Growth and opportunity are used synonymously with Asia and its markets in almost every consumer-related sector. Fast food chains like Yum! Brands (KFC, Taco Bell), convenience store outlets like 7-Eleven, discounters like Wal-Mart, consumer-packaged goods like Procter & Gamble or Unilever, premium brands like Ralph Lauren, and finally luxury goods retailers like Louis Vuitton or Prada – have all shifted their lion’s share of focus, growth targets, and revenue expectations onto Asia.
Category leaders, like Starbucks, have declared that a vast majority of their new retail store growth will occur in China outside of their core market (i.e. U.S.). At an event in Beijing recognizing 40 years of growth, Starbucks CEO Schultz, expressed a common shared sentiment by other retail executives: “the growth in China [and Asia] will be dramatic….we [will] get to a point where there will be an equal number of stores in the U.S. and internationally.”
Three main factors drive this major shift in outlook can be seen as:
Factor 1 – Core Western markets are lagging
Traditional markets for consumer industries, chiefly U.S. and Western Europe, have suffered numerous setbacks from the 2008-9 recession – accentuated by plunging real estate value, closing of store locations, reliance of discount and value promotions to keep consumers interested – even by brands that traditionally never discounted, and bankruptcy of retailers (e.g. Circuit City in the U.S.) with only national presence, or weakening of outlook of retailers struggling at international expansion (e.g. Best Buy).
Compounding the effects of low levels of consumer confidence, has been the almost anemic growth rates of these markets this year (U.S.: 3% and EU: 1%) as well as projected 3-year rates.
In stark contrast, the landscape of Asia seems promising – luxury and retail growth is at full swing, and brands are consistently reporting not only strong revenues, but an increased share of their overall revenues from Asia.
Factor 2 – Growth in developing countries: a necessity not an option
Asia is no longer a “nice to have” option – for many retailers in the short-term Asia offers solid portfolio diversification. With growth rates starting at 5 times that of their EU counterparts, markets in Asia can offer a respite for the balance sheets of retailers needing to counter the negative or stagnant outlook of the core markets.
In the longer term, the varied and diverse markets of Asia offer seemingly limitless growth potential – and any smart retailer is wanting to plant their presence and capitalize on the growth.
Despite all the recent rush this past decade by retailers to establish presence in China and India, those two markets continue to represent huge untapped markets with growth rates projected at 10 percent & 8 percent respectively. Other emerging markets like Vietnam, Indonesia, Malaysia, and Thailand offer additional growth prospects, and may present significant advantages to the retailers that take heed and increase their expansion plans to include these markets. Last but not least, more developed markets in Asia – Hong Kong, Singapore, Taiwan, and Japan – continue to serve as brand anchors for retailers, helping to stimulate consumer awareness, exposure, and demand throughout Asia.
A 2011 study by CB Richard Ellis (CBRE) confirms that Asia is a key target for luxury brands, with many retailers opening in multiple locations and developing flagship stores to market their brand. Asian cities featured strongly among the Top 10 cities for international retailers, with four cities in the ranking – Hong Kong, Singapore, Beijing, and Tokyo. Hong Kong dominates the top spot at 84 percent luxury brand penetration. That landscape just a decade earlier looked markedly different.
The varying degrees of market presence, expansion, and penetration plans allows for a retailer to optimize their portfolio and aim for different mixes of growth, market share, margin, and profitability.
Factor 3 – Timeliness of market entry
While several markets in Asia represent untapped potential for many years to come for retailers who have their market entry strategies right, the resources that enable the capitalization of such growth are not limitless.
An A.T. Kearney 2010 Global Retail Development Index study ranked time pressure as critical as the criteria of market attractiveness and market saturation, in determining the prioritization of a country for a retailer’s growth prospects.
The study further remarked that if retailers only think about markets when they actually open, then they are already late [to the drawing board].
Finite resources like prime real estate, reliable and proven business partners (in franchise and joint venture models), competent distributors and suppliers, become more scarce, difficult, and/or costly for brands that further delay their market entry into Asia.
Proceed…. but with care
Despite very encouraging prospects across all markets of Asia, retailers – and service providers catering to retailers – must at at a minimum:
Exercise careful strategy planning;
Fine-tune the business and operating model;
Ensure a cohesive branding and execution front;
Leverage the appropriate marketing channels; and
Display a solid understanding of regional and local tastes & preferences in their sales and service
The fact that no one-size-fits-all approach will work across Asia, exacerbates the complexity of market entry in Asia. Planning and attention must be done at each market level. For all the ripe growth prospects in Asia, there are dozens of lessons learned from retailers who got it wrong. However, the retailers and partners who get it right, evidence a successful foray into Asia – and are able to attain their growth targets, capture significant market share, and increase their overall profitability.
This is the first in a series of articles focusing on the Asian Retail Industry – as well as its opportunities and challenges.
China and India: a deep-dive look into these 2 Asian giants
Luxury growth in Asia: a look at the unprecedented growth of the elite customer profile in Asia and the luxury retail sector that caters to them
Critical business model considerations for success in Asia
Review of retailer case studies and their market plans in Asia: informative outlook on which retailers got it right and which ones missed the boat
Ami Katiyar brings over 14 years of growth strategy experience, across a multitude of consumer industries, focused on generating revenue and market share. Ami Katiyar has led global strategy efforts across luxury, retail, and hospitality sectors including Starwood Hotels, Levi Strauss, LVMH, and Bombardier. At Retail in Asia, Ami Katiyar is dedicated to assisting global brands with market & partnership development, across the vital markets of Asia.
Retail in Asia Advisory Services assists global retail brands realize their market entry and/or expansion plans across Asia-Pacific, and manage their growth plans. Retail in Asia is part of the InProjects Group, Limited which has helped global retail & luxury brands open over 50,000 stores across Asia in the past 10 years.