Asia-Pacific’s retail sales growth volume is forecast to grow 5.8% in 2012 and 6% in 2013, with an upward trajectory expected for the industry until 2016 when the market is estimated to be worth US$11.8 trillion, finds a PricewaterhouseCoopers report produced in cooperation with the Economist Intelligence Unit.
Reflecting the global economic slowdown, the growth targets are significantly lower than the 9.6% growth recorded in 2010. However like most industries, Asia Pacific remains a top destination for global retail chains. But the path ahead is expected to be fraught with challenges, including slowing regional economies, high inflation and interest rates.
"Like everywhere else, Asia is affected by the global economy. And this will affect the retail industry in one way or other," says Carrie Yu, PwC’s Retail and Consumer Leader for China and Asia Pacific.
Yu notes Asia still holds out the best opportunity for growth and profits for retailers, big and small. International retailers, however, will find it difficult to implement any large-scale expansions as sluggish markets at home is likely to constrain their investment resources.
Cashing in on China
Not surprisingly, retailers will continue to bank on China to drive growth. Despite an economy that’s also slowing, the Chinese retail industry is still expected to grow an impressive 10.9% in 2012.
Growth is forecast to be 10.5% in 2013 and an average of 10.4% through to 2016. It will overtake the US as the world’s biggest retail market in 2016.
In the recent 18th National Congress of the Communist Party of China, the country’s leadership aims to double China’s GDP and per capita income of both urban and rural household by 2020.
"Retailers operating in China are no longer just focusing on the bigger first and second-tier cities. They’re now expanding in third and fourth-tier cities as disposal incomes in these untapped markets increase." adds Yu.
Rebound Expected in 2014
In Hong Kong, the retail sales volume is forecast to grow 2.7% in 2012. Growth is expected to drop to 1.5% next year on the back of rising unemployment and more cautious spending from Chinese tourists. However, things are expected to get better over the medium term on hopes of a recovery in global trade and rising local incomes.
Further liberalisation of retail market in India expected to spur foreign investments With a sluggish economy and high inflation prices, India’s retail sales are expected to slow to 1.9% this year.
However as India’s GDP picks up and income rises, retail sales are forecast to bounce back to around 6% in 2013 and remain stable through the forecast period.
The Indian government recently announced it will allow 51% foreign ownership of multi-brand retailing. This is expected to attract investments from foreign retailers eyeing India’s huge young population and growing middle-class.
Other Markets to Watch Out For
Indonesia’s population is Asia’s third-largest after China and India, while its economy is among the world’s fastest-growing, expected to record an average retail growth of 6.3% in the period 2013-2016.
Vietnam is a star performer with retail growth forecast to be 11.1% in 2013, thanks to increasing disposable incomes and strong employment growth.
Other promising markets like Thailand and Malaysia are expected to see an increase in retail growth of 5% or more in 2013 through to 2016. However, regulations restricting expansion of large retailers in both markets make for a difficult operating environment.
Jumping on the Online Bandwagon
Online retailing continues to enjoy exponential growth in Asia. According to industry estimates, Asia will account for a leading 41.4% share in global business-to-consumer (B2C) e-commerce sales by 2016.
China’s slice of the pie is expected to increase to 23.4% in 2016 from 9.9% currently. The country’s B2C e-commerce sales are expected to reach RMB 450 billion this year, having already hit RMB 82 billion in the first quarter.
Asians are increasingly receptive to shopping online, driven by the popularity of smartphones and tablet computers. Many traditional players which have been lagging behind their online peers are now embarking on a multichannel retail strategy. This is particularly the case in China as online retail represents significant growth opportunities.
The rapid growth in e-tailing is also seeing an increasing number of foreign offline retailers and even image-conscious luxury brands jumping on the online bandwagon to capture a market that’s increasingly made up of tech-savvy consumers.
Increasing Opportunities for Private Labels
A segment that’s expected to catch on rapidly in Asia is private labels. As the current environment of high inflation and rising costs drive consumers to seek value, private labels have new opportunities to increase their market share that has been slow growing.
There’s no doubt Asia remains the place to be, and will continue to be, in the foreseeable future.
"I don’t think anybody can afford to disregard Asia. Yes, its economy is not as vibrant as it used to be and yes, China is slowing down, but compared to the West, its GDP growth is enviable. There’re markets that are still untapped and with disposable incomes on the rise, it’s a perfect combination for retailers," says Ross O’Brien, Director at the Economist Intelligence Unit.