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September 10, 2012 5:31 PM

Business

The Growing and Global Middle Class

There's a lot of talk about retailers crossing borders, but it's a skill that most of the industry really doesn't have a knack for yet....

There's a lot of talk about retailers crossing borders, but it's a skill that most of the industry really doesn't have a knack for yet.

The companies that are good at it are largely at the poles of fashion. Designers names such as Gucci or Prada use their megawatt brands to open doors overseas while retailers on the low-end expand their geographic base by driving efficiencies and playing the price game. (Wal-Mart, with sales of $444 billion last year, is the master of this and is now moving into Africa, in part because it has very few other places to go.)

The vast middle of fashion, at least in the U.S., seems to be more interested in stealing growth from their competitors and teasing investors with a few leased locations overseas. Gap is an exception with a big international base, as is Abercrombie & Fitch, although that brand is still trying to get out of its own way as it expands.

Whatever the difficulties, more fashion companies are going to have to stride out and meet the world. The growth in developing markets, even if predictions are two-times too optimistic, will eventually force their hand -- or investors will gravitate to companies with a global reach.

Already consumer-oriented companies with their feet wet in global markets are crowing about the possibilities.

The global middle class consists of 1.8 billion people today, but will swell to 3.2 billion people by 2020 and 5 billion in 2030, said Jon Moeller, Procter & Gamble's chief financial officer, at the recent Barclays Back-to-School Global Consumer Conference.

Over 98 percent of these new middle class consumers will be in developing markets, he said. And Americans, who now make up 20 percent of all middle-class spending, will account for just 8 percent of the middle class consumer pie by 2030.

"We are potentially on the precipice of one of the biggest trade-in and trade-up cycles in history," Moeller said. "We need to, have been and will position ourselves to exploit this." The big today are going to be even bigger tomorrow.
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