August 10, 2013
Mongolia. Once upon a time the very name conjured images of isolation and desolation. Now this country is rapidly becoming one the hottest new frontier market destinations for high-end residential and international luxury brands. By why is so much attention being paid to this relatively undeveloped market of less than 3m people? The answer, to paraphrase Bill Clinton, is simple: “It’s the economy, stupid.” Mongolia’s economy expanded by nearly 18% in 2011 and future growth is expected to continue along the same lines. GDP per capita doubled between 2005 and 2012, and is likely to double again over the next Sive years. This economic boom has created overnight millionaires and afSluent locals have begun seeking new ways to show off their wealth. As well as a demand for high-spec residential development and commercial buildings, luxury brands are moving in. The brands looking to enter the market have found existing retail property stock in particular to be either non-existent or not up to the standard or not in a location that meets the criteria. Developers aim to Sill this void. Shangri-La is building 48,000 sq ft of shops adjacent to its new Ulaanbaatar hotel and we are near to completing 53,800 sq ft of shops in the region and are building Mongolia’s Sirst brand discount village. Louis Vuitton has also opened outlet branches in the capital. With relatively low costs and incomparable macro outlook, Mongolia looks set for an explosion of retail spending and demand for retail property. Analysts and business leaders agree and global management consultant A.T. Kearney placed Mongolia at number seven on its 2013 Global Retail Development Index. But the market has challenges and unusual patterns to contend with. Retailers considering entry and property Sirms looking to get in on the action should keep the following points in mind:
Low population – Mongolia is the most sparsely populated country in the word. The IMF projects that by 2018, the Mongolian population will reach a paltry 3.1m.
Women are the key demographic – Women make up more than 51.4% of the population. They are gainfully employed at higher rates and are often earning more disposable income than their male counterparts.
Cyclicality – Mongolia is a country of extreme cycles. Temperatures range from -40°C in winter to 40°C in summer. Fortunes rise and fall on the back of coal and copper prices and consumer spending follows suit. Sales managers told us that sales could vary unpredictably month-to-month. Nevertheless, the retail sector has expanded with the boom in local purchasing power, rising from 13% of GDP in 2008 to more than 19% in 2011. Annual per capita expenditure on clothing alone increased by over 500% between 2003 and 2011. The number of Mongolian retailers increased by circa 34% between 2008 and 2010 and this pace is set to continue. Rental rates for shops in Ulaanbatar’s Central Business District are forecast to more than triple over the next four years.
Strong macro fundamentals and broad based real income growth will sustain expansion of the retail sector for years to come. Top locations have begun to generate internationally competitive sales metrics. Mongolia offers a lucrative and exciting new market.