia.

Despite the fact that retailers aren’t making major moves right now, when they do, the below are the markets that are most attractive today, and also those that will offer potential further in the future.

Asia Pacific

Asia, according to A.T. Kearney, is the most dynamic region in the index, with five countries in the top 10 for retail investment.

“India leads the way with a rapidly expanding economy and a consumption boom. China, long the Index leader, drops to second place as the market matures, but the country still leads the pack in other areas, most notably e-commerce,” the report noted. “Vietnam moves ahead and is emerging as an important market for retail expansion with its liberalized investment laws.”

Vietnam’s momentum has “finally arrived” according to A.T. Kearney, and with its more favorable government policies, shift toward higher value export, urbanization and growing middle class, foreign retailers have much to be positive about when it comes to Vietnam.

Malaysia earned its third place spot in the list largely because its online retail market is expected to grow 23 percent per year through 2021.

Eastern Europe and Central Asia

Europe isn’t enjoying as much present potential as Asia, with just one country in the top 10.

“Eastern Europe and Central Asia feature some different economic and retail landscapes,” A.T. Kearney said. “In Turkey, despite growth in retail sales area, a turbulent year politically has led many foreign retailers to exit. Romania had strong retail growth in 2016, Russia is still recovering from a recession, and Azerbaijan and Kazakhstan have dropped significantly due to the uncertain prospects of oil and commodities on which their economies are reliant.”

Middle East and North Africa

The Middle East and North are at once facing security concerns and challenges with oil prices and also some of the world’s most innovative projects.

“The United Arab Emirates (UAE) remains the most attractive market in the region, as growth opportunities expand beyond saturated Dubai. Saudi Arabia is focusing on diversifying its economy away from oil, and the retail sector is in the spotlight,” the report noted. “North Africa presents an interesting mix of political risk and rising disposable incomes, and the region is building infrastructure to attract foreign companies.”

Sub-Saharan Africa

Though its gotten a lot of attention as an up-and-coming region, Sub-Saharan Africa still has no countries in the list of top 10 for investment potential, but the region’s size, increasing urbanization and economic development have been a draw for retailers.

“Retailers have long been attracted to the sheer size of sub-Saharan Africa, and retail opportunities in the region are plenty as urbanization and economic development continue,” according to A.T. Kearney. “But the region is quite varied—the five countries ranked this year are all very different and have their own nuances. Countries such as Côte d’Ivoire ($14 billion in retail sales), Tanzania ($17 billion in retail sales), and Kenya ($28 billion in retail sales) have emerged as some of the region’s fastest-growing economies and, because of their relatively low market saturation, present an opportunity for retailers willing to take the risk that comes with doing business there.”

Latin America

Apart from Asia, Latin America is a region for retail to pay attention to, and two of the top 10 countries for investment are in Latin America. The problem the region faces now is trying to get on the same page.

According to A.T. Kearney, “…countries in the region seem to be moving in different directions. Some display consistently strong fundamentals, such as Peru, Colombia and Paraguay, while regional giant Brazil dropped to an all-time low amid a crippling recession and political crisis. Overall, years of sustained growth have built a middle class that is eager to consumer, leading to above-average retail growth, even in an economic slowdown. More countries are also opening their markets with free trade agreements that seek to strengthen the regional trade market.”

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