GCC retail industry shows sustained growth: A.T. Kearney Global Retail Development Index
The GCC continues to show strength as a dynamic retail market with five countries-UAE, Kuwait, KSA, Oman and Jordan – ranked among the top 25 in the 2014 A.T. Kearney Global Retail Development Index (GRDI). Factors influencing the growth of the regional retail industry include the construction and infrastructure boom, a growing and young population, strong GDP growth, and increasing consumer confidence and spending.
This year, the UAE climbed one spot to claim #4 position. Retail sales grew 5 percent in the UAE in 2013, boosting annual sales to $66 billion. Dubai’s winning bid for Expo 2020 highlights the country’s bright future and the massive infrastructure and development projects in the pipeline. Regional retailers are becoming important players in emerging markets by using their proximity as a competitive advantage to secure a share of neighboring markets, such as UAE-based LuLu Hypermarkets and Majid Al Futtaim that have continued to expand throughout the Gulf region in recent years.
Kuwait also climbed one spot to rank at #8 position in this year’s index. The country’s rapidly growing GDP makes it a strong retail market, with high oil prices, strong trade and fiscal surpluses, and large government reserves creating a positive outlook. Saudi Arabia continues to remain fundamentally attractive to retailers looking to expand, and maintains 16th spot in this year’s GRDI. The Kingdom has the largest economy in the Gulf region and remains largely untapped by modern retail. However, hypermarkets and large shopping centers are expanding. In Oman retail sales have grown 7 percent per year since 2011 and the grocery sector leads the growth. Despite its small size (3 million people), Oman ranks 17th in the 2014 GRDI.
Commenting on the index findings, Dr. Martin Fabel, Partner and Head of Consumer Industry and Retail Practice at A. T. Kearney Middle East, said: “The GCC retail sector continues to be considered among the leading markets globally. As a rapidly maturing market, the UAE has a growing need for more sophisticated formats to cater to changing consumer needs. Consumers are demanding more proximity and retail saturation has brought about some interesting and innovative concepts. In Kuwait, as a top luxury destination, high-end retail developments were the main drivers for market growth.”
“Retailers in KSA have the opportunity to deliver creative formats and entertainment in addition to their current offerings. Grocery is the Kingdom’s largest retail sector, and although hypermarkets will continue to spread, small convenience stores will remain important. Despite its small size, Oman’s solid economy, increasing consumer confidence, and recent government moves to improve access to credit makes it a popular growth location for regional and global players,” added Fabel.
The report suggests there are four stages markets pass through as part of retail development – opening, peaking, declining and closing – as they evolve from emerging to mature markets, a process that typically spans five to 10 years. The underlying theory is the retail ‘window of opportunity’ opens when the population becomes wealthier, when logistics start improving, when ownership regulations become more friendly to international firms, and when the country’s various economic, political and social risks settle down to acceptable levels.
Globally, Latin America remains a strong retail market with eight countries-Chile, Uruguay, Brazil, Peru, Panama, Colombia, Costa Rica, and Mexico-included in the 2014 A.T. Kearney GRDI. Sub-Saharan Africa is turning into another exciting regional retail opportunity, with Nigeria, Botswana, and Namibia in this year’s Index.
Mike Moriarty, A.T. Kearney partner and co-author of the GRDI, noted, “With GDP growth of 5 percent, rising household incomes, fast urbanization, and a growing middle class, sub-Saharan Africa is a region of massive potential for retailers.”
Published since 2001, the GRDI ranks the top 30 developing countries for retail investment worldwide. The Index, in its fourteenth year, analyzes 25 macroeconomic and retail-specific variables to help retailers devise successful global strategies to identify emerging market investment opportunities. These variables fall under four main ingredients which are evaluated in determining where a country comes in the GRDI. These are market attractiveness, country risk, market saturation and time pressure. The score for each segment contributes to the overall GRDI score, determining the ranking.