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Happy New Year! Cheers! But Asian retailers would still need to stay on their toes


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Happy New Year! Cheers! But Asian retailers would still need to stay on their toes

After three to four straight years of tumultuous times and generally gloom and doom, the positive outlook for 2005 is a welcomed relief. Bolstered by the blistering pace of rebound in Asia’s major economies this year and the concomitant robust prospects for Asian consumer markets, the New Year promises to be a happy and quite possibly a prosperous one for Asian retailing.

There appears much to be upbeat about in the New Year. The Asian retail landscape in 2005 will be marked by a plethora of dramatic and exciting vistas. The central and most striking piece in the scenario is arguably the tremendous expansion in supply that is poised to be unleashed across Asia — particularly across the already-booming consumer markets of China and India. Supply expansion is, to a large extent, a function of business optimism and confidence in the market. This, in turn, sparks energy and vibrancy in the marketplace.

There is obviously enormous upside potential for a vigorous and happening year ahead for Asian retailing. However, there are also a number of downsides and uncertainties that can readily derail the momentum of the industry.

Asian retailers cannot afford to be off-guard. So, as they ring in an ostensibly happy and prosperous New Year, Asian retailers must remain wary and not throw caution out with their auld lang syne…


Asian economies — carefully now

Asia’s major economies have been chalking up glowing numbers throughout this past year.
Right from the outset of this year, Asian economies had quickly shrugged of the throes of SARS (severe acute respiratory syndrome) in the previous year and staged a spectacular rebound. The Asian Development Bank (ADB) puts the combined GDP growth of seven of the region’s major economies at a whopping 8% in Q1 of 2004. ADB projected that the full-year growth rate would be in the high 7%-9% range.

The World Bank has underscored the tribute paid to the impressive growth of East Asian economies. In its East Asia Update report released last month, it said: “2004 has turned out to be a remarkable year for East Asia on several dimensions. Economic growth is expected to top 7% for the region overall, while among its developing economies it should reach near 8%, the strongest since the regional financial crisis, and more than one percentage point higher than we had expected at this time a year ago.”

The World Bank added: “The strength in activity has been widespread, encompassing most of the diverse economies in the region.”

Underpinned by the strong economies, the outlook for Asian consumer markets in the New Year has naturally become bullish — no apology needed.

However, the World Bank sees growth in East Asian economies moderating considerably in the New Year. It projects the growth rate to decline to 5.9% in 2005 — a hefty drop from this year’s 7.1% figure. It must, however, be recognised that 5.9% is not something to sneer at; it is still an impressive number that packs enough power to sustain a robust consumer market. But caution is in order.

The World Bank believes that economic growth in East Asia is losing steam and levelling off. Its Update report said: “… Amid these triumphs, recent data also suggest that the cyclical recovery in East Asia has peaked and that activity is shifting or has already shifted into lower gear … In a word, the environment facing East Asia is more uncertain.”

The World Bank points out a number of major concerns for Asian economies: “Growth pause” or slowdown in the OECD (Organisation for Economic Cooperation and Development)-developed world economies; large global macro-economic imbalances particularly the record-sized and growing US current-account deficits; steep spike in world oil prices; the highly-heated China economy and how it will land; the Japan economy and whither it moves; etc.

Added to this list are other equally worrisome concerns — global terrorism, geopolitical strife, large-scale epidemics and so on.


Stores, stores and more stores

The New Year sees Asia poised for a terrific explosion in supply — malls, shopping centres, stores ...

China alone would be the most dominant and dramatic case in point. This month marks a dramatic epoch for China’s US$242-billion retail industry. In keeping with its WTO ascension, China will open its door wide from this month and freely permit foreign investment in retailing. It will abolish such hitherto barriers and regulatory control and measures as joint-venture requirements, minimum turnover, asset criteria and geographic constraints.

Although there is skepticism that it is not all that liberal and local municipality regulatory control will continue to exist, there is no doubt that the ballgame for retailing in China will change tremendously now.

There are already 300 foreign retail companies operating in China and more are preparing to join the rank. Of the world’s top 50 retailers, about 70% are operating in this mammoth market.

Carrefour leads the pack of multinational global retailers in China. It already operates 53 outlets in China and plans to grow this number to 100 in the next couple of years. Carrefour has also announced the launching of its Champion discount chain in China and plans to open 10-15 Champion stores in 2005 alone.

Wal-Mart, the world’s largest corporation and largest retailer, now operates 42 stores in 20 cities in China. It has announced plans to set up 50 stores in the next three to five years, growing its chain to almost 100 outlets in this period. Another global giant, Metro AG of Germany, is expected to have 23 outlets in China by year-end and plans to build another 40 stores in the next three to five years.

There are a number of others. Malaysia’s Parkson operates a chain of 40 outlets across China. French Auchan, which entered the China market relatively recently, in 1999, now runs nine hypermarkets. Japan’s Ito-Yokado currently operates two stores in Beijing and Chengdu, and has announced opening two supermarkets in Beijing early next year in a new joint venture with Beijing Wangfujing Department Store.

Several other retail giants are also preparing themselves for their China debut. Home Depot of the US has recently set up two sourcing offices in Shanghai and Shenzhen. French Casino, which operates 35 stores in Thailand and three in Taiwan, and the UK’s Tesco, which already operates 179 stores in six Asian countries, are expected to make their entry into China soon.

And it is not just stores. There are malls — and plenty of them too. The most awesome being the South China Mall, reputedly the world’s largest mall being built in Guangdong. The first phase of the US$1-billion South China Mall is being launched by the end of this year. When completed, it reportedly will have a mind-boggling total area of 6.5 million sqf — beating the current champion the Canadian West Edmonton Mall’s 5.3 million sqf by a huge margin!

China is not alone in this explosion of supply. India and most of East Asia are staunchly in the growth mode. India has a slew of 283 malls on the drawing board and in various stages of construction to come on stream in the next two years. Thailand has several additional multimillion sqf malls slated to open in the next couple of years — the Siam Paragon and the Central World Plaza being prime examples.

Indonesia, almost surprisingly, too, has a number of malls in this genre. Just within almost stone-throw distances from one another in the heart of Jakarta, three mega malls are being built — the Grand Indonesia, the Atrium and the Sudirman Place. And there are others on the outskirt — the Mall of Indonesia, in what is possibly an already oversupplied area of Kelapa Gading.

The list goes on — the Philippines, Malaysia …


Plenty of fizz this New Year

Yes, the New Year is full of fizz for Asian retailing. Asian retailers should go forth and seize the opportunities that have emerged and those that are still unfurling. However, they should also tread with good sense and judgment; they need to remain on their toes. Asian retailers should temper their bullishness and buoyancy with care and caution. Asia, and for that matter the world, is still full of uncertainties … But there is undeniable cause for a toast to 2005.

Happy New Year!

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