China has topped the AT Kearney 2013 Retail Apparel Index with the UAE ranked second on the list.
The Apparel Index also includes a number of countries in the Middle East showing that this region continues to offer compelling opportunities with Kuwait and Saudi Arabia ranked fourth and sixth, respectively.
The Retail Apparel Index identifies the top 10 developing countries ranked in the AT Kearney Global Retail Development Index in terms of market attractiveness, retail development, and country risk for their clothing retail industries.
Michael Moriarty, AT Kearney partner and co-author of the study said: “Since the last Retail Apparel Index in 2011, Western apparel retailers have increasingly looked for growth from developing markets, where apparel spending remains strong as disposable incomes rise. E-commerce has also developed significantly for both local and international players.”
China remains the top apparel market due to its market size and strong growth in clothing sales. Three trends have shaped China’s apparel market: the rise of e-commerce, a boom in fast fashion, and the evolution of the luxury market.
Althea Peng, AT Kearney partner and study co-author said: “In most emerging markets, e-commerce is less than 1 percent of total sales: in China, it is 6 percent which is higher than in the United States. More than three-quarters of online sales in China are in apparel.”
Over the last year several fast fashion retailers have aggressively expanded in China. Uniqlo opened 65 stores in China in fiscal year 2012, bringing its total count to 145, and it plans to add 100 stores a year to reach 1,000 stores. H&M opened 52 stores in 2012 and Zara opened 37 stores. Gap has plans to open 35 stores in 2013.
China’s luxury market remains strong – it surpassed Japan to become the second largest luxury market in the world in 2012 – but it is not growing as fast as in the past. A key reason is that a large portion of luxury purchases are made abroad, due to lower prices and a strong renminbi.
Many retailers are testing their operations in the UAE before expanding to other Middle East countries due to its ease of doing business, sizeable retail segment, large expat community, and tourism. Several notable apparel openings occurred in the UAE in 2012, including Level Shore District, Prada, Muji, COS, Gap, Calvin Klein, Juicy Couture, and Destination Maternity. Bulgari and Bloomingdale’s plan new stores in 2013 in Abu Dhabi.
Martin Fabel, AT Kearney partner, said, “Over the past years, ME markets have demonstrated to be a great development opportunity for apparel retailers. A key component for such success has been and will be the selection of local partners with the ability to operate in multiple countries in the Middle-East”.
Emanuele Savona, AT Kearney principal added, “The development of the right retail capabilities to offer a perfect in-store brand experience to the shoppers will be critical to differentiate from competition and ensure a long-lasting success especially in the most competitive markets (e.g. Dubai, Kuwait, …)”.
Latin America takes a strong position in the Apparel Index, led by Chile (#3), Brazil (#5), and Mexico (#9). Apparel retailers have aggressive expansion plans for the region. Gap, which currently has 36 Latin American stores (including 28 in Mexico and four in Chile), plans to open 30 more by 2014, including its first Brazilian store in 2013. Zara has 150 stores in Latin America (including 56 in Mexico and 39 in Brazil), including 12 new stores built in 2012.
Brazil is South America’s largest apparel market, with $42 billion in sales, compared to $14 billion for Mexico. The Brazil luxury market is forecast to grow to more than $48 billion by 2025. An issue for Brazil is that 80 percent of luxury purchases are made outside of Brazil due to import challenges, including high tariffs that increase the cost of imported products by almost triple relative to the United States and France.