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The Burgeoning Winds of Retail in Emerging Markets

For those that follow the mantra - “fortune favors the bold” - breaking ground in lesser known international retail frontiers may have significant pay-offs, as evidenced by the first-wave of retailers who made retail investments in BRIC cities. Driven by massive urbanization and an increasing number of middle-class individuals, retailers are expanding their operations in emerging global markets. Despite geopolitical tensions in certain developing markets, many retailers have remained vigilant in their efforts, and some have gone so far as to make even more targeted investments in areas of growth. When we think of successful BRIC retail markets, Shanghai, Delhi, Moscow, and Sao Paulo are usually the first to come to mind. However, over the past five years, many retailers have begun to appreciate the importance of cities that aren’t as large or affluent. That’s largely due to the belief that other less known emerging market cities – e.g. Angola, Botswana, Chile, and Mongolia – may potentially represent 80% of total apparel sales by 2025 in essence enlarging the international apparel market by a whopping $100 billion. While one surely cannot predict the future, there are many signs that urbanization and wealth creation opportunities will only accelerate across emerging markets, which will further embolden retailers to pounce at opportunities in these emerging markets.

Given the upswing in consumer spending, retailers are exploring emerging markets as an opportunity for store growth, and increasingly making emerging markets the focal point of their business plans. To gain a foothold in these emerging markets, retailers have re-evaluated their business strategies and sought distinct, culturally sensitive strategies for these new markets. In certain cases, local customization strategies have caused retailers to change their product. But, when it comes to execution, savvy retailers have found that effective resource allocation and working with a local partner are the imperatives for success. Without a complete understanding of the local business market, success would remain fleeting. Therefore, partnerships with local companies and/or franchisors are vital for developing local strategies that improve retailers’ chances of success while also reducing risk and short-term financial constraints. Many U.S. retailers have pursued global expansion by entering into franchise agreements to illustrate a long-term investment in the market.

Retailers that increase their physical presence in emerging markets will have a competitive advantage over less intrepid retailers without storefronts. Even without a physical presence in the emerging markets, retailers have acknowledged that the internet offers yet another invaluable platform to increase market share. The global e-retail market is evolving at an unprecedented pace. With emerging markets pushing the pace of growth in e-commerce, many retailers are designing e-commerce ventures that are well-equipped to handle sales via mobile devices and social media in emerging markets.

For any retailer that takes the leap of faith into emerging markets, success is not guaranteed. The degree to which a retailer’s business plan depends upon local regulatory measures and others in the local retail ecosystem will dramatically shape the fortunes of a company. With that said, retailers that excel in marketing, supply-chain management, and franchise development have an excellent opportunity to expand their brand in these emerging markets.

Related topics: Real Estate, Retail