Monday 25 September 2017

Retailers seeking new buyers on distant shores

Sarah McCabe

Sarah McCabe

HARD-pressed retailers are increasingly looking overseas for new business.

Having finally emerged from the massive post-2008 global slump in consumer demand, they now face a very different economic landscape where traditionally important markets are losing dominance.

Market saturation is a growing challenge. Most retailers (anyone who sells directly to consumers rather than other businesses) in developed western countries have been present in their local market for a long period of time. Their customers are essentially tapped out, having enjoyed a wide variety of products and services vying for their money for a very long time.

It is also difficult to secure new business from equally long-standing competitors.

It is emerging, rapidly developing countries like India and China that offer the biggest growth opportunities.

These markets are churning out huge numbers of middle-class customers and as a result are seeing a spike in demand for the high-quality products the demographic consumes – everything from beef to smartphones.

A new study by Barclays predicts that retail spending in Russia alone will grow by 68pc between 2012 and 2018 and by 58pc in India, while spending in Ireland will grow by just 7.3pc

DOMESTIC MARKETS

"It would be unreasonable to say there is no further growth in domestic markets," says Richard Lowe, head of retail at Barclays, "but it is becoming increasingly difficult to extract in the current climate.

"The economic realities across the western world mean that retailers now have international expansion firmly on their radar and consider expanding into developing markets where growth opportunities are abundant."

Even despite the fact that developing countries offer the fastest pace of growth, Barclays says the US is the destination of choice for retailers looking to expand overseas.

Unfortunately, the US is also the most difficult market to achieve commercial success in because it is highly saturated and competitive.

The second favourite country for expansion, China, offers better prospects. It will see an estimated 85pc growth in retail spending between 2012 and 2016.

In Asia, luxury brands like Burberry have found a ready audience of middle-class consumers attracted to their heritage and aspirational marketing.

And while Africa remains one of the final frontiers for retail, US giant Walmart's recent takeover of South African supermarket chain Massmart shows how seriously global retailers are now taking the continent.

Ireland is home to examples of businesses who have successfully tapped emerging markets, too, like Smyths Toys and Micksgarage.com.

Yet successful international expansion is not easy to achieve. It is not simply a matter of setting up shop in a new country.

Retail is essentially a local business and business models and strategies that are successful in one region may not work in another.

British DIY chain Kingfisher's launch in China encountered serious difficulties because the home-improvement market in that country was not yet developed enough.

History is littered with examples of failure, where capital has been wasted by entering foreign markets too soon or unprepared.

Irish Independent

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