While Euromonitor International's retail sales forecasts to 2015 show rapid progress in emerging markets, developed markets are facing more obstacles to growth. However, both Australasia and North America are proving more resilient than the beleaguered Western European region. Using information from the Euromonitor Countries & Consumers system, the final instalment of this three -part article looks at how some specific economic and demographic factors may change and shape retailing in more mature, developed regions.
Australasia: International retailers increasingly keen to break into the market
Asia Pacific sales lead recovery of Australasian export market
Economically, Australasia is benefiting from its proximity to the dynamic Asia Pacific markets, particularly China, which is a growing market for exports from fuel to food. This is helping to support rising incomes for the Australasian region's growing population, and create a strong employment climate which means an unemployment rate lower than the global average already and expected to fall further over the next five years. However, despite its many positives, Australasia's geographical isolation, the comparatively small regional population, the logistical challenges of operating across such a huge area and the highly consolidated nature of the local retail market have resulted in only limited interest in the market from overseas players.
There are some signs that the situation is beginning to change. Over the past two years, three of the world's biggest retail brands, Costco, Zara and Gap, have entered the Australian market, with UK high street fashion leader Topshop and US big-box home improvement specialist Lowe's expected to follow. Zara's decision to launch seasonal collections tailored to the southern hemisphere is an indication of the growing importance of Australasia (as well as Latin America and South Africa) in global retailing.
In addition, the growing influence of internet retailers is also beginning to chip away at the duopolies that define the two main Australasian markets. In New Zealand, Foodstuffs and Woolworths controlled 23% of the market in 2010, and in Australia, Woolworths and Wesfarmers held a combined share of 38%. This level of dominance has led to many accusations of lack of price competition, particularly in Australia, and complaints from smaller rival chains (and even major US player Costco) about the difficulty of finding suitable retail locations that have not yet been bought up by one of the market leaders. There have been attempts to stimulate price competition, for example through the government-backed GroceryChoice price comparison website, and a spate of recent price wars have driven down costs for certain staples such as milk, but in general, consumer groups in the region continue to complain about high prices. However, internet retailing, which has been slow to catch on in the region, finally seems to be pushing prices down, especially as overseas retailers are increasingly leveraging a tax loophole which allows consumers to import items worth A$1,000 or less without incurring the 10% goods and services tax. Having initially attempted to get the government to close the loophole, now Australian retailers such as Harvey Norman and Myer are joining the trend by setting up offshore websites to sell and ship products directly from China.
This is likely to lead to a wave of price competition across non-grocery goods which, coupled with the high levels of employment and the region's relatively young population, should see a big rise in volume sales of products such as clothing and footwear, consumer electronics and other leisure goods, as well as homewares and consumer appliances.
North America: Retail must adjust to changing times
North America, and in particular the region's key US market, was where the recent global economic slowdown that has so affected the global retail market began, but the region now seems to be emerging from the downturn more successfully than Western Europe. GDP for both Canada and the US is forecast to rise by a CAGR of 2-3% to 2015, and this is expected to have a knock-on effect on retail growth.
Despite the expectation of rising sales, however, both the after-effects of the recession and other changes to the business environment are forcing long-term change upon the retail landscape. Traditionally, North American retail has been characterised by big-box stores and mall-based developments, often in out-of-town locations. However, the region's population is ageing rapidly. Although over 65s currently form quite a small proportion of the population compared to other developed regions, this is the age group that is forecast to increase the fastest over the next five years. By 2015, there will be nearly seven million more North Americans aged over 65 than there are today, but only five million more under 65s.
As these inhabitants age, their consumption requirements will decrease, making them less likely to visit big-box, one-stop-shopping stores; what will increase is demand for health-related products, benefiting drugstores and retailers offering pharmacy services and in-store clinics. They are also likely to be less happy to drive long distances, instead switching their allegiance to more local shops. Out-of-town retailing is in fact threatened by wholesale changes in the way that North Americans are using cars, as a result of rising fuel prices. Although the number of passenger cars has risen slightly over the past five years, in part stimulated by a massive subsidised buying programme launched in the US in 2009, the distance driven by car each year has been declining.
North Americans and their cars: is driving in decline?
This means that retailers are increasingly turning their attention to urban locations, generally featuring a smaller footprint as larger areas are hard to find and expensive. Not only does this allow them to accommodate customers who do not want to drive as far, but it also puts them more in tune with a changing competitive landscape. The entry of leading UK grocery retailer Tesco with the Fresh & Easy 1,500 sq m 'compact supermarket' concept resulted in a surge of interest in smaller format stores, although it is still by no means clear whether Fresh & Easy has been a success. In addition, the recession gave a huge boost to value-oriented dollar stores, which average less than 750 sq m, while the retail leader Wal-Mart has found that large-scale stores are no bar to falling like-for-like sales. Wal-Mart's recent launch of the smaller footprint, 1,400 sq m, 'Walmart Express' format was proof, if proof were needed, of the growing influence of smaller, more local stores.
Despite the move towards smaller retail spaces, sales should benefit from higher unit price as retailers can, to some extent, add a premium for 'convenience'. Mall-based retailing too is moving away from the concept of selling space as sales driver, towards quality of location rather than quantity of space. Lower-grade malls are finding it increasingly difficult to fill vacancies, with up to 100 in line for closure according to some industry estimates. Higher-end malls, however, are not only able to find tenants, but are even seeing rents returning to something close to pre-recession rates.
With mass-merchandiser Target recently announcing an aggressive move into Canada, the age of big-box retailing in North America is not dead, but the upcoming years should nevertheless see a gradual move away from quantity towards quality – at least when it comes to store format.