What bright spots can Asian retailers hope to find?

Global economy turning gloomy

Findings in PwC’s recent 18th Annual Global CEO Survey were an interesting case in point. The survey found fewer CEOs than last year who thought global economic growth would improve over the next 12 months.

The year has begun on a somewhat unpropitious note for the global economy. Prognoses for world economic outlook came tumbling down into gloom again as world expert organisations further shaved down their global growth forecasts.

The World Bank fired the first salvo. In mid-January, it trimmed its global growth forecast for this year and the next. Following suit a week later, the International Monetary Bank (IMF) lowered its forecast with a cut that was its steepest since 2012. The cause cited for the bleak prospects: Dismal economic outlook in the Eurozone, Japan and a number of emerging economies.

Not unexpectedly, the dreary global outlook has had sombre prospects for Asian economies — they were now expected to grow at lacklustre pace for 2015. Given the potentially savage economic headwinds in the offing, Asian consumer markets are in renewed jitters. Asian retailers in turn face tough and uncertain times ahead again. Are there bright spots that they can leverage? What can they do to safeguard themselves?

How grim is the projected economic landscape?

The World Bank first forecast 2015 world GDP growth to be 3.4% in June last year in its twice-yearly Global Economic Prospects report. On January 13 this year, it trimmed its 2015 forecast down to 3%. And for 2016, the bank shaved down its growth prediction to 3.3% from its June forecast of 3.5%.

On January 20, the IMF similarly lowered its GDP growth in its latest World Economic Outlook report. Its growth projections for 2015 and 2016 were cut to 3.5% and 3.7% respectively — a significant 0.3% points cut — one that was said to be the severest cut since 2012.

Asian economies would collectively continue to grow at more robust pace than the global average. However, economic analysts are of the view that Asia’s growth rate would be generally lacklustre compared with those routinely chalked up a couple of years ago.

The world’s second largest economic powerhouse, China, would be a major restraint on Asia’s economic performance.

According to a recent Reuters quarterly global economic outlook,China’s growth rate is generally expected to slow further to 7% this year from 7.4% in 2014, reined back by weak lending and a housing slump. Analysts believes the slowdown reflected the welcome decision by the Chinese authorities to reorient the economy towards consumption and away from the real estate sector and shadow banking. The concern, especially to Asian retailers, is whether China’s consumption would grow much anytime soon.

So, where are the bright spots, if any?

Unfortunately, there is no clear-cut bright spots. There are some reasonably cheerful ones — but they are often tempered with detractions.

Firstly, there is the US economy. It seems to have finally shirked off its doldrums and shown continual strength in its recovery. The US economic growth rate is expected to jump impressively from the earlier 3.1% forecast to 3.6% now for 2015. It is the lone bright spot in an otherwise drab scenario of the world’s major economies. Admittedly, by itself it may not able to lift up the entire global economy. However, being the world’s largest economy, it does have the clout to exert some positive impact on the other economies across the world.

Next is the dramatic stimulus plan to revitalise the troubled Eurozone economy. On January 22, the European Central Bank (ECB) announced a whopping trillion euros quantitative easing (QE) programme — that would buy 60 billion euros of sovereign bonds and private securities each month from March through to September 2016. Immediate reaction to the plan was mixed.

Billionaire investor George Soros reportedly gave a “damning verdict”, warning that it would create bubbles in the region’s asset markets. Forbes-Europe ran a stark headline saying that “ECB’s €1 trillion QE will not solve Eurozone’s growth and inflation problems”. However, the plan was by and large well received by investors as major European indices rose, while the Euro reached an 11-year low with respect to the US dollar.

Then, there is the drop in oil prices. Global crude oil prices have plummeted a staggering 60% since June last year. This again is a double-edged sword. The drastic price slump is obviously bad news for businesses involved in the industry and economies that are net oil exporters. However, for many others around the world, it has the heartening effect of rapidly cooling inflation. And, falling prices have given some countries a much needed window to reform their energy subsidies and taxes.

Finally, business CEOs’ sentiments. While sentiments have generally remained subdued, there are glimpses of guarded optimism for business this year among CEOs. Findings in PwC’s recent 18th Annual Global CEO Survey were an interesting case in point. The survey found fewer CEOs than last year who thought global economic growth would improve over the next 12 months.

However and quite significantly, confidence among polled CEOs in their ability to achieve revenue growth in their own companies remained stable. PwC found that CEOs in ASEAN were “the most optimistic about the global economy with 49% anticipating improvement, followed by Asia-Pacific (45%), the Middle East (44%), and North America (37%).”

What can Asian retailers do?

Despite the daunting economic outlook, there exist considerable upside opportunities for Asian retailers in the year. There are quite a number of things they can do. E-commerce is one huge opportunity. In Asia-Pacific, the overall B2C e-commerce market has almost doubled from US$300 billion to $525 billion the past two years. Even with growth expected to slow in 2015 globally, e-commerce sales are projected to soar by 17.7% to $1.77 trillion worldwide. Asia-Pacific is expected to make up the lion’s share at $680 billion. Omni-channel retailing is another opportunity. Last year, retailers had increasingly ventured into this format. This year, market watchers anticipate stores to exploit omni-channel retailing further and continue to find ways to bridge the gap between offline and digital channels. Customer loyalty presents another great opportunity for retailers. This year, retailers would have prospects to deliver more imaginative programmes to reward and incentivise shoppers. The loyalty strategy of the future will reward shoppers for their engagement, rather than just purchases.

As early as mid-January, the World Bank trimmed its global growth forecast for this year and the next.

The dreary global outlook has had sombre prospects for Asian economies — they were expected to grow at lacklustre pace for 2015.Given the potentially savage headwinds in the offing, Asian retailers obviously face tough and uncertain times ahead again. Are there some bright spots amidst the dark clouds that they can leverage?