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Emerging retail and leisure economies

Ian Elliott Director Retail Solutions, Colliers International

At the time of writing fear stalks the developed economies of the West. Economic activity in Europe and in the US has slowed to a standstill as the sovereign debt issue has come to the fore. Investors are increasingly worried by both government solvency, and the resulting affect that attempts at austerity will have on their private sectors - Ian Elliott Director Retail Solutions, Colliers International

Many commentators are suggesting that we stand on the cusp of a “double dip”, with another surge of government spending is needed to “reboot” global demand. However, many governments appear reluctant to test the confidence of the bond market, and others – particularly in the eurozone periphery - are in no position to do so at all.

Despite this headline misery, around the fringes of the eurozone major retailers continue to look for and take opportunities to grow their presence in emerging economies that offer a less saturated retail market and excellent opportunities for growth. Spanish retail group Inditex, whose domestic market has been in the economic “pits”, has been growing actively in eastern Europe and central Asia, and this has been reflected in strong financial results. The retailer recently signaled its confidence in the retail market in Kazakhstan by agreeing to buy-out its existing franchisee. Kazakhstan’s economy has shown great durability, assisted by its vast natural resources, in weathering the global downturn. A slowdown of growth to 1.2 percent was seen in 2009, but in 2010 there was a resumption of strong economic growth of around 7 percent. Business Monitor International (BMI) is forecasting similar growths leading up to 2015.

Russia is another emerging economy whose economic strength – stemming from rising global commodity prices – is translating into growing retail sales. BMI expects retail sales in local currency to grow 24 percent between 2011 and 2015. This positive outlook is being translated into the development of a number of large-scale international standard shopping centres as well as outlet centres, particularly in Moscow. With many development projects having been put on hold during the downturn, there is currently a severe lack of modern retail space in Moscow and vacancy rates are hovering close to zero in the city’s best shopping centres. International retail brands such as American Eagle Outfitters, DKNY and Jaeger entered the Moscow market in 2011, either via direct entry or through local franchise agreements. This trend is expected to continue with Apple and Banana Republic . The Metropolis, Moscow shopping centre is symptomatic of the quality of product in emerging markets, and by virtue of this and the depth of consumer demand, has been able to attract an array of international retail brands including Esprit, GAP, H&M, Levi’s, Tommy Hilfiger and Zara.

Georgia saw a strong rebound in economic growth in 2010 to around 6 percent, following a contraction in 2009. Although investors see a degree of political risk to the country, its strategic position between energy rich Central Asia and the European market means that the economic outlook remains robust and  strong foreign direct investment is set to drive this. GDP is forecast by BMI to grow between 5 percent and 6 percent per annum over the next five years. The soon to open shopping centre, Uptown Tbilisi has set new standards in retail space in Georgia –previously lacking in space attractive to international retailers. With the potent combination of strong economic prospects and modern retail space, international retailers have flocked to take space in the centre. The line-up includes the world’s second largest retailer, Carrefour, not to mention a plethora of international clothing brands such The story of course is not just about retail. Research by the Destination Consulting team at Colliers International suggests that consumers now regard shopping as a form of leisure and entertainment and are looking to spend more time in places which offer them a mix of experiences including shopping, leisure, entertainment, sports and cultural facilities and even access to heritage attractions.

In emerging markets new developments in the major cities have tended towards the older more typical model of children’s entertainment, multiplex cinema, bowling and billiards, placed by the food court and located on an upper level. These have proved popular  but the  more mature retail markets in central Europe have demonstrated they are unlikely to stand the test of time and especially as customers become more demanding.

Landl “destination malls.” The incentive for this is that other emerging markets both in Europe’s periphery and further afield, are expected to see strong retail and leisure spending. With the consumers of the “West” continuing to retrench, retailers are likely to continue to diversify away from their core markets as global consumer spending begins to rebalance away from the heavily indebted West to those countries where there is room for growth.

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