Middle East rises in A.T. Kearney's annual Global Retail Development Index

The strong Euro supporting investment in the region, consumer familiarity with modern retail concepts and petrodollar wealth are the primary factors making the region an attractive retail destination.

With more than $9 trillion flowing into the region by 2020, infrastructure investments will spur consumer and retail growth over the next decade, according to A.T. Kearney.

"The Middle East with its retail opportunity is more compelling than ever," said Robert Ziegler, Vice President, A.T. Kearney Dubai. "These markets will provide the engines for continued growth and profits for global retailers as sales in their home countries turn sluggish."

Published since 2001, the GRDI helps retailers prioritize their global development strategies by ranking the retail expansion attractiveness of emerging countries based on a set of 25 variables including economic and political risk, retail market attractiveness, retail saturation levels and the difference between gross domestic product growth and retail growth. The GRDI focuses on opportunities for mass merchant and food retailers, which are typically the bellwether for modern retailing concepts in a country.

Among the gulf countries, Saudi Arabia, with a robust 9% growth rate and low retail consolidation − less than 7% of the market is held by the top 5 retail players - is among the most attractive global retail destinations. North Africa has three countries in the top 15 rankings this year - Morocco, Algeria and Tunisia. These countries are, on average, projected to grow by more than 6% in 2008 and are benefiting from tourism, trade with Europe and periods of political and economic stability.

"European retailers are especially well suited for expansion in the Middle East and North Africa because of proximity and consumer familiarity with their brands," said Ziegler. "However, laws in some markets make entry difficult and lead to low brand diversification and limited consumer choices."

The Middle East and North Africa have risen strongly while Vietnam has ended India's three-year reign as the most attractive emerging market destination for retail investment according to the report.

India and China - speed bumps on the retail highway

India continues to be one of the most attractive countries for global retailers today. The retail market opportunity is larger than ever at $510bn and spending patterns and consumer maturity are growing faster than most global retailers had forecast. But challenges have emerged which could potentially slow the pace of growth for global entrants. Foreign players entering India today face stifling regulations, a clouded political atmosphere, soaring real estate costs and a fiercely competitive domestic retailer group.

In China, the countryside has turned into the next retail battleground, despite China's drop to number four in this year's GRDI. China remains one of the fastest-growing economies in the world. Although its per capita GDP remains low given China's large population, consumer spending has more than doubled from the mid-1990s and continues to grow rapidly in the large southern and eastern cities.

Latin American Resurgence

Prospects for retail expansion in Latin America, led by Brazil, grow stronger as political and economic stability return to the region. GDP and retail sales growth are increasing and higher commodity prices are providing purchasing power. Five countries from the region — Chile, Brazil, Mexico, Peru and Colombia — all appear in the GRDI top 20 this year, up from only one country in 2005.

Brazil tops A.T. Kearney's Apparel Retail Index, an analysis of the 30 most attractive emerging market retail destinations for apparel retailers that is included for the first time with the 2008 GRDI.

While Eastern and Central Europe as a whole remain attractive for retail investment, the window of opportunity for large-scale supermarket and convenience store build-outs will likely close over the next year or two, according to the GRDI.

The opportunity for entry into Eastern Europe is for wave-2 retailers — do-it-yourself, consumer electronics and apparel retailers — as multi-level fashion malls and mixed-use centers are cropping up throughout the region. Nine of the 12 Eastern European countries in last year's GRDI retained a presence on the 2008 Index of 30 countries.

As emerging markets continue to evolve, GRDI's Window of Opportunity analysis provides line-of-sight to the current and future state of each of these markets.

"The 2008 GRDI shows that using the 'window of opportunity' measurement we introduced in 2006 continues to be crucial," said Ziegler. "Markets typically progress through four stages as they evolve from emergence to maturity, usually over the course of five to 10 years. Using the GRDI, retailers can carefully evaluate these markets to identify their individual focus areas."