Vietnam ousts India as favoured destination for retail investment

New Delhi, June 3: Vietnam has ended India's three-year reign as the most attractive emerging market destination for retail investment with rapidly growing per capita income of its consumer and relaxation of regulations for new entry, a study said.

The seventh annual Global Retail Development Index (GRDI) conducted by management consulting firm A T Kearney, traces the retail investment attractiveness among 30 emerging markets.

''The critical factors that have powered Vietnam to the top of the Index this year are rapidly growing per capita income of the Vietnamese consumer and drastically opening up of regulations for new entry,'' said A T Kearney India Partner Saurine M Doshi in a statement.

India has enjoyed the peak of the Index for the past few years, mainly due to steep and consistent rise in the income levels of Indian consumers.

''Going forward, India's inability in opening up the FDI regulations for foreign retailers will start to hit the industry's competitiveness more than ever before,'' he added.

Vietnam's leap from the fourth spot in 2007 to first place this year was driven by strong GDP growth, changes to the country's regulatory structure favoring foreign investors, and increasing consumer demand for modern retail concepts.

India, Russia and China, the top three countries in last year's GRDI, fell to second, third and fourth respectively this year.

''While these countries remain important retail investment destinations, high real estate costs in large cities and growing competition have decreased their attractiveness relative to prior years and forced retailers to look for opportunities in tier II and III cities,'' Mr Doshi said.

The list is followed by Egypt, Morocco, Saudi Arabia, Chile, Brazil, Turkey and Mexico.

The GRDI ranks retail expansion attractiveness of emerging countries based on a set of 25 variables, including economic and political risks, retail market attractiveness, retail saturation levels, and the difference between gross domestic product growth and retail growth.

The Index also focuses on opportunities for mass merchant and food retailers.

''India continues to be a dominant force in the Index. While India has slipped to number two this year, it continues to be a 'hot' destination for global retailers. However, the growing challenges with doing retail business in India have caused the slippage in the rankings,'' A T Kearney India Principal (Consumer Industries and Retail Practice) Hemant Kalbag said, adding that the challenges such as sky-rocketing real estate costs, lack of good commercial real estate and the complexity around regulations, especially for foreign retailers pose as bottlenecks.

However, most large foreign retailers with plans to be relevant in India already have offices and operations in the country. The large domestic players have also hit the ground running and most are executing extremely aggressive growth plans, Mr Kalbag said.

While Vietnam's 20 billion dollar retail market pales in comparison to India or China, the absence of competition and eight per cent GDP growth make it an attractive expansion opportunity for global retailers.

Vietnamese consumers are among the youngest in Asia, with 79 million below the age of 65, and increased their consumer spending by more than 75 per cent between 2000 and 2007. The Vietnamese government is expected to remove controls on 100 percent foreign ownership of retailers in the country and has established a new program to develop wholesale and retail real estate by 2010. The region has already seen the recent emergence of modern retail in neighboring countries such as Thailand, Philippines and Malaysia.

''The potential and growth fundamentals for the Retail business in India remains unquestioned. The recent setbacks faced by organised retail in the F &G segment and absence of clarity on increasing investment limits by multi-brand international retailers remain a challenge.

Also, seven West Asian and North African countries rank among the Top 20 with the strong Euro supporting investment in the region, consumer familiarity with modern retail concepts.

With more than nine trillion dollars flowing into the region by 2020, infrastructure investments will spur consumer and retail growth over the next decade, according to A T Kearney.

Among the gulf countries, Saudi Arabia, with a robust nine per cent growth rate and low retail consolidation--less than seven per cent of the market is held by the top five retail players.

Prospects for retail expansion in Latin America, led by Brazil, have grown stronger as political and economic stability return to the region.

GDP and retail sales growth are increasing and higher commodity prices are providing purchasing power.

''Five countries from the region -- Chile, Brazil, Mexico, Peru and Colombia--all appear in the GRDI top 20 this year.

Brazil tops A T Kearney's Retail Apparel Index, which analyses the 30 most attractive emerging market retail destinations for apparel retailers, that is included for the first time with the 2008 GRDI.

While Eastern and Central Europe as a whole remain attractive for retail investment, the window of opportunity for large-scale supermarket and convenience store build-outs will likely close over the next year or two, the study says.

UNI