Sheer market size, in terms of population and economic might, is one of the most compelling drivers for international retailers’ expansion into the Asia Pacific region. The region now accounts for 54% of the world’s population and the number of people will rise to 4.1 billion by 2020. At the same time, Asia Pacific already accounts for 36% of the world economy, and that share is set to rise to 40% by 2020 with forecast growth roughly twice as fast as the rest of the world from now to the end of the decade.
China and Japan are currently the world’s second and third largest economies after the United States. With forecasts for strong economic growth, more countries in Asia Pacific will move up the rankings of the largest economies worldwide. In addition, more city dwellers with rising incomes create huge potential consumer demand.
Between now and 2020, an additional 40 million people per year will be living in cities across Asia Pacific. China and India account for the vast majority of people shifting to cities in the region, although by 2020 urbanisation rates in both countries (China 61% and India 35%) will still remain well below those seen in more developed markets such as Australia (90%) and Japan (95%).
Urbanisation is one of the main drivers of wealth creation across the region. Currently Asia Pacific accounts for one-third of the world’s middle class, and this is projected to increase to 46% by 2020 (The Brookings Institute, 2012). Rising income levels mean that many aspiring consumers can afford to purchase fashion or even luxury items for the first time, while large urban centres make for ideal entry points for retailers.
In this report, we examine the presence and expansion patterns of 100 top international retailers, both luxury and mid-tier, in 30 major cities in Asia Pacific. We identify major trends in key markets across the region, taking into account factors such as retail sales, market size and rental rates. The primary markets in India – Delhi, Mumbai and Bangalore – rank at 25, 25 and 27respectively. Greater China and North Asia generally have the highest level of retailer presence by sub-region, while Australia and India have the lowest.
The low retailer penetration for India reflecting in this report has several reasons.
Ashutosh Limaye, Head – Research & Real Estate Intelligence Service, JLL India says, “Though rents for baseline retail properties in India are generally affordable, prime retail assets command premium rentals across Indian cities when compared to other cities in the APAC region. Given that the size of consumer spending in Indian cities is still on the threshold of growth when seen in the Asia Pacific context, the break-even period for retailers in this country is discouragingly high. Also, though the average vacancy rate in malls across India is high at 19%, high-grade malls are actually still in short supply. The vacancy rate in the country’s high-grade malls does not exceed 10%. Poor quality malls are contributing towards higher vacancy, while the vacancy level in superior malls is comparable to that of such malls in China. International mid-tier and luxury segment retailers are focused on this category of mall spaces and therefore have a challenging time while entering or expanding their businesses in India.”
The Chinese retail market had experienced an evolutionary process very similar to the one currently being witnessed in India. However, a changing consumer profile and retail market dynamics ensured that demand for retail spaces in China eventually met with the right quality of supply. The time when Indian retail market will match China on the evolutionary ladder and become more attractive to international retailers is still at some point in the future.
In the meantime, these retailers are not without options in India. With the low vacancy in good quality malls, the country’s more prominent high streets offer an attractive alternative to mid-tier and luxury brands that are not averse to paying higher rentals in exchange for superior footfall and conversion rates.