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As traditional markets mature, retailers are looking for new sources of growth. The options for internationalization are varied, and retailers must determine the best strategies for growth and profitability for their respective businesses.
At the Accenture Analogue to Digital Conference held in Lagos in December 2013, many of our international clients expressed a keen interest in developing market entry and expansion strategies that include penetrating further into the African market.
IKEA set up shop in Egypt; UK department store Debenhams and French mass retailer Groupe Casino (Monoprix) recently established operations in Libya. In fact, despite on-going political turmoil, North Africa has seen a number of key market entries since 2010.
According to the Accenture Globalization Index, which tracks key international movements in retail, Egypt and Morocco have seen more new market entrants since 2010 than South Africa, a country often described as the gateway to retail in Africa. During that period, nine international retailers set up shop in Egypt and 10 in Morocco (South Africa had a total of six entries). Meanwhile, Libya had three new retailers enter its market in 2013 alone.
This influx of the global retailers in fact represents the second wave of movement into North Africa – with one big difference: This time the retailers are on the ground, with bricks-and-mortar stores; in wave one, many retailers used these countries only as a sourcing base. Fashion retailer Inditex, for example, has long used Morocco as part of its supply chain.
North Africa is part of a bigger story – of retailers’ global move into new markets and the various strategies they are employing. According to the Accenture Globalization Index, fashion retailers have been the most active. Accounting for over one third of all activity recorded, they have entered 35 new countries. Grocers, for their part, entered 30 new countries.
Grocery is predominantly a scale business, so being early into a new market and scaling fast is a key driver of success. In contrast, fashion is a margin business. Since it is difficult to capture a large market share in any one country, most retailers’ strategies involve establishing presence in many countries.
Fashion is also a point of entry for hypermarkets, which see their private label apparel brands as growth vehicles. For example, British supermarket chain Asda, Canada’s largest food retailer Loblaw, Portugal retail company Sonae and British multinational grocery and general merchandise retailer Tesco have all opened stand-alone apparel stores (under different names) outside of their home countries.
Franchising has become an important market entry vehicle for retailers expanding internationally. During the five quarters included in the Accenture Globalization Index (Q3 2012 to Q3 2013), more than 20 percent of all market entries across every sector studied came via franchising. In the Middle East, where franchising is the only way to enter, many franchisees who have connections all the way through Eastern Europe have taken global retailers into this market.
Finally, the globalization of retail is not a one-way street. Retailers from the emerging markets who have achieved scale at home are seeking new growth opportunities and want to test themselves against the global players. All this makes for a very competitive landscape in which retailers need to get the basics of entry right in order to have a successful international growth strategy.
April 9, 2014
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