Special Report
The Global Retail Development
Index’s “Graduates”
Sixty-three countries have been ranked in the Global Retail
Development Index™ since the first edition; more than half are no
longer ranked. This special report examines the reasons why.
Since the first Global Retail Development Index, 63 different countries have graced the list of the
top 30 developing markets for retail investment. A few have long-standing tenure—China,
second in 2014, has consistently rated in the top 10 since 2002. However, more than half are no
longer ranked.1
This year we analyzed the countries that are no longer ranked in the GRDI and why they fell
from the rankings. The list includes Poland and South Korea, which developed into modern retail
markets; Bulgaria and Romania, where stalled economic growth delayed retail development;
and Algeria and Ukraine, whose social and political unrest unraveled retail growth.
In the following sections, we look at the common themes that emerge from these countries’
divergent flight paths.
Eastern Europe: Three different paths. Eastern Europe is a perfect example of the varying paths
of retail development (see figure on page 2). Most Eastern European countries formerly on the
GRDI have “graduated” over time, including Poland and the Czech Republic, both countries with
low risk and retail densities approaching Western levels. The former Soviet Bloc nations used
aggressive structural reform and liberalization to accelerate growth in the early 1990s. International
retailers such as Carrefour (635 Polish stores) and H&M (40 Czech stores) swooped in more than
a decade ago and have since built up extensive retail networks.
Bulgaria and Romania represent the path of middling growth, where slow reform following the
fall of communism initially hampered retail growth. Both suffered from financial crises in the late
1990s and saw their accession into the European Union pushed back to 2007. Modern retail in
these countries has been slower to emerge, although global retailers such as Carrefour and
Inditex have been present for more than a decade.
Two additional types of markets have never been included in the GRDI rankings—those that long ago reached maturity and those
that do not qualify for the GRDI due to excessive risk, low population, or low GDP per capita. The former group includes the dozens
of developed markets such as the United States, Germany, and Japan that require sophisticated strategies to enter. The latter group
includes countries such as Iraq, Congo, North Korea, and Zimbabwe, which are too risky and restrictive for retailers to consider.
1
The Global Retail Development Index’s “Graduates”
1
Figure
Three clear flight paths emerge in Eastern Europe’s retail progression
High risk
160
2014 Bosnia and Herzegovina
150
140
2010 Bosnia and Herzegovina
130
2014 Ukraine
120
First year in top 30
Rising country risks
have inhibited retail
development
Last year in top 30
2014
110
2005 Bosnia and Herzegovina
100
Slow reform and
financial crises
delayed growth
2002 Ukraine
90
2009 Ukraine
80
70
2002 Romania
60
2002 Bulgaria
2014 Romania
2010 Romania
2014 Bulgaria
2011 Bulgaria
50
2002 2004
Poland Poland
40
30
Low risk
Euromoney country risk ranking
Retail density vs. country risk
Aggressive economic
reform accelerated
retail development
2014
Czech Republic
2002
2004
Czech Republic
Czech Republic
2014 Poland
20
10
0
0
50
Low retail density
100
150
200
250
300
350
Modern retail sales area per 1,000 inhabitants
400
450
High retail density
Sources: Euromoney, Planet Retail, Population Reference Bureau; A.T. Kearney analysis
Finally, Bosnia and Herzegovina and Ukraine have high country risk and poor market
fundamentals, which have inhibited retail development. Here, modern retail has made only
a minor dent, and both countries have been rocked by major unrest this past year.
Asia Pacific: Rapid growth. With seven countries ranked in this year’s GRDI, Asia Pacific
remains a center of growth for international retailers. Among the markets which have exited
are Hong Kong, South Korea, and Taiwan, which developed highly mature retail markets driven
by rapid economic growth dating to the 1960s, wealthy populations, and longstanding
political stability. All three are shopping hotbeds with saturated markets and international
retail presence. Local retailers are looking to expand abroad due to fierce competition at
home. For example, South Korea’s E-mart has been in China since 1997 and is planning to
expand to Vietnam in 2015.
Thailand, ranked in the GRDI from 2002 through 2009, has stalled in comparison. While it has
made strides in economic growth and poverty reduction, market saturation and some natural
and manmade events—political unrest in 2009–2010 and 2014, and severe flooding in 2011—
have had a negative impact. Still, international retailers have entered in recent years, including
IKEA and Uniqlo in 2011 and H&M in 2012, and new modern retail space has opened, including
Bangkok's Central Embassy mall. The convenience store format has also expanded; 7-Eleven’s
franchisee plans to open 600 more stores by 2016. If Thailand can solve its political troubles and
refocus on growth, it could stage a comeback soon.
Middle East and North Africa: Arab Spring fallout. While several markets in MENA continue
to present attractive retail investment opportunities, political instability in some has hampered
retail development, especially in the wake of the Arab Spring tumult.
Egypt’s huge population makes it a significant retail opportunity, but ongoing political difficulties
have pushed development prospects out of reach. Algeria is slightly more stable, but ongoing
The Global Retail Development Index’s “Graduates”
2
protests, corruption, media censorship, and political suppression have cut short its investment
opportunities. Lebanon’s retail sales are expected to grow in coming years, but its proximity to
Syria makes it risky. Tunisia’s retail density has grown 5 percent yearly since its revolution began
in late 2010, but GDP growth has slipped. In these markets, political stability will be key to
resuming the path to retail development.
Latin America: Victims of plummeting commodity prices. This year, Latin American markets
hold an impressive three of the top five spots in the GRDI. For many countries in the region,
however, the story has been less positive. Argentina, El Salvador, Guatemala, and Venezuela
are among the Latin American countries that have dropped out of the GRDI largely as commodity
prices plummeted. The economic risks resulting from these troubles were compounded by infrastructure challenges, political unrest, corruption, and widespread violence, among other factors.
Moreover, the size of the prize is relatively small in these countries, where incomes are low.
For El Salvador, Guatemala, and Venezuela, market attractiveness diminished as commodity
revenues were not reinvested in infrastructure, technology, education, or economic diversification. Argentina’s retail market is growing, specifically in grocery and home improvement, but
inflation and rampant economic intervention have diminished its overall market attractiveness.
A Guide—or a Warning
Undoubtedly, this list of former GRDI members will grow over time as more countries mature or
falter. Could China, already the owner of the world’s second largest GDP, soon graduate from
the GRDI? Could India, if the new government does not improve the ease of doing business, slip
out of the rankings? Or, could an unexpected geopolitical crisis knock out countries formerly
on the path of development? Whatever happens, the experiences of former GRDI countries
offer a guide—or a warning—for retailers looking to expand.
Authors
Mike Moriarty, partner, Chicago
[email protected]
Hana Ben-Shabat, partner, New York
[email protected]
Helen Rhim, consultant, New York
[email protected]
Fabiola Salman, consultant, New York
[email protected]
The authors wish to thank Erin Jones and Jodie Wang Kassack for their valuable contributions to this report.
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