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BARCELONA — Emerging markets are transforming the landscape of the retail industry, as more players eye expansion in the fast-growing economies of China, India and Russia, said executives at the World Retail Congress here last week.
“This is the best time ever to be in the retail industry,” said Sir Terry Leahy, chief executive officer of Britain’s Tesco. “There are more opportunities than ever.”
Several retailers said they wanted to bridge into rising markets, including Carrefour ceo Jose Luis Duran, who repeated that the French hypermarket operator was in talks with potential partners to open in India and it was going to enter Russia, too.
Duran said those markets would hold great potential. “We see a huge opportunity to grow internationally, whether in Poland, Brazil or China,” he said.
Terry Lundgren, chairman, president and ceo of Federated Department Stores, also said he was in the early stages of investigating the “global expansion” of the Macy’s and Bloomingdale’s banners.
“It would have to be a meaningful opportunity,” stressed Lundgren, who added it was only a matter of time before a major U.S. retailer became bullish about overseas expansion.
Saks Fifth Avenue and Harvey Nichols already have opened stores in the Middle East, and this month France’s Galeries Lafayette said it would kick-start its own international expansion strategy with a store to open in Dubai. Saks, which operates its overseas stores with a franchise partner, also is planning to launch a store in Shanghai, and Harvey Nichols has one in Hong Kong.
Delegates at the conference prominently mentioned the importance of finding the right formula to crack into markets in Asia, and they bemoaned regulations that created red tape barriers to business.
Pascal Lamy, director of the World Trade Organization, spoke via video link to warn of the ramifications of a failure in the current Doha round of global free trade talks, which are struggling with agricultural subsidies and tariffs.
“Globalization has formidable advantages,” said Lamy, as he outlined the political dangers of disagreement on the round, which, he said, would require great political will from the United States and the European Union if an agreement was to come by yearend.
This story first appeared in the April 3, 2007 issue of WWD. Subscribe Today.
“[An agreement] is doable, it’s not yet done and we need political traction for a final breakthrough,” said Lamy. He added: “Failure of the round is a scenario which we all need to have in mind. If we are really responsible, given the state of negotiations, we need to consider this scenario.”
For retailers, Lamy said the consequences of a failed round would undermine the WTO system and its series of safeguards against protectionism, while a successful conclusion would, besides doing away with tariffs, begin a cycle to diminish regulatory restrictions in real estate ownership or in the types of products foreign retailers can carry.
Adapting to emerging markets marked a significant subject of debate among speakers, with many outlining the importance of tailoring an offer to local demand and finding the right partner with whom to do business.
Carrefour’s Duran, for instance, told how the retailer had staved off a downturn in its business in Argentina a few years ago by abandoning a centralized pricing system and creating a flexible store-by-store alternative, while also catering product assortments especially for each store. Carrefour, as a result, has logged three years of double-digit growth in Argentina, Duran said.
Considering many retailers, from Carrefour to Tesco, already have entered China aggressively, delegates emphasized the attraction of India as Asia’s next great frontier — though China remains largely untapped and a great source of potential growth.
“Asia is going through profound change,” said Ravi Thakran, group director of Southeast Asia for LVMH Moët Hennessy Louis Vuitton. “No market gives brands the opportunity of Asia today.”
“But there isn’t one Asia,” he said. “The challenge is to get deeper understanding [of the consumer landscape].”
For instance, Thakran said while one part of India gravitates by heritage to pomp and show, another is prone to understatement. Another obstacle for retailers is to challenge the intricate web of mom-and-pop shops in India that have cultivated direct relationships with their clientele for years.
But the potential rewards largely outweigh drawbacks. After all, the population boom alone in Asia is enough to tempt retailers to aggressively grow in the region.
Jim O’Neill, global head of economic research at Goldman Sachs International, gave a detailed presentation on the shape of the world’s population in 2025 and what it would mean for the global economy.
“Population changes have become the key to the future of world growth,” he said.
Although O’Neill said although the world’s current wealthiest consumers would remain the wealthiest in the near future, some countries are growing at such a rate that they will join the elite club soon.
Russia, for instance, could become as rich as the world’s wealthiest nations in per capita household income by 2025, O’Neill said. Korea also is on track to become as wealthy in per capita income as the U.S. or Japan.
Although the opportunities of emerging markets dominated a large chunk of the conference, it was hardly the only focus. Green consumption and the information revolution also got attention.
Tesco’s Leahy, for instance, said the way in which retailers deal with environmental concerns might become the biggest single issue in the future.
“Customers are more and more aware of climate change,” he said. “I think we need to give customers the tools to do something, too.”
How exactly more acute consumer concerns about the environment will be played out commercially is anyone’s guess. But already a green consumer agenda has had an impact at retail with huge growth of organic foods and green clothing, executives said.
“We need a huge change,” said Leahy, adding that Tesco was taking steps to open green stores. “We are a high carbon industry.”
Another British retailer moving to improve its environmental commitment is Marks & Spencer, which has pledged to be carbon neutral in five years and to eliminate its waste to landfill in that same period.
Strangely enough, the Internet is playing a significant role in rising green concerns. That’s because more consumers use the Web to connect to retailers and inform themselves about retailers’ practices and products, making for a highly sophisticated consumer.
“Sophisticated people expect us to understand their needs,” said Concetta Lanciaux, the former head of human resources at LVMH and an adviser to the luxury group’s chairman, Bernard Arnault.
“Consumers are becoming more demanding in quality and fashion,” said Pablo Isla, Inditex’s ceo.
Wrapping up the event, the congress honored international retailers with prizes during a black-tie gala dinner. Kate Moss, who did not attend, was named the consumer icon of the year.
Meanwhile, other honorees included the most innovative store format (American Girl Place), best retail destination (Dubai’s Mall of the Emirates) and the retailer of the year (Inditex).