With consumer spending and retail sales declining in most of the global developed markets in the aftermath of the banks-induced economic downturn, India has emerged as the most attractive market for retail investment followed by Russia and China.

According to a new report by management consulting firm A T Kearney for its eighth annual Global Retail Development Index (GRDI) of 30 emerging markets, the larger, more resilient emerging markets are most likely to lead the economic recovery with India being ranked number one, followed by Russia and China.

The GRDI  is 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 study revealed that the emerging markets continue to represent attractive investment opportunities for global retailers and the economic downturn has made the entry to many of these markets more critical and relevant.

For the fourth time in five years, India was rated as the most attractive country for retail investment in the AT Kearney Index.

Russia, China, the United Arab Emirates, Saudi Arabia, Vietnam, Chile, Brazil, Slovenia and Malaysia round up the GRDI's 2009 top 10 countries.

In India, slower retail sales are causing Indian retailers to delay expansion plans and restructure their operations. But this has opened the window of opportunity for global retailers and many, including Wal-Mart, Carrefour and Tesco, are continuing expansion plans as Indian consumers grow increasingly affluent, brand-conscience and familiar with global retail formats.

It said that low inflation and rent reductions of up to 40 per cent in tier-2 and -3 cities also help make India the most attractive retail investment destination in the 2009 GRDI.

This report  contradicts Sweden's home products retailer, IKEA, which had rubbished the Indian retail growth success, saying that India was not a ready for big retailers as the country is not yet an emerging market in the retail sector, while announcing last week that it was withdrawing its $1-billion investment plan to set up Ikea-branded retail outlets in India . (See: Sweden's IKEA shelves $1billion India investment citing negative FDI rules)

The $21-billion global furniture giant decided to shelve its investments in India after receiving indications that the new government would not increase the FDI in single-brand retail from the current 51 per cent to 100 per cent.

The A T Kearney study said that with declining sales in home markets and consumer spending, global expansion increases in importance as a strategy for growth. The global recession has made prime real estate locations increasingly available and affordable in many developing markets.

It also has that the acquisition valuations of many local-market retailers were very attractive. Unlike most developed markets, GDP in emerging markets is expected to continue to grow, even if at a slower rate, with populations in many countries being younger, increasingly urban and showing a growing interest in modern retail formats.

''With economic conditions in developed markets improving so slowly, emerging markets are becoming much more important sources of growth for global retailers,'' said Hana Ben-Shabat, A T Kearney partner and co-leader of the study. ''Leading global retailers must develop a portfolio strategy that balances big and developed markets with small and developing markets to manage risks across the globe.''

The Asian edge
''Countries throughout Asia are well positioned for an early recovery from the economic crisis as domestic demand is holding up well, GDP growth continues and trillions of dollars of sovereign reserves are providing governments and state banks with tools for action,'' said Michael Moriarty, A T Kearney partner and co-leader of the study. ''Asian countries continue to transform their economies with domestic consumption as a primary focus – a trend that should favour continued growth in retail over the long term.''

While Russia's GDP is expected to contract this year, the country still represents a strong opportunity for retailers and is the number two country in the AT Kearney index, with retail sales projected to grow at 15 per cent annually over the next five years, with food and non-food sales bouncing back in 2010. The country's fragmented retail market – the top five retailers control just seven percent of sales – and reduced valuations provide growth opportunities for swift-moving retail leaders.

In China,  ranking third in the index, a $585-billion stimulus package and efforts to boost economic consumption are showing early signs of success as retail sales have grown in early 2009. The country's tier-2 and -3 cities in the central and western regions are attracting foreign retailers' attention. These cities are less affected by the economic crisis and are more suitable for new expansion than larger Chinese cities. Both Wal-Mart (140 stores in China) and Carrefour (135) have continued their expansion throughout the downturn.

The United Arab Emirates made the biggest move in the 2009 GRDI, rising 16 places to fourth position as its oil-driven economy proved more resistant to widespread downturn than other countries. While the UAE's population of five million is relatively small compared to the top three countries. However, it has the highest per capita consumer spending of any country in the index.

In fact, Dubai is on track to have the world's largest amount of shopping space per capita by 2010. Retailers in Dubai are focusing on local customers as tourism drops and that is creating entry opportunities for hypermarkets and discounters.

Yet while Dubai has recently been synonymous with retail expansion, Abu Dhabi is the rising star of the Emirates according to the study. It has remained well insulated from the global economic crisis because of its oil reserves and sovereign wealth fund. Several new museums and a Formula One race are planned and will help it attract tourists.

Immigration is also expected in pick up as Abu Dubai becomes a nearby alternative to Dubai. New city developments will increase real estate supply and strong awareness of global brands among the population will provide opportunities for foreign retailers.

Vietnam, the most attractive country in last year's index, slipped to sixth position because of inflationary pressures from its own real estate boom, consumer price inflation in the last half of 2008, and a significant drop in its export-driven economy. However, many global retailers are well established in Vietnam, including South Korea's Lotte, Japan's Seiyu, Malaysia's Parkson, Hong Kong's Dairy Farm and Germany's Metro.

''Vietnam has some short-term challenges, but our long-term outlook for the country remains positive as it continues to open its doors to international investors,'' said Ben-Shabat. ''Its population is young and it continues to urbanize, making it easier for suppliers to fulfill the country's demand.''