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China's retail market is expected to become the second largest (behind the USA) in the world by 2012, overtaking Japan . At the end of the 1980's to the beginning of the 1990's, chain supermarkets and chain stores serving people's daily needs appeared in China. After ten years of rapid growth, the total sales volume of the country's chain retail industry has reached 700 billion RMB (US$87 billion) in 2004.

The Chinese retail market is transforming from a small-scale, highly fragmented, provincial operating model to a modern, large-scale cross-regional one. However, no dominant player has yet emerged. For example, the top five grocery retailers represent only 21% of total retail sales.

History

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Since 1992, China's government has launched a series of policies to promote the rapid, healthy and orderly development of the retail industry. The retail industry has developed rapidly, its scale has expanded continuously, the layout of all the ownerships has formed, the enterprise modernization level has improved, the large-scale retail enterprises has grown fast, and the pattern of opening-up has formed as well.

Currently, there are six retail formats in China, shopping center, department store, supermarket, convenience store, speciality store and non-store selling. The retail industry has become the field with the highest marketization level after over two decades of reform. There are a large number of the retail enterprises, and more than 15 million of retail networks, so the circulating network covering the urban and rural areas is formed. In 2004, there was 55,000 large-scale chain retail stores in China, up 18% compared to 2003; the operation area increased 26.5%, and the retail turnover rose 30.2%, accounting for 9.6% in the total retail turnover of the consumption. The sales of retail enterprises in Beijing, Shanghai, Tianjin, Chongqing, Shenzhen all exceeded 20% in the total retail turnover.

The research of the overall retail industry in 2005 in China by National Bureau of Statistics, shows the chain retail in China had been in a rapid expansion and development period, and the growth pace of shops in the second and third-level cities was 2-3 times of the first-level cities. In addition, the entry amount of the foreign-funded retail enterprises grew fast, and 1,027 foreign-funded enterprises were approved to establish by Ministry of Commerce in 2005.

The Chinese government continued to push the deep and refined management of the Market Project of Thousands of Villages and Townships, Two Hundred Markets Project in 2006, launched a series of document to standardize the market competition order in order to deepen and standardize the retail market competition and retail supply; continued to deepen Urban Business Network Management Statutes around China, Evaluation Methods on Retail Industry. It can be concluded that Chinese government has attached great importance to the retail industry.

In the new development period of the retail industry, the retail industry in China was faced with various opportunities and challenges. According to the forecast, the annual growth level will have reached 14% between 2007 to 2010, and the market capacity amounted to RMB 8.6 trillion in 2007, and it will have reached 12.81 trillion in 2010.

Overall, the Chinese government has attached great importance to the retail industry, and various opportunities and challenges, such as the foreign investment, will bring the self perfect of the enterprises, so the retail industry in China has the wider development room.

Growth

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China’s retail market continues to develop rapidly. New chain store networks and shopping malls are emerging outside the top three cities of Beijing, Guangzhou and Shanghai as retailers extend their reach to other first-tier cities, and now many second- and third-tier cities. There is aggressive consolidation in the market, as larger operators swallow up smaller players, while there are equally significant numbers of failures, both retail companies and shopping malls.

China’s retail market was expected to grow by about 34% between 2008 and 2012, to have reached a total value of over RMB7.54trn.

Factors

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  • China's social fundamentals: increasing urbanisation (and even if people don't want to, by moving to a city they inevitably consume and spend more); the demographic "sweet spot" of plenty of 20/30 something consumers; new consumers coming online inland and; the one-child policy meaning spending on kids is concentrated on one 'Little Emperor'.
  • Rising incomes: Urban income growth has slowed somewhat, but growth is still apparent. The strong growth rates of recent years have meant that, unlike many Europeans and virtually all Americans, Chinese consumers have been able to both save and spend, rather than choose one or the other. At the same time, inland wage growth has been far stronger than anyone predicted, and even at the low end some discretionary income has appeared.
  • Jobs: Ten years ago, during the closest thing to a 2008 slowdown we've seen before in China, the result was unemployment as the State Owned Enterprises laid off hundreds of thousands. This time around, it is less about unemployment and more about wages for white-collar workers. People understand that high wage growth is not possible, and a small or zero increase is of course preferable to unemployment. Therefore, while factory workers might lose their jobs, urban white-collar unemployment is expected to be limited. Wages may not grow much, but confidence remains as people remain employed. Inland, and in rural areas, the stimulus packages will, if nothing else, create some jobs and income at the lower end that will filter into the retail sphere.
  • Property: Despite the tough conditions in the property market and the collapse of the A-share market, no negative wealth effect has really been evidenced in China as many predicted. But, in 2009, the property market was expected pick up following government's interest rate cuts, property tax adjustments and banks encouraged to lend - showrooms have already seen an increase in interest. There is still pent-up demand for home ownership. The repercussions for retail are significant through the chain and the sectors.
  • Inland Growth: Retailers, particularly domestic, report that retail sales in tier 2 and 3 are holding up reasonably well. There is some unemployment, but this is being more than counterbalanced by the continued emergence of new consumers entering the retail market for the first time as tier 2 and 3 cities continue to grow.
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  • Hypermarkets will have the highest growth potential among different store formats.
  • Cosmetics and toiletries, apparel, furniture, washing machines and computers will be the top five fastest growing categories in the forecasted period.
  • Organic food sales will remain buoyant in the coming years. It is expected that the organic food turnover will be US$ 400 Million by 2007.
  • Per head disposable income will increase with the CAGR of 11.52% during the forecasted period and will give thrust to the overall retail industry.

Retail market

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China's retail industry is third largest emerging retail markets in the world and in the past, the market has forged ahead with the CAGR of 12.38%. The booming economy, increasing income levels, deregulation of retail sector and increased confidence of Chinese consumer makes china a lucrative market for international retail players.

WTO

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The most significant recent development for global retailers is China's accession to the WTO in December 2001. Many of the country's long-standing market barriers and trade restrictions are being eliminated as it gradually opens this vast and domestically dominated market.

Major Chinese retailers

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Chinese retail chains are aggressively catching up to their foreign counterparts when it comes to management, logistics and marketing. Electronics and white goods chain Gome (国美) is a prominent example of a Chinese retail company that has learnt from Western methods but has the home field advantage when it comes to licensing issues for new stores and dealing with the complexities and business environment of logistics, transport and distribution in China.

Multinational companies

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China’s retail market has broadly opened-up to foreign involvement, now permitted by the government, but there are still restrictions on retailing of certain goods, notably books and other media, and most foreign retailers are finding it hard to make any profit. International companies have established numerous local partnerships over the years, many now being bought out by foreign parties eager to take full control of their Chinese operations. Meanwhile, Chinese companies are becoming increasingly competitive in response to the foreign entrants, often undercutting their competitors to the point of loss-making.

Carrefour and Wal-Mart both already have significant footholds in China, as well as specialized retailers like IKEA and B&Q.

Challenges

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Successful entrants to China's retail market focus their efforts on resolving key issues, including poor logistics infrastructure, an unskilled labor force, regional diversity, an ambiguous legal environment and a lack of accurate retail market data.

See also

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- AT Kearney's Global Retail Development Index http://www.atkearney.com/main.taf?p=5,4,1,131

References

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Category:Retailing in China

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