Retailers new growth frontier goes beyond BRIC countries

Alongside the promise of the so-called "BRIC" countries to the U.S. and other global retailers, smaller emerging markets, including Kuwait and Dubai, are rising as the new crop of global expansion opportunities.

About 80% of retailers still consider Brazil, Russia, India and China as key to their short-term international growth plan, according to a survey of 60 global retail executives in the ninth annual Global Retail Development Index study by management consulting firm A.T. Kearney. The study uses 25 macroeconomic and retail-specific variables -- including country risk and market saturation, to rank the top 30 emerging countries attractive for retail expansion.

However, the BRIC countries tell only part of the story.

Kuwait emerged as No. 2 on the list, while Chile, Saudi Arabia, United Arab Emirates, Uruguay and Peru also surfaced in the top 10 along with their BRIC counterparts. The top 10 list represents the most diverse mix of large and small markets in the index's nine-year history. Other countries including Albania and Macedonia, which weren't placed in last year's top 30 rankings, also surfaced on the chart.

Costco's store in Taipei, Taiwan, seeks to walk the line between offering customers a U.S.-influenced experience and catering to local tastes.

"Don't underestimate the smaller markets," said Deepa Neary, a consultant in the retail practice at A.T. Kearney, in an interview, adding those markets could also help serve as retailers' entry point to a given region. "There are huge opportunities there as well."

Indeed, department store operator Macy's Inc.'s Bloomingdale's opened its first stores outside of North America in Dubai this year while home-furnishings and kitchen gadgets retailer Williams-Sonoma Inc. this month opened its first Pottery Barn Kids store in Kuwait.

Collective Brands Inc., which owns Payless ShoeSource stores, has said it plans to open stores in the Philippines by the middle of this year. No. 1 U.S. clothing chain Gap Inc.opened franchised stores in markets from Turkey and Saudi Arabia to Romania and Mexico in the past two years. Retail giant Wal-Mart Stores Inc. last year bought a controlling stake in Chilean grocer Distribucion y Servicio D&S S.A.

"The last two years with global economic downturn, people thought retail expansion is going to come to a halt," Neary said. "As their home market is seeing declining growth, retailers are capitalizing on the emerging markets. There's been a lot of global expansion."

Expansion also has become more strategic. Retailers have increasingly focused on the bottom line with most saying they expect their new markets to be profitable within three years. In 2005, they had expected to make money between five and seven years of market entry, the survey showed.

The potential of BRIC countries remains enormous, the study showed. China, the world's third largest economy behind the U.S. and Japan, took the top slot in the survey for the first time since 2002.

Chinese consumers have become more comfortable with Western-style retail formats, and its size continues to provide retailers with opportunities, the study showed. Brands including Burberry, Armani and Nike Inc. have increasingly expanded to smaller Chinese cities.

China's announcement this weekend that it would ease its currency's de-facto peg to the dollar suggests its consumers' purchasing power will only increase, Neary said.

"The domestic demand is only going to grow and strengthen," Neary said. "It's important (for retailers) to get there."