Global Retail Supply Chains Remain Healthy

The official launch of the ASEAN Economic Community (AEC) has created a $2.6 trillion market with a population of more than 622 million – and although implementation will be a long process – it represents an important milestone, say analysts with A.T. Kearney in a recent report.

China, one of the most dynamic retail markets in the world, is ranked as the top country in the 2016 Global Retail Development Index (GRDI), titled “Global Retail Expansion at a Crossroads.” India’s high market potential, fast growth, improved regulatory environment, and ease of doing business pulled it up to second in the rankings.

The 2016 GRDI marks the 15th annual edition of the report. During the past 15 years, developing markets have seen tremendous growth both in terms of population, which has grown 21 percent to 6.2 billion, and in terms of retail sales, which have increased 350 percent in developing countries and now represent more than half of total global retail sales.

The GRDI ranks the top 30 developing countries for retail investment worldwide. The Index analyzes 25 macroeconomic and retail-specific variables to help retailers devise successful global strategies to identify emerging market investment opportunities. The study is unique in that it not only identifies the markets that are most attractive today, but also those that offer future potential.

In the unlikely event that the Trans-Pacific Partnership (TPP) will be ratified, analysts say it could boost GDP in several Asian countries, including Vietnam (#11) and Malaysia (#3).

Conspicuous by its TPP absence has been China, of course. That nation was deliberately left out of the agreement to counter its dominance in the region. But does that have anyone worried? Certainly not Ben-Shabat, A.T. Kearney partner and co-author of the study.

“Despite China’s slowing economic growth, the GRDI’s top-ranked country remains one of the most attractive global retail markets,” he says. “The economy is gradually shifting from an investment-driven model to one driven by consumer consumption. The growing middle class coupled with strong demand from inland and lower-tier cities and the loosening of the one-child policy will continue to drive growth over the next 10 years.”

Come Out Swinging
Elsewhere in the world the financial volatility due to the aftermath of the Brexit vote may have pushed some spending from the end of June into July, especially for big ticket items and luxury spending, says HS Global Insight Economist Chris Christopher. But he contends that real consumer spending growth is likely to be slightly above 3.0 percent in the third quarter.

“Consumers came back into action in the second quarter after being cautious in the first three months of the year due to volatility in the equity markets,” he says. “Americans were shaken up by the poor performance of the stock market in the first quarter, sending the saving rate from 6.2 percent in March to 5.3 percent in June.”

But in April, consumers “came out swinging,” followed by a relatively good showing in May and then again in June. Real consumer spending accelerated to a 4.2 percent growth pace in the second quarter from a 1.6 percent reading in the first quarter, reflecting sizable gains across the board. Second quarter real GDP advanced 1.2 percent; it is obvious that consumers are doing almost all of the heavy lifting in the American economy.

“Consumer spending growth will moderate in the second half of this year, but will be supported by gains in real disposable income, jobs added to the economy, increasing housing asset values, and modest consumer price inflation,” adds Christopher.

Political Uncertainty
With increases in consumer spending expected to remain solid during the remainder of the year, the National Retail Federation today said retail sales for 2016 are now expected to grow 3.4 percent over last year rather than the 3.1 percent forecast earlier.

Online and other non-store sales, which are included in the overall figure, are expected to increase 7-10 percent year-over-year rather than the 6-9 percent forecast earlier.

“Economic indicators are showing positive trends for retail,” says NRF President and CEO Matthew Shay, citing the improved housing market, job growth, higher wages and other factors that have boosted consumer spending.

“Challenges remain, with some greater than others depending on the retail category, but consumer confidence remains high and we believe that retail customers will continue the positive trends we have seen in the first two quarters of the year,” he adds.

Retail sales in the first half of 2016 performed at a solid pace, growing close to 4 percent on a year-over-year basis, according to NRF calculations, which exclude automobiles, gasoline stations and restaurants. NRF expects gross domestic product to grow between 1.9 and 2.4 percent.

“There are many factors that could prove to be hurdles but our overall outlook is optimistic,” observes NRF Chief Economist Jack Kleinhenz. “Uncertainty surrounding the presidential election could make consumers more cautious, and the combination of a rising dollar and global slowdown have impacted exports, but other factors like favorable weather patterns that will help move winter merchandise support our outlook.”

Meanwhile, the nation’s supply chain managers are watching economic developments closely, and we can bet that the NRF and will evaluate any changes to its forecast as necessary. If needed, the next update will come as part of the retail association’s annual holiday predictions in October.