Asia Remains Main Growth Driver of Global Retail Sales Over Next Five Years

Asia Pacific’s retail sales volume is forecast to grow 4.6% this year, with an upward trend expected for the industry until 2018, when the market is estimated to be worth US$10.3 trillion. That is twice the US$5 trillion in sales projected for North America, according to PwC’s 2015-2016 Outlook for the Retail and Consumer Products Sector in Asia report, produced in cooperation with the Economist Intelligence Unit.

Asia Pacific as a whole remains the top destination for most global retail chains. Not surprisingly, much of the growth in the region will be driven by China and India, despite the slowing economy in the former and lack of reforms in the latter.

“Asia has the potential to drive innovation in areas such as e-commerce and in developing new products. Japan, South Korea and Taiwan are home to some of the world’s leading electronics companies. And China and India’s consumers are some of the world’s most active users of mobile technology and social media,” says Michael Cheng, PwC’s Retail and Consumer Leader for Asia Pacific and Hong Kong/China. “While shopping via social media platforms is still a new trend, it won’t be long before consumers jump on the s-commerce bandwagon.”

China – biggest retail market in 2018

Despite its slower growth, China remains irresistible to global retail chains. Although it has fallen from 15.6% in 2009, China is still expected to average annual retail volume growth of 8.7% in the next two years. By 2018, it will be the world’s biggest retail market overall.

But China’s growth is slowing. Retailers are having to rethink their strategies - with most brick and mortar players increasingly moving towards fast moving e-commerce channels. In 2013 it overtook the US as the world’s largest e-commerce market.

Mobile payments accounted for 8% of total online transactions in 2013, up from just 1.5% two years before. That figure could rise to anywhere between 20-30% in 2016.

Hong Kong’s retail sales to slow

Last year’s political protests and China’s slowing economy had an impact on Hong Kong’s retail sector. After averaging 9.3% growth in sales volume in the past five years, the city’s retail sales has only achieved a flat volume growth in 2014 (decrease by 0.2% in value) and may suffer a negative growth in 2016.

A potential interest rate rise in late 2015 will dampen private consumption and drive down retail sales.  The strong US dollar – and strong HK dollar due to the peg – could make other tourism destinations more attractive relative to Hong Kong (e.g. Japan and Europe).  However, a downturn in the property market will improve housing affordability, and potentially help to reduce the high cost of rents for businesses, which will give a slight boost to retailers’ profits.

Lack of reform hampers India’s retail markets

With more than 1.2 billion people, India represents a mecca for retailers. But lack of reform and the Indian government’s unwillingness to open up its multi-brand retail market to foreign investments mean that global retailers are losing out in a market that is expected to pass the USD trillion mark in 2015. The Indian retail industry is expected to have grown 4% in 2014, accelerating to 5.6% this year and 6.6% in 2018.

Luxury market to slow

After a significant period of China-led growth, Asia’s luxury goods market is showing signs of slowing down. In addition to its slowing economy, China’s anti-corruption campaign is seeing luxury firms revisit their expansion plans.

The weakening yen and sales tax increase in Japan have also put a dent in their bottom line. However, it’s not all doom and gloom. China’s appetite for luxury remains strong. Sales to Chinese consumers shopping outside of their home country show no sign of abating. In 2012, Chinese consumers are said to have spent over US$100 billion abroad, of which 65% was on shopping.

Food safety an increasing concern

Asia’s food industry is coming under increasing regulatory scrutiny on the back of food safety concerns. Asian food producers are beginning to look abroad for expertise and trusted brand names to partner with. China, in particular, is becoming increasingly acquisitive in the food and drinks industry. Food and drink deals made up 17% of total Chinese outbound deals in the first half of 2014.

Asia continues to drive global growth

“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 China is slowing down, but compared to the West, its GDP growth is enviable,” says Jon Copestake, Chief Retail & Consumer Goods Analyst, Economist Intelligence Unit.

“Having said that, getting the basics right is crucial. That means engaging with local partners and developing products to cater to local tastes.”

As there are markets that are still untapped like India, Indonesia and Vietnam, and with disposable incomes on the rise, Asia remains a perfect combination for retailers.

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