Retail Insights in Emerging Markets. An Ipsos Singapore Lunch Talk Thursday August 28, :00 PM to 2:00 PM

Transcription

1 Retail Insights in Emerging Markets An Ipsos Singapore Lunch Talk Thursday August 28, :00 PM to 2:00 PM

2 Location, Location, Location Finding the sweet spot in emerging markets Linda Loh Associate Director Ipsos Business Consulting 2

3 Here s where the story starts 3

4 New South China Mall The Great Mall of China 4

5 A mall that seems to have it all. Canal with gondolas Seven zones modeled on international cities Luxury hotels Roller coasters IMAX Cinema Capacity for 2,350 stores 5

6 8 years later. 99% of stores remain unoccupied The only visitors security guards & vandals A ghost town of epic proportions 6

7 Where did all the customers go? Population of Dongguan (10 million) Third largest exporting region after Shanghai and Shenzhen Next to Guangzhou (12 million) 7

8 What went wrong? Wrong demographic profile Factory town - most inhabitants are migrant workers Inaccessible location Not located near airport; No train or direct bus service; Connecting buses are available but they aren t convenient "People coming here to work in factories don't have the time or the money for shopping or the rollercoaster 2.5 hours by bus 8

9 Even established brands make mistakes Harvey Nichols (Indonesia) o Retailer for luxury brands o Entered Jakarta pulled out in 2010 due to low revenues Robust private consumption Consumers prefer to shop for luxury goods abroad (Singapore, Malaysia, Hong Kong & Europe) Giordano (China) o Expanded into China too quickly o Set up in locations that conveyed a mass market image "We have stores where we shouldn't have entered, at supermarkets or what we call B-minus locations - Chief executive Peter Lau Kwok-keun 9

10 Even established brands make mistakes Tesco (US) o Wrong stores for the wrong audience E.g. Opening aspirational grocery stores in low-income areas Jusco (Shanghai) o Stores were located near railway stations away from the main shopping areas o In the red for four years closed down in

11 Why is it easy to get it wrong especially in emerging markets? 11

12 Characteristics of emerging markets 1 Developments are dynamic o Economic development o Foreign investments o Tourism o Etc How do these factors affect the economic base? Impact on income levels and purchasing power? 12

13 Characteristics of emerging markets 2 First impressions may be misleading o Market dynamics and consumer behaviors tend to vary across cities o Macro indicators do not always give the full picture In 2008.Dongguan registered disposable income per capita of RMB 29,754, even higher than the levels in Beijing (RMB 24,560) and Shanghai (RMB 26,223) 13

14 What do you need to consider in the development of location strategies? 14

15 Key questions to be addressed Context Objectives Product category Positioning Existing market presence Invest in the right markets Establish the optimal retail footprint Identify successful store formats Which cities? Which area / zone? Which mall or retail hot spot? 15

16 Invest in the right markets 1 Is there be a stable & sizeable market opportunity? o Macro-economics o Environment o Population Economic base & purchasing power 2 How easy / difficult would it be to seize this opportunity? o Maturity of the retail sector o Competitive intensity Availability of viable retail channels & competitive threat 16

17 Establish the optimal retail footprint 1 Where are all the existing / upcoming retail locations? o High level of economic or retail activity Potential retail hot spots 2 How do we determine the optimal retail footprint? o Profile the retail location o Surroundings o Upcoming developments Attractiveness of retail hot spots in terms of revenue potential and brand positioning 17

18 Identify successful store formats What is the appropriate retail format to be adopted? o Existing retail channels within mall o Align opportunity & mall characteristics Brand positioning HIGH MID LOW Flagship store? Depends on Potential Business objective opportunity 2 Discount outlet? Branding Merchandising mix Not feasible 2 3 Concept store? LOW MID HIGH Revenue potential 18

19 A case study 19

20 Client is a global sports brand who wants to expand its retail footprint in Indonesia o Present in Jakarta o Plans to explore tier two cities: West Java (Bandung) East Java (Surabaya) North Sumatra (Medan) 20

21 Market overview - Bandung Education hub (6 major universities) Garment manufacturing base High proportion of youths Low disposable income Demand for stylish but affordable clothing International brands for export (e.g. Coach) Known for factory outlets (sell export overruns) Destination for domestic tourism Popular weekend destination for bargain shopping and golf 21

22 Market overview - Medan Gateway to North Sumatra trading hub Large population of ethnic Chinese Number of manufacturing / processing industries Third highest GDP per capita Ethnic Chinese account for 10.6% of population Locals prefer to shop overseas for international brands (e.g. Penang, Kuala Lumpur and Singapore) Modest retail developments Retailers are deterred from expanding Medanese are cost-conscious Affluent locals prefer to shop overseas Lowest population rate 22

23 Market overview - Surabaya Economic center in East Java Most important trading ports (Tanjung Perak) - export tobacco, sugar and coffee Large base of blue collar employees Limited retail developments High GDRP per capita but retail sector is undeveloped: Locals tend to be price conscious Affluent locals prefer to shop overseas Prior to only two large mid-end malls 23

24 Let s talk about Bandung 24

25 The majority of retail hotspots are found in the CBD, where most commercial establishments and universities are located Central Business District South Zone 25

26 Retail landscape for Central Business District Central Business District o Main highway from Jakarta to Bandung passes through CBD easy access for domestic tourists o Several hotels o 6 universities & 2 international schools o Mix of factory outlets and mid-end malls Retail Hotspot University 26

27 Retail landscape for the South Zone South Zone o Mid to low-income residential areas o Most retail outlets cater to local residents, with the exception of Bandung Supermall (target domestic tourists) o New roads are likely to reroute traffic to this area Retail Hotspot University 27

28 Shortlist of retail hot spots for more in-depth analysis Bandung Indah Plaza Cihampelas Walk Central business district Istana Plaza Paris Van Java South Zone 5 5 Bandung Supermall 28

29 Criteria for evaluation & prioritization REVENUE POTENTIAL 1 POTENTIAL OPPORTUNITY Footfall Spend per shopper on product category 2 COMPETITION Competitors retail presence in the mall o Mono-brand o Multi-brand BRAND POSITIONING 1 PROFILE OF SHOPPERS Demographics Purpose of visit 2 MALL IMAGE Positioning Association with products Tenant mix 3 SURROUNDINGS Catchment areas Developments 29

30 RANKING BRAND POSITIONING The verdict GOOD FIT Istana Plaza USD 3.9 mn Bandung Indah Plaza USD 6.9 mn Bandung Supermall USD 7.6 mn Paris Van Java USD 9.4 mn Cihampelas Walk USD 9.4 mn POOR FIT 1 LOW POTENTIAL RANKING REVENUE POTENTIAL HIGH POTENTIAL *Size of bubble indicates size of potential opportunity (footfall & spend) 30

31 Star performer - Paris Van Java Mid-high end mall located in the vicinity of affluent residential districts Targets well to do consumers from both Bandung and Jakarta Unique open-air boulevard concept & recreational features 31

32 Star performer - Paris Van Java Strong revenue potential High footfall (due to presence of crowd pullers) One of the highest average retail spend Good brand platform Catchment of affluent shoppers Offices in the central business district High income residential areas in the vicinity Strong association with high-end international brands Recommended format: Mono-brand outlets Multi-brand sports (Sports Station, Soccer Station, MG Sports) 32

33 Mid-low end mall located in the factory outlet distract Caters to domestic tourists and young locals Popular handout spot for youths 33

34 Mass market potential - Cihampelas Walk Strong revenue potential High footfall of domestic tourists & students from nearby universities (who visit factory outlets in the vicinity) Avenue for sports purchase; high spend on sports apparel Weak brand platform Mainly associated with bargain hunting Recommended format: Discount outlet

35 In conclusion. For emerging markets, a topline assessment may not provide an accurate snapshot of all the business opportunities and risks Gathering on-the-ground intelligence will be critical to understanding local market dynamics and nuances 35