The allure of companies with terrific emerging market exposure has come under significant pressure during the past couple of years, as the impact of economic cooling on shoppers’ spending power in these areas has whacked revenues for many operators.
But many, myself included, believe that a combination of rising populations and emergence of the middle classes make these territories a potential goldmine. Indeed, the excellent outlook for these regions was underlined this week when US retailer Wal-Mart Stores (NYSE: WMT.US) announced plans to open a further 115 outlets across Asian powerhouse China during the next three years.
This will take the number of the firm’s stores in the country to almost 530, while Wal-Mart is also planning to expand its majority-controlled Yihaodian.com online grocery service as well as embark on a large number of store revamps. This comes even though net sales in China fell 0.7%
in the three months to January.
Internet sales on the march
Such measures should give investor confidence in Marks and Spencer (LSE: MKS), for one, a huge shot in the arm. The British retail institution has been busy in recent years expanding its product offerings in Asian marketplaces, even though sales in China have also disappointed more recently.
The firm announced this month plans to close five of its stores in Shanghai in a bid to reshape its expansion strategy in the country, where it currently operates 15 outlets. But Marks and Spencer has vowed to redeploy these stores in other major metropolitan areas like Beijing and Guangzhou, while it has also enjoyed huge success in China’s e-commerce in recent times and has rolled out new services on major retail sites such as Tmall.com and Jd.com.
Consumer products bouncing back
Like Marks and Spencer, household goods giants Unilever (LSE: ULVR) and Reckitt Benckiser (LSE: RB) also carry terrific brand power to attract the gaze of international consumers — indeed, the latter’s Durex contraceptive brand is the most popular label in China. And both companies are consistently innovating across their broad product bases to keep their products flying off the shelves.
Unilever reported “more stable conditions” in the country earlier this month as de-stocking has ended, a phenomenon which helped drive total developing market turnover 5.4% higher during January-March. The company sources almost 60% of group revenues from emerging nations.
And Reckitt Benckiser also reported “strong and broad-based growth” in China during the first quarter, and total sales in developing regions — geographies that are responsible for around a third of the company total — edged 6% higher during the period.
Brand power promises bountiful gains
Adding to the effect of wider cyclical problems in China, drinks giant Diageo (LSE: DGE) has also been whacked by anti-extravagance measures introduced by the Chinese government during the past year.
However, the company is extremely bullish over its prospects in the country, exemplified by its decision to purchase 100% of Shuijingfang during the summer of 2013, by some distance China’s largest baijiu brand. Of course Diageo could not have foreseen the devastating effect of Beijing’s drive against corruption, but in the coming years I believe a backdrop of rising disposable income levels should push volumes higher again.
Indeed, the distiller is ploughing vast sums into developing its suite of ultra-popular premium drinks in the country to cotton onto rising spending power, and successfully unveiled its Haig Club scotch label last year. From Johnnie Walker whiskey through to Smirnoff vodka, Diageo has plenty of blue-ribbon brands with which to attract cotton onto the rising popularity of luxury goods in the coming years.
