After being three years on the top, India has finally lost its position as the most preferred destination among upcoming markets for retail investment, according to the 7th annual global retail development index (GRDI) by management consulting firm A.T. Kearney.

The GRDI ranks countries among the thirty emerging markets on the basis of their retail investment attractiveness.

Vietnam occupies pole position in 2008. The country’s leap from the fourth place in 2007 to the top spot this year was driven by strong GDP growth, changes in its regulatory structure favoring foreign investors and increase in consumer demand for modern retail concepts.

India, Russia and China —the top three countries in last year’s GRDI fell to 2nd, 3rd and 4tf places, respectively, in the 2008 GRDI.

While India, Russia and China remain important destinations, high real estate prices in big cities and growing competition have decreased the attractiveness compared with the last years and forced retailers to look for opportunities in Tier II and III cities.

“India continues to be a dominant force in AT Kearney’s annual GRDI report. While India has slipped to No. 2 this year, it continues to be a favored destination for global retailers. However, challenges such as skyrocketing real estate costs, a lack of good commercial property and complex regulations for foreign entry have caused the slide in ranking,” said Hemant Kalbag, principal (consumer industries and retail practice), AT Kearney India.

Vietnam’s twenty billion dollar retail market place is very small compared with India or China, but the absence of competition and an 8 %GDP growth make it an attractive opportunity for global retailers, says the report.

Moreover, the Vietnamese consumer is among the youngest in Asia, with seventy nine million below the age of 65. Moreover, the country’s consumer spending increased by more than 75 % between 2000 and 2007.

But all is not lost for India. The retail market opportunity here is larger than ever at $510 billion and spending patterns and consumer maturity are growing faster than what most retailers had forecast.

However, there are a few stumbling blocks that have emerged. Foreign players entering India today face stringent regulations, a clouded political atmosphere, soaring real estate costs and a fiercely competitive domestic retailer group, said the report.