What UK retailers can learn from emerging markets

When is an emerg­ing mar­ket not an emerg­ing mar­ket? The answer is: when it’s lead­ing the way in retail. Chi­na, in par­tic­u­lar, is inno­vat­ing more effec­tive­ly than its rivals in the devel­oped world, espe­cial­ly when it comes to ecom­merce.  

The Econ­o­mist Intel­li­gence Unit expects the coun­try to account for about a quar­ter of all retail sales income gen­er­at­ed by the world’s 60 largest mar­kets. 

Boost­ed by the Covid cri­sis, China’s fast-grow­ing ecom­merce sec­tor has attract­ed 1 bil­lion shop­pers, accord­ing to con­sul­tan­cy eShop­world.

“Ecom­merce retail­ing is gen­er­al­ly con­sid­ered far more advanced and wide­ly adopt­ed in Chi­na than in the rest of the world,” says Zaki Has­san, gen­er­al man­ag­er in Asia Pacif­ic for US-based soft­ware firm Aptos Retail. “As mod­ern retail in Chi­na is a com­par­a­tive­ly recent devel­op­ment, start­ing only in the 1990s, it doesn’t have the bur­den of lega­cy process­es, infra­struc­ture and per­cep­tions.”

With their rapid adop­tion of tech­nol­o­gy such as arti­fi­cial intel­li­gence, retail­ers in cities such as Shang­hai, Guangzhou and Shen­zhen have more sophis­ti­cat­ed offer­ings than their coun­ter­parts in many West­ern coun­tries can muster. Tax incen­tives in cer­tain parts of the coun­try are like­ly to stim­u­late fur­ther inno­va­tion. 

The Chi­nese lux­u­ry sec­tor is anoth­er focus of inter­est for ana­lysts. The country’s share of the glob­al lux­u­ry goods mar­ket was 32% last year and is on track to sur­pass that of the US in the next five years, accord­ing to Euromon­i­tor Inter­na­tion­al.  

Covid-enforced trav­el restric­tions pre­vent­ing Chi­nese cit­i­zens from vis­it­ing the shop­ping cap­i­tals of the US and Europe have prompt­ed wealthy con­sumers to spend their mon­ey online instead. If you can’t vis­it a five-star hotel in Paris, say, you can still find solace in a Louis Vuit­ton hand­bag. The ecom­merce and lux­u­ry sec­tors are con­verg­ing, with 150 glob­al lux­u­ry brands now avail­able on Tmall, part of Aliba­ba. 

Pres­i­dent Xi Jinping’s “com­mon pros­per­i­ty” dri­ve, designed to spread the country’s wealth more wide­ly, doesn’t seem to have spooked retail­ers. Rather, they’re tak­ing a prag­mat­ic approach, with Aliba­ba recent­ly com­mit­ting around £11.4bn to pro­mote Beijing’s lev­el­ling-up ini­tia­tives.

Ecom­merce is the key field in which devel­oped nations can learn from emerg­ing mar­kets, accord­ing to Pro­fes­sor Ste­fan Stein, pres­i­dent of the Gis­ma Busi­ness School in Han­nover, Ger­many.  

“The West dwells on data pri­va­cy. There’s noth­ing wrong with this in and of itself, but in imple­men­ta­tion it’s often absurd and user-unfriend­ly,” he argues. “Mean­while, Asian shop­ping por­tals are using next-gen­er­a­tion rec­om­mender sys­tems whose algo­rithms are bet­ter trained because of the larg­er vol­umes of data and the greater num­bers of buy­ers and trans­ac­tions. The rec­om­mender sys­tems of the future are emerg­ing in the Asian retail mar­kets and are oper­at­ing on mobile plat­forms.”

India, par­tic­u­lar­ly hard hit by the pan­dem­ic, has also seen rapid growth in ecom­merce. The country’s online etail sec­tor was worth about £45bn last year and is expect­ed to reach £55bn by 2022, accord­ing to Sta­tista. 

The Indi­an gov­ern­ment has encour­aged for­eign direct invest­ment in its dig­i­tal infra­struc­ture, while the growth of afford­able mobile inter­net providers such as Reliance Jio Info­comm have pow­ered the devel­op­ment of mobile com­merce. Mean­while, fears of Covid infec­tion have dri­ven shop­pers to go online to buy every­day essen­tials as well as lux­u­ries.

The so-called phy­gi­tal world is also devel­op­ing fast in India, with Ama­zon col­lab­o­rat­ing with exist­ing phys­i­cal retail net­works to pro­vide ser­vices such as in-store pick-ups. In March, it began work­ing with 50,000 kiranas, small, fam­i­ly-run shops that cater to local cus­tomers. Many of these man­aged to keep going when sup­ply-chains dis­rup­tions caused by Covid lock­down restric­tions caused ecom­merce oper­a­tors to hit the buffers. 

“India is the place for a mas­sive ecom­merce bat­tle between Ama­zon and Wal­mart, with local involve­ment becom­ing greater,” pre­dicts Charles Allen, glob­al retail research ana­lyst at Bloomberg Intel­li­gence.  

And, despite its tur­bu­lent polit­i­cal sit­u­a­tion, Brazil is also attract­ing the atten­tion of retail­ers in the devel­oped world. Fitch Solu­tions believes that house­hold spend­ing in the coun­try will grow by 4% in real terms next year. An online/physical hybrid form of cash-and-car­ry food retail­ing that’s been pop­u­lar in Brazil for some time is now being export­ed to Europe and Africa.

Sus­tain­abil­i­ty is anoth­er field in which some retail­ers in emerg­ing mar­kets are lead­ing their coun­ter­parts in the devel­oped world, dri­ven in part by con­sumer demand. A sur­vey pub­lished last year by IBM found that 62% of shop­pers in emerg­ing mar­kets were will­ing to change their buy­ing habits to reduce their envi­ron­men­tal impact, com­pared with 54% of their coun­ter­parts in mature mar­kets. 

An inter­na­tion­al poll by Avery Den­ni­son found even more strik­ing dif­fer­ences: 74% of Chi­nese respon­dents agreed with the state­ment “I try to buy envi­ron­men­tal­ly friend­ly fash­ion prod­ucts”, com­pared with 50% in Europe and only 43% in the US.

Allen has been impressed with the progress achieved by numer­ous inno­v­a­tive com­pa­nies in oth­er emerg­ing mar­kets, includ­ing South Africa, which has “high­ly devel­oped retail busi­ness­es with poten­tial to grow across the con­ti­nent”. He adds that Poland is also home to sev­er­al dynam­ic retail­ers, such as cloth­ing com­pa­ny LPP and super­mar­ket chain Dino Pol­s­ka. Rus­sia has some inter­est­ing retail­ers too, espe­cial­ly toy com­pa­ny Det­sky Mir and M.video, the country’s largest con­sumer elec­tron­ics chain by rev­enue.

In retail more than any oth­er indus­try, it’s impos­si­ble to lump emerg­ing mar­kets togeth­er in one cat­e­go­ry. Per­haps the only ele­ment that mem­bers of this dynam­ic and diverse sec­tor have in com­mon is that almost all can offer lessons to retail­ers in the devel­oped world.