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Focus on Emerging Cities: Best Prospects for Apparel Retailers

June 2nd, 2017

Global apparel sales are forecast to rise by USD156 billion from 2016 to 2019 (measured in current prices), provided economic growth evolves according to Euromonitor International’s baseline scenario. In other words, in three years only, global sales are forecast to rise eight times the annual turnover of the world‘s largest apparel corporation, H&M Hennes & Mauritz AB, which generated USD19.8 billion in sales in 2016.

However, global growth is unevenly distributed. Only six countries will account for two-thirds of the forecast global growth, namely China, the US, India, the UK, Russia and Mexico. Furthermore, focusing on cities – i.e. at even more detailed geographic level – may further narrow the list of locations with the best potential for new stores.

Fastest Growing Countries by Forecast Retail Apparel Sales, USD million, at Current Prices and Year-on-Year exchange rates

Country Apparel retail sales 2016 Apparel retail sales 2019 Cumulative share of total global growth in apparel sales
China 273,479 333,461 32.0% Six countries to account for
2/3 of total world growth
in apparel retail sales
US 273,674 302,997 47.6%
India 54,357 73,205 57.7%
United Kingdom 58,146 64,950 61.3%
Russia 29,425 34,483 64.0%
Mexico 13,655 17,823 66.2%
United Arab Emirates 12,949 15,740 67.7%
Germany 62,120 64,873 69.2%
Argentina 9,156 11,739 70.5%
The Philippines 7,608 10,061 71.8%

Source: Euromonitor International

Cities with best potential for apparel sales growth

In China, apparel retail sales are forecast to rise by an impressive USD60 billion over the three years from 2016 to 2019. Focusing on key cities in China may help to capture most of the growth at minimal costs. For example, while China’s six megacities with over 10 million people account only for 7.2% of country‘s population, they are forecast to account for 19% of total growth of consumer expenditure on clothing and footwear. This implies that a retail strategy focused on consumers in only six cities in China may help to compete for 19% of the expected USD60 billion rise in apparel sales.

India‘s growth outlook is also very promising. However, India is less urbanised in comparison to China and accessing significant share of the Indian apparel market would require coverage of a larger number of Indian cities. The six most rapidly growing cities in terms of consumer expenditure on clothing and footwear include Mumbai, Bangalore, Chennai, Kolkata, Delhi and Hyderabad. However, all of them combined will account for only 10% of total forecast growth of consumer expenditure in India. To capture one-fifth of the growth of apparel sales (which required being present in six major cities in China), investors would need to carry out activities in at least 40 major Indian cities.

Mexico and Russia are two other promising markets for apparel retailers. They rank among the fastest emerging markets for apparel, even if their total market size is forecast to grow by relatively modest terms in comparison to India or China – namely, USD4-5 billion in each country over 2016-2019. Geographically, investment should be even more concentrated in Russia and Mexico in comparison to China or India. Both countries are dominated by their key megacities, Moscow and Mexico City, respectively, which will account for 31% and 15% of total consumer expenditure growth. Growth in Moscow, given the relatively stable forecast of the ruble’s exchange rate, should stand on par with major Chinese metropolitan areas in terms of expected consumer expenditure growth.

Growth in Consumer Expenditure in Cities of Fastest Growing Emerging Markets, at Current Prices and Year-on-Year exchange rates: 2016-2019

Source: Euromonitor International

Note: Consumer Expenditure on Clothing and Footwear is based on National Accounts data, which is compiled by national statistics offices. This is in contrast to total country retail sales forecast, where sales trends are based on trade interviews with retail operators and their sales reports.

The global apparel sales growth forecast is impressive. However, two-thirds of the total growth will take place in only six countries around the world, including four emerging markets. Even within the fastest-growing countries, retail investment strategies might differ substantially. In relatively urbanised China, six megacities may concentrate most of the potential growth. In India, growth is likely to be much more dispersed. Finally, some emerging countries, such as Mexico and Russia, are heavily dominated by their flagship cities, which suggests yet another approach to how to focus investments.

 

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Kasparas Adomaitis

As a Cities manager at Euromonitor International Kasparas Adomaitis is overseeing the development of Passport: Cities database that covers data on 1,000+ cities worldwide. With four years in researching, analysing and reporting on cities Kasparas is an expert of urbanisation trends in various regions of the world.

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