Analysis of Emerging Market Retailing through 2030 Shows $5.5 Trillion Gap between Best- and Worst-Case Scenarios

July 6, 2016

A new report by A.T. Kearney depicts four possible scenarios for retail in emerging markets and outlines implications for retailers

For the past 15 years, retail in emerging markets has experienced tremendous growth and profound change. Yet geopolitics, economics, technology, and social change raise important questions about the future.

An examination of this future is at the center of a new report from A.T. Kearney, “Emerging Market Retailing in 2030: Future Scenarios and the $5.5 Trillion Swing,” which explores future possibilities using a scenario-planning framework. The result is four potential futures where the difference between best- and worst-case scenarios could amount to more than $5 trillion in retail sales in 2030.

In the most optimistic scenario, emerging market retail sales could grow by 4.4 percent per year to reach more than $17.8 trillion (compared to $9.2 trillion in 2015). In the most pessimistic scenario, sales would be little more than $12 trillion. The analysis projects these figures by estimating the impact of key events such as TPP implementation or China slowdown on GDP growth in emerging markets. Emerging market retail sales are then projected as a function of GDP.

Hana Ben-Shabat, A.T. Kearney partner and co-author of the study, noted, “Retailers must plan for multiple futures and be nimble enough to pursue diverse strategies as the business environment in emerging markets evolves. Through this combination of foresight and agility, retailers can seize opportunities no matter what the future holds.”

The study identified three global forces of change that will define the business world in 2030:

  • Rising geopolitical instability. Geopolitical instability—including conflicts in the Middle East and the corresponding refugee crisis, Western World sanctions on Russia, and tensions in the South China Sea between the U.S. and China—is increasing.
  • Persistent economic uncertainty. Emerging market economies in Africa, the Middle East, and South America are suffering from lower demand from China, falling commodity prices, a dramatic drop in oil prices, and a slowdown in growth in China. Brazil is paralyzed by political upheaval and is headed for a significant recession.
  • Accelerating technological adoption. The accelerated adoption of e-commerce in emerging markets has transformed the retail landscape, for better and for worse. Many retailers have taken advantage of e-commerce as a low-capital, low-risk way to enter markets or expand into rural areas.

Erik Peterson, A.T. Kearney partner, managing director of the Global Business Policy Council, and co-author of the study, stated, “How these forces play out will be central to how retailers optimize their international portfolios going forward. There are two high-impact, high-uncertainty factors that have the potential to transform international retail: the degree to which emerging markets will be open to business, and the degree of technology adoption in those markets.”

Using a scenario-based approach around these two major factors of change, the authors generated four plausible and compelling scenarios for the future, with vastly different implications for international retailers.

  • Seamless Dreams. In this scenario cross-border integration and rapid technology adoption create a highly favorable environment for international retail expansion.
  • Back to the Past. Insular politics, economic recession, and a lack of technology infrastructure force international retailers to return to their home markets.
  • Urban Rise, Rural Demise. Governments embrace open trade, but consumer backlash against technology limits retailers to urban centers.
  • The Technology Wedge. This scenario describes a fragmented society in which only countries with pre-existing physical and digital resources offer expansion opportunities.

Mike Moriarty, A.T. Kearney partner and co-author of the report observed, “The global retail landscape can anticipate billions of new middle-class consumers over the next decades in sub-Saharan Africa and South Asia, and technology can help us to serve them profitably—or not.  Consumers everywhere want healthful and nutritious food and personal care products that enhance their health and well-being, and they want these to be accessible and affordable.  Global retailers play an important role in making this happen, but government and social policy will have a big impact on their ability to lead and succeed.”

Depending on which scenario plays out, the operating environment and business potential for retail in emerging markets could differ dramatically and emerging market retail sales could fluctuate by more than $5 trillion.

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