GLOBAL RETAIL SCENARIO

Brief Understanding of the 2014

A.T. Kearney GRDI Report

GROUP 5

Anand Agarwal 02

Ankush Batra 06

Aniruddh Bhadra 07

Mayaleen Thakuria 38

Kshitij Jindal 42

Mahima Suhalka 48

2014 A.T. Kearney GRDI report – Brief understanding

Published since 2001, the GRDI ranks the top 30 developing countries for retail investment worldwide. This Index analyses 25 macroeconomic and retail-specific variables that help retailers devise successful global strategies to identify emerging market investment opportunities.

The GRDI report ranks 30 developing countries on a 0-to-100-point scale—the higher the ranking, the more urgency there is to enter a country. Countries are selected from 200 developing nations based on three criteria:

•Country risk: lower than 110 in the Euromoney country-risk score•Population size: two million or more•Wealth: GDP per capita of more than $3,000

These countries are then scored on the following 4 variables:

Country and Business Risk – 25% Market Attractiveness – 25% Market Saturation – 25% Time Pressure – 25%

According to 2014 A.T. Kearney Global Retail Development Index (GRDI) report, Chile ranked 1st followed by Uruguay, Brazil, Peru, Panama, Colombia, Costa Rica and Mexico also in the index of top emerging economies that are ready for retail expansion, Latin America continues to show strength as a regional retail growth market. Nigeria, Botswana, and Namibia are also ranked in the index, Sub-Saharan Africa is also expanding into another exciting regional retail opportunity, too. Global retailers have learned from past mistakes and have become much more adept and successful with their emerging global market expansion strategies. E-commerce is playing a supporting role by helping with global expansion as retailers are able to test a market and build their brand through e-commerce before they expand with brick and mortar stores."

By using their proximity as a competitive advantage to steal share in neighbouring markets, regional retailers are becoming players in emerging markets.Chile's Falabella and Cencosud have begun growth plans aggressively to widen their footprint across Latin America, and UAE-based LuLu Hypermarkets and Majid Al Futtaim have begun expanding in the Gulf region. South African retailers Shoprite and Woolworths have spearheaded Sub-Saharan Africa's shift to modern retail with expansion to Nigeria, Botswana, and Namibia.

The 2014 GRDI also includes a special report on the countries that have moved out of the GRDI rankings over time. The list of exits from the GRDI includes Poland and South Korea, which developed into modern retail markets; Bulgaria andRomania, where stalled economic growth delayed retail development; and Algeria and Ukraine, where social and political unrest unravelled retail growth.

The figure shows various countries as they progress year on year from opening to peak to maturity leading to decline phase in the GRDI priority. Some countries like India, China and Russia have matured and are no longer considered emerging markets, while others like Peru and Columbia are at a peak, and some have stalled due to economic issues or political risk.Countries like Hungary, Poland and South Africa are shown exiting the list.The report also gives an Idea of the mode of entry and the labour strategy that was used by the countries as they progressed from one phase to another.

GRDI Regional ResultsThe Full GRDI Report includes detailed commentary for all 30 countries ranked in the Index. Following are some highlights:

Latin America Latin America keeps its dominating position in the GRDI, with 3 countries in the Index's top 5 positions, as an expanding middle class offers lucrative opportunities. This diverse retail ecosystem includes Brazil's (#5) huge market, Chile's (#1) sophisticated mid-sized market, and "small gems" such as Uruguay (#3), where high consumption levels are attractive to luxury brands. While other Latin American countries face economic and political challenges, continued economic and political stability in leading countries has led to increased consumer and investor confidence and created a favourable environment for retail.International retailers are entering and gaining ground in a highly competitive environment with local and regional leaders. This battle is most intense outside of the region's capital cities, where new markets are emerging as consumers opt for modern retail formats.

Having previously analysed a greater part of the graph and with regards to GRDI and the nations already ‘On The Radar’, it is important to understand why certain nations are low on priority on the list. The nations most notably in this area are Phillipines, Vietnam, Morocco, Azerbaijan, Costa Rica and Mexico.

Quite clearly Mexico’s net retail sales is comfortably more than a few players on the radar as well as on the consideration list but the primary reason it’s low on priority is possibly due to a recessed economic growth due to reduced industrial activity and consumer spending thanks to new tax regimes and increased fuel prices. Additionally Mexico is a country with limited E-commerce transactions which further hamper the retail sales and scenario.

Costa Rica, another Latin American country on the list is most likely a victim of time pressure which sees it in a low priority list as it is believed it has a well established democracy and rapid economic growth. Also with increased per capita income the population is trading up and lower income consumers now buying more, which paves the way for market attractiveness and having fairly low net retail sales, it can be assumed there aren’t many players in the market to saturate.

Philippines and Vietnam find themselves low in attractiveness list most likely due to a low per capita income of the population and comparative non affluence of the people. To add to it a political uncertainty within the country and an economy largely driven only by tourism.

Morocco again plagued by a not-so-stable economy is seen as unattractive. At the moment with only 13% of the labour force representing retail and an extremely slow retail and trade growth. Grocery and open air market places represents the bulk of retail quite certainly keeping the net sales low.

AsiaAsia has a number of fast-growing economies that offer fertile ground for retailers, as growing populations, rising incomes, and increasing affinity for modern formats helps retail sales increase rapidly. Modern retail is expanding beyond the largest urban centres to smaller, untapped cities and regions.The region saw several improvements in the rankings, led by China (#2), which rebounded into second place, Malaysia (#9), which re-entered the top 10 for the first time since 2009, and Indonesia (#15) which moved up four places from last year's ranking. Other Asian countries in this year's Index include Sri Lanka (#18), India (#20), Philippines (#23), and Vietnam (#28).Even with less-bullish economic growth, China remains impossible for retailers to ignore. Retail sales in the world's most populous country increased 13 percent in 2013 (to $3.7 trillion), and consumer confidence rose.

Middle East and North AfricaThe Middle East is a dynamic retail region – with a growing and young population, strong GDP growth, and increasing consumer confidence and spending. With Qatar scheduled to host the FIFA World Cup in 2022 and Dubai recently winning the Expo 2020 bid, the region's construction and infrastructure boom should continue, thereby benefiting retail.Middle East and North Africa (MENA) consumers are becoming increasingly more demanding, seeking formats to better meet their needs along with more interesting creative concepts. Some markets are saturating, particularly Dubai, and local developers are now expanding across the region. Fewer international companies entered in 2013, but those in the region focused on expanding their footprint and growing local brands. E-Commerce in MENA is predicted to grow from $9 billion in 2012 to $15 billion by 2015, according to a PayPal study.

Central Asia and Eastern EuropeThis region's highest-ranked countries are some of the GRDI's most shining "small gems" – countries such as Armenia (#6), Georgia(#7), Kazakhstan (#10), and Azerbaijan (#30) whose location and unsaturated retail environment makes them attractive options for international retailers. On the other end of the spectrum is Russia (#12), which leaped back up the rankings this year as its retail potential outweighed the country's lingering risks.

Sub-Saharan AfricaAfrica is marked by distinct regional differences. In the West, Africa's most populous region, international retailers including Walmart and Carrefour, have succeeded in navigating the challenging business landscape, targeting middle- and high-income consumers who are brand conscious and want convenience, quality and variety.The East is untapped and increasingly attractive, as the largely informal markets feature few international retailers. Regional retailers dominate the region targeting all income segments.

In the South, the most developed region with stronger infrastructures, high incomes, and macroeconomic stability, South African retailers lead the growth with their close proximity and cultural alignment. Regional and local retailers are leading the e-commerce push, particularly among affluent consumers.