Buoyed by economic growth and rising income levels across Asia, retailers’ sentiment for the next 12 months is correspondingly strong, and retailers now have more aggressive expansion plans, according to Jones Lang LaSalle in its third annual Retailer Sentiment Survey-Asia.

The Jones Lang LaSalle Retailer Sentiment Survey-Asia is a survey among retailers to gauge retailers’ sentiment and examine factors that will shape the retail business in the short to medium term, helping the retail business devise strategies. Over 160 prestigious retailers from a wide spectrum of trades in nine key markets across Asia participated in this annual survey.

In 2006, buoyant economic growth and rising income levels have underpinned the retail markets in Asia. Almost two-thirds (63%) of the respondents expect their overall trading to improve over the next 12 months, with only 5% expecting a weakening. More specifically, three-quarters (75%) of the respondents believe that their gross turnover will improve over the next 12 months. This compares favourably with the second survey in 2005, in which only 65% of the surveyed retailers expected turnover to strengthen. However, retailers in Asia are more guarded about their profit expectation, with slightly less than half (46%) expecting an improvement in profit margins.

India, one of the fastest growing economies in Asia, has experienced rapid growth in its retail market. An overwhelming majority (95%) of Indian retailers believe that their turnover will improve over the coming year, and half are expecting improved profit margins.

‘Our latest survey results have highlighted the broad retailer optimism across Asia,’ notes Dr Jane Murray, Head of Research - Asia Pacific at Jones Lang LaSalle. ‘Subsequent discussions with retailers endorsed our belief that strong regional economies would drive sales and improve revenues. A number of retailers are tempering this optimism with a clear understanding that increases in costs in other areas could certainly affect their profit margins.’
Expansions

Retailers now have more ambitious expansion plans than they did just a few years ago. The vast majority of respondents (92%) have plans to expand over the next 12 months. Among those with plans to expand, increasing store numbers is the preferred choice (90%), followed by increasing product range or services (80%).

Interestingly, 44% of the respondents have plans to merge with or take over another company. Merger and acquisition (M&A) has become a popular trend for retailers who want to expand rapidly in a new market or get stronger power within an existing one. Retailers see M&A as a method to achieve economies of scale, share support resources and take advantage of more locations.

On the other hand, 80% of the retailers who have plans to expand foresee difficulties in locating suitable sites. Cost and a lack of quality supply have been identified as the hindrances for retailers to secure suitable sites for expansion.

‘Retailer confidence is clear in their future plans. The positive view many retailers have of M&A demonstrates both the confidence that they have the skill sets to make such strategic moves work and the understanding that as the market and competitive landscape evolve, organic growth alone will not be the way to deliver on profit expectations,’ adds Dr Murray.

“The emerging retail landscape in India shaped by a burgeoning middle class, rising disposable incomes and relaxation in retail norms, translate into a bullish outlook for a majority of the retailers in India. Our cities vary widely by level of retail development and consumer spending power and retailers are constantly evolving newer strategies to capture their share of the market. There seems to be an increasing preference for shopping malls, but we still believe that traditional high street locations will continue to be an integral part of the Indian retail experience”, adds Vivek Kaul, Head - Retail & Leisure Advisory, Jones Lang LaSalle India

Other key findings from the survey include the following:

– General economic climate (net balance of +77%), general spending levels (+68%) and tourism (+55%) continue to be the top three factors that would have a positive influence on retailers’ trading prospects. Occupancy costs (-27%), fuel prices (-33%) and competition (-23%) have also emerged as retailers’ biggest concerns.

– Retailers are gradually embracing online shopping. When the inaugural Jones Lang LaSalle Retailer Sentiment Survey-Asia was launched in 2004, online shopping was seen as having a negative impact, the net balance has moved to +3% in the 2005 survey, and in the latest survey, it registered a net balance of +10%. Instead of viewing it as a competitor, retailers now see online shopping as another channel to increase sales.

Strategies Going Forward

Retailers can consider a number of strategies, including working with landlords with a portfolio of properties to find suitable locations or partnering a consortium of other retailers to negotiate for space. While these are effective strategies, not many markets are sophisticated enough to accommodate this approach. The advent of sophisticated supply chain management and reduction in order-to-delivery cycles have made speed to market a competitive advantage. It is critical that retailers address any logistics issue promptly as having the right distribution network and delivery capabilities will have a critical impact on availability of products and profit margins, particularly in developing markets.

Investors should take note that many retailers are looking for more value out of their current premises, including management and pricing, and almost all are looking for more space. While this is nothing new, this spells opportunities for investors to acquire or upgrade existing assets as well as develop new centres. There are also enough retailers in most product categories to create differentiated tenant mixes for different centres.

Retailers’ feedback also highlight that investors should consult them early in the development process to ensure that the spatial design and layouts can cater to their needs. In addition, the need for more timely and reliable data pertaining to the retail business is important as this will enable layering of specific data onto maps, making location and positioning much easier. A third-party consultant is also well-positioned to advise on how market changes will affect the retail business and how an owner should position an asset in light of these changes.

Retailers are always seeking more from property managers, regardless of the current standards in shopping malls and the variation in quality. Property managers are advised to benchmark their service standards and use this as a baseline for discussions with retailers. This can ensure that managers who are performing well are recognised and those who are not can have a discussion with tenants about what can be improved.

‘Our annual survey of retailers has shown them to be clearly confident and ready to expand or acquire if necessary to grow. It is apparent that retailers understand the opportunities and challenges, we see the frank awareness of such challenges in the midst of strong economic indicators to be a sign of seasoned retailers and expect them to fare well,’ concludes Dr Murray.