Minggu, 03/07/2011

Investors to Continue Expansion in Retail Sector

-jktproperty.com
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Investors to Continue Expansion in Retail Sector

GLOBAL MANAGEMENT CONSULTANT A.T. Kearney last month published its research results about retail industrial growth in a number of developing countries. The research said that India, China, Indonesia, the Philippines, Malaysia and Vietnam had achieved the highest retail industrial growth. This development will surely impact the retail property business in those countries, which is predicted to continue experiencing positive growth.

The publication of A.T. Kearney entitled “Global Retail Development Index (GRDI) 2011” assessed the condition of retail industries in 30 countries and ranked them based on several factors. This year marks the 10th edition of the Global Retail Development Index™ (GRDI). Since its first publication in 2002, much has changed in the developing world: The population has grown 11%, from US$5 billion to US$5.7 billion, retail sales per capita have risen by more than 90%, from US$2,000 to US$3,850, and retail sales space has expanded by more than 200%, from US$40 million to US$130 million sqm.

As the retail giants made big investments to enter new markets—experiencing both successes and failures—they learned that retail expansion is a portfolio game: An optimal mix of countries, formats and operating models is the key to success, said A.T. Kearney in its publication. The research stressed that the 2011 Global Retail Development Index reflects dramatic changes in the global economy and the different ways in which developing countries have been affected.

Some developing markets have emerged from the recession stronger than before, while others succumbed to the political upheaval that economic distress brings. Today, as leading international retailers are rewarded for their flexibility and long-term outlook in the face of short-term uncertainty, it is time to focus on a portfolio of countries—with different levels of risk, at different stages of maturity and with distinct consumer profiles—to balance short- and long-term opportunities. At the top of the research list is Brazil, whose retail industrial growth was the highest among the 30 developing countries surveyed this year. It was among the top five last year.

In Asia, GRDI placed Indonesia as one of the three countries with the best growth in the retail industry. China ranked first and was followed by China, Indonesia, the Philippines, Malaysia and Vietnam. GRDI views that economic growth in Asia will remain bright with high domestic demand and exports, stable retail sales and recovering consumer confidence.

It also predicts that food stuffs will be a very important business sector in Asia and that they may form two thirds of the retail sales. India’s strong growth fundamentals—9% real GDP growth in 2010; forecasted yearly growth of 8.7% through 2016; high saving and investment rates; fast labor force growth; and increased consumer spending—make for a very favorable retail environment and the 4th spot in the GRDI. As has been the case for several years, Indian consumers continue to urbanize, have more money to spend on non-food purchases, and have more exposure to brands.

The result is a powerful, more discerning consumer class. India’s population of nearly 1.2 billion—forecast eventually to overtake China’s—also is an attractive target. Organized retail accounts for 7% of India’s roughly $435 billion retail market and is expected to reach 20% by 2020. Big-box retail, in the form of hypermarkets, has gained prominence—a refocus from the burgeoning supermarkets and small formats of several years ago. Food accounts for 70% of Indian retail, but it remains under-penetrated by organized retail. Organized retail has a 31% share in clothing and apparel and continues to see growth in this sector. The home segment shows promise, growing 20% to 30% per year. India’s more urban consumer mindset means this sector is poised for growth.

While India remains a hot market for retailers, it has its difficulties. Foreign direct investment (FDI) regulations continue to require single-brand retailers to enter the market through an Indian partner or joint ventures. Government policy-change discussions have intensified recently, but whether or not there will be new rules remains uncertain. The regulatory challenges mean that selecting the right partner is crucial for success. Beyond having access to the right real estate, the skills to customize assortments to local tastes and financial stability, there also needs to be intangible “chemistry” between top management at both companies.

China places 6th on the 2011 Index. China’s economy continues to boom—the country of more than 1.3 billion had GDP growth of 10.3% in 2010 and is expected to grow between 9% and 10% in 2011. China’s retail market size is US$2.1 trillion, or roughly 50% of the U.S. retail market, and retail growth remains strong at 15% between 2009 and 2010. However, a booming market does not come without its drawbacks. Increased inflation worries weakened consumer confidence last year, and the benchmark deposit and lending rate was raised four times during 2010. Nevertheless, Chinese consumers remain positive about personal income levels and employment prospects for the future.

This was reinforced by the country’s latest five-year plan, which calls for a major shift of resources toward domestic consumption. This is expected to increase consumer spending by US$100 billion per year. Indonesia’s retail sales are expected to grow from US$134 billion in 2011 to US$223 billion by 2015, thanks to strong underlying economic growth and the world’s fourth largest population (235.5 million); the country ranks 16th this year. Increased per capita incomes and continued development in the organized retail infrastructure are boosting food retail sales.

Other retail sectors are also poised for growth—consumer electronics sales, led by computers, are predicted to rise 13% year-over-year for the next five years. The Philippines, 24th this year, is expected to see retail sales grow from US$39 billion in 2011 to US$42 billion by 2015, thanks to an expanding urban population and rising consumer spending that is fueling growth in organized retail. GDP is also expected to increase at a CAGR of 5.3% over the next five years, with per capita GDP predicted to increase by more than 25% in the same time frame.

Today, half of the Philippines’ total retail sales are concentrated in the Manila metropolitan area. In urban areas, a growing number of dual-income, middle-class families and young professionals are driving retail sales. The country’s young population—40% of the Philippines’ 94 million people are between the age of 15 and 39—represents a key element of future retail spending. Malaysia’s economy is expected to expand by 6.2% this year, and retail sales have grown steadily over the past two years, but there are concerns beyond 2011 for this country of US$28.9 million, ranked 21st this year, because of a potential property bubble and high household debt levels.

The government stepped into the retail arena to support “big-box boulevards” (BBB)—concentrated centers of shopping outlets in city outskirts. Retailers are offered cheaper rental rates, savings that in turn can be passed on to consumers. The goal is to group six to 10 different retailers—for example, clothing, auto, home furnishings, sports and furniture—along a single boulevard, with the Malaysian government helping to identify suitable locations and working with promoters to bring multiple retailers together.

Australia’s Harvey Norman is one foreign retailer taking advantage of the BBBs. Vietnam is in 23rd place, and is still attractive, with an expected market size of US$113 billion by 2012 and a growing population of US$88.9 million. Vietnam officially opened its retail market to international entrants with 100 percent foreign capital in early 2009, at the height of the global economic crisis, when many multinational companies were taking a more conservative approach to expansion. While consumer confidence is high, poor distribution infrastructure and expensive retail space remain barriers to entry by foreign retailers.

Traditional retail channels still dominate the market, but modern retail formats are growing more prominent. Consolidation is expected among foreign retailers trying to deepen their market penetration. U.K.-based Tesco and Singapore-based FairPrice plan to enter the market in 2011. As regards the future of the retail industry in Asia, Handa Sulaiman, Executive Director of Cushman and Wakefield Indonesia, says that the retail sector in Indonesia, China and India is showing brighter prospects due to strong tourism development and high consumption in the region. “The retail property sector attracted significant numbers of investors in 2010 and in the first quarter of this year. Factors behind this included the improvement of the tourism sector between Asian countries and high consumption, especially in China,” Sulaiman said.

The improvement of the retail market in the three countries was also due to the expansion projects carried out by retailers using their assets. They included retailers that dealt with foods, fashions and dresses, consumer goods and luxury goods. Supported by strong fundamentals, retail asset purchasing remained active in 2011. Retail transactions in Asia Pacific reached US$4.6 billion in Q1-2011.

Meanwhile, in Indonesia, the retail business in Jakarta, Bogor, Depok, Tangerang and Bekasi remained lucrative, according to Herully Suherman, Procon’s Head of Research. Retailers were more aggressive to make expansion in shopping centers. In Q1-2011, retail take-up rate in Jakarta rose 18.9% from the same period of last year. Suherman said that retail take-up in Jakarta in Q1-2011 reached 107,000 sqm or a 128.9% rise. Occupancy rate increased from 81% to 84%.

Averaged prices of retail rentals rose 4.4% in Q1-2011 from the previous quarter. This year’s retail development is predicted to continue growing with retailers in fashion and in food and beverage dominating the market. Surely, this will prompt developers to build new retail properties. Such trends are already visible in some locations in Jakarta and its outskirts. (DHP)