U.S. Most Difficult, Africa Most Promising Retail Markets

April 2, 2013
The United States remains hardest market for retailers to crack despite growth of online, says British survey.

The United States remains the hardest market for British retailers to crack while Africa appears to be the most promising, according to new research from Barclays. Nearly half of British retailers (46%) surveyed by this financial services provider indicated that the U.S. is the most challenging business environment in which to achieve commercial success despite its being the current destination of choice.

However, nearly a quarter of the retailers surveyed stated that Africa’s new retail growth in the next decade offers the biggest opportunity for those who make the first moves.

The survey questioned retailers on how they plan to expand via online channels, opening stores or joint ventures.  It found that the U.S. remains the top choice in light of reports that Sir Philip Green hopes to turn Topshop into a $1 billion U.S. business within the next five years and that Hobbs plans expansion into the U.S.

However, retailers also consider the U.S. to be the most challenging market, despite the growth of online which provides a low-cost means of entry and the seemingly similar cultures and values shared by British and American consumers. China came in second with around a third of retailers (33%) saying they had experienced difficulties when trying to set up shop. Asia, more widely, was third with 19% of those retailers questioned claiming they had experienced difficulties.  

Asked about future expansion, nearly a quarter (23%) of retailers said Germany was their number one choice for overseas expansion in the next five years, closely followed by China and Australia.

Richard Lowe, head of retail and wholesale at Barclays, said: “On the surface the U.S. would appear to be an easy market in which to secure a foothold but its sheer scale means achieving commercial success across the whole country is an incredible feat. As for China, nothing is impossible but, everything is difficult.”

Global retail growth offers several attractive options for businesses exploring markets. Between 2012 and 2016 total U.K. retail spend is expect to grow by around 11.5% to £345.6 billion. In the U.S. this figure is nearer 17.5% (to £2.3 trillion by 2016) and in China this figure is 85% (to £3.6 trillion by 2016), the highest in the world.  Russia and Brazil also enjoy standout growth predictions over the next five years with 68% (£649.8 billion), and 49% (£536 billion) respectively.

“It would be unreasonable to say there is no further growth in domestic markets, but it is becoming increasingly difficult to extract in the current climate,” Lowe added. “The economic realities across the western world mean that retailers now have international expansion firmly on their radar.” 

The growth of the internet has presented retailers with the opportunity to enter new markets without the need to commit to building a large and expensive network of stores. That may be why nearly a third (33%) of those planning expansion said online was their preferred route to market. Among retailers which had already gone abroad, this figure rose to 52%. Second choice was wholesale which secured 10% of responses, followed by franchise partnerships with 8%. Only 6% of retailers plan to open physical stores, although this figure is likely to grow amongst those retailers who have already tested a new market successfully using online.

Africa remains one of the final frontiers for retail but the recent acquisition of South Africa’s Massmart shows how seriously global retailers are now taking the continent. While nearly a quarter of retailers surveyed stated that Africa will be the new retail growth story within a decade, only 21 per cent of those retailers asked say they currently generate sales on the continent. Of those which do, more than half (53%) say South Africa is their top market. Interestingly, other markets which currently provide revenues for British retailers in Africa include Chad, Congo, Morocco and Nigeria.

When asked where in Africa they would consider expanding in future, South Africa remained the number one choice with 18%. Ghana and Kenya were the second and third choices with 6% and 4% respectively.  The reasons given for this interest was Africa’s burgeoning middle class followed by the growth of mobile technology.

Lowe concludes: “Many of the trends which have driven the economic development of emerging economies in Asia and South America are beginning to take hold in Africa. Its rapidly expanding middle class increasingly need goods and services which cannot be catered for domestically, providing a golden opportunity for internationally-minded retailers. This is a truly ‘ground floor’ moment in many African economies.”