(Source: Inside Retail Asia | July 13, 2015)
Hong Kong has been ranked the easiest and best place in the world to open a retail business, its economic archrival Singapore ranking right behind.
Retailers in Hong Kong benefit from first rate infrastructure, superior business conditions and a strong economic climate, according to the Arcadis Retail Operation Index released today. Singapore and the United States occupy second and third place in the rankings, while ongoing economic uncertainty in the Eurozone is holding many European nations back.
The index ranks 50 international markets according to the five key factors that retailers look to when choosing where to locate their stores; these include infrastructure quality, consumer demand and ease of establishing a business in the first instance.
Overall, the mature Asian markets offer retailers the best conditions with Hong Kong, Singapore and Japan occupying three of the top five positions, places that reflect their burgeoning middle class and governmental willingness to encourage foreign investment.
“Furthermore, in environments such as these retailers are able to turn around struggling sales with greater ease, creating a more stable base for investment,” the study concluded.
The Arcadis Retail Operation Index ranks the top 50 international retail markets in the world according to the five key factors that impact business longevity: these are infrastructure (transport and utilities), ease of getting up-and-running (business freedom, supplier quality/quantity and rules on FDI), market demand (disposable income, passenger cars, domestic market size and competitive environment), economic environment (labour cost, inflation and availability of technology) and business environment (trade/labour freedom, freedom from corruption, prevalence of foreign ownership and logistics performance).
“Combining these factors gives a good overall indication of the ease (a high ranking) or difficulty (low ranking) of the viability of large scale retail programmes from a property perspective.”
The worst ranked countries included Vietnam, Indonesia and India, with Egypt, unsurprisingly, ranked worst.
Matt Fletcher, global head of retail at Arcadis, said for retailers with international aspirations, weighing up where, how and when to expand into a new region, country or city is critical if they are to stay ahead of the competition and meet their business objectives.
“On a global level, it is the Asian markets of Hong Kong and Singapore that are the stand-out places for retailers due, above all, to the quality of their transport infrastructure, ease of doing business and fewer restrictions on trade. However, increasing operating overheads such as high property costs and softening sales are currently having an impact on financial performance,” he said.
“If a business is going to operate effectively and potentially flourish, it is vital that retailers do their homework. They need to consider data and insight on their prospective markets and consider the varying factors that can impact portfolio success,” said Fletcher.
“For instance, a market that performs well in terms of its business environment allows retailers to rectify struggling sales more easily. This will not only ensure risks are successfully mitigated and managed, but will also lead to higher returns from their investment.”
Hong Kong sits at the top, with the most advanced infrastructure in the world through world-class air and seaports, state of the art telecommunications and efficient local and regional transportation, while benefiting from stable and efficient business operating conditions and a strong economic climate supported by tourism with access to international and luxury brands at tax free prices.
But despite the ranking, Arcadis urges retailers to exercise caution in 2015.
“Economists predict slow growth in retail sales due to a reduction in cross-border tourist numbers and a general slowdown in China, evident from a steady decline in sales volume in 2014 compared to the previous year. In addition, rents have continued to rise to unsustainable levels making portfolio flexibility more important than ever.”
Singapore comes second globally as a country with outstanding ease of operations, business and economic environment. The highly successful urban malls have attracted international brands and created a strong platform for retailers to operate successfully.
“However, Singapore is constrained by being a small island nation and the significant volume of international brands has largely saturated the market, forcing international brands to explore the suburban retail landscape with mixed results. Whilst recent retail sales have been under pressure and reducing, the overall local economic conditions are still strong.”
Elsewhere, despite its economic superpower status, China ranks 27th, reflective of its lower ease of doing business rating and comparably poorer infrastructure.
“This is largely due to challenges associated with poorer infrastructure quality in lower-tier cities, as well as a tightening in regulations impacting those operating within the country. Nevertheless, China will surpass the US as the world’s largest retail market within the next three years and, for many, entering the Chinese market will remain a priority despite a recent slowdown in economic growth,” the report said.