Retail appetite robust in China's smaller cities
Smaller cities will spearhead the next phase of retail development in China and the sector will continue to provide huge growth opportunities for companies, global management consulting firm A. T. Kearney said in a report released on Monday.
"Urbanization, increasing disposable incomes, and the family-planning relaxation will fuel future retail growth in China," said the Global Retail Development Index, an annual study that ranks the top 30 developing countries in the world in terms of retail expansion potential.
Although China has more shopping malls, convenience stores, and online shoppers, hypermarkets and supermarkets, particularly foreign ones, than anyone else, the sector needs more steps to counter flattening revenue, the study said.
According to the report, China ranks second in the world, after Chile, in terms of retail market potential. The ranking, based on factors like market attractiveness, country risk, market saturation, and time pressure, shows that China is still a huge market that retailers cannot ignore, despite the slower growth. The second rank is also China's best rank after 2010, when it occupied the top slot.
Retail sales in the world's most populous country increased 13 percent in 2013 (to $2.6 trillion) on the back of rising consumer confidence. "A major retail driver in China is online sales, which stood at almost $300 billion last year", said A. T. Kearney partner Sherri He.
That represents a 42 percent year-on-year growth and accounts for 8 percent of the total retail sales in China, He said.
The e-commerce market will see further growth in China this year as key players step up market consolidation efforts. Innovative integration of online and offline business and mobility expansion will also help companies. Profits for third-party logistics companies may, however, fall, due to higher land and labor costs, the report said.
"Online players are still struggling to make profits and retailers are still trying hard to find a winning formula for online and offline integration," He said.
On the other hand, hypermarkets and supermarkets－particularly multinationals－are facing flattening revenue growth. Costs such as wages have grown by more than 15 percent every year and rents in some locations have grown by 10 percent every year, the report said.
Some retailers closed under-performing stores or engaged in mergers and acquisitions to counter this. In 2013, US-based retailer Wal-Mart Stores Inc closed 14 stores across China while UK retailer Tesco Plc shut down three and CP Lotus Corp shuttered two.
Department stores are struggling, too. Store totals dropped by more than 4 percent, and total revenue growth was minimal, the report said.
"Stores need to boost public functions in order to attract more consumers, such as parking services, payment services, and wireless Internet connections," said Zhen Shiqi, director of retail services at property services firm DTZ China.
Chinese consumers are more drawn to shopping malls because they offer several functions within one destination. Food, entertainment, exhibitions, and event spaces are attracting more people than pure shoppers. Mall restaurants have also expanded, the report said.
China will see fast growth of shopping malls in the next few years, with mall construction area set to go up by 20 percent. Most of the malls under constructions are expected to start operations in the next few years, mostly in smaller cities and towns.
According to data provided by CBRE, a property services provider, about half of the global area under mall construction is in China, around 200 million square meters as of April.
Industry sources said China's shopping malls need to have their own character to provide consumers a wider range of choices and to avoid head-to-head competition.
Although China has more shopping malls, convenience stores, and online shoppers, hypermarkets and supermarkets, particularly foreign ones, than anyone else, the sector needs more steps to counter flattening revenue, the study said.
According to the report, China ranks second in the world, after Chile, in terms of retail market potential. The ranking, based on factors like market attractiveness, country risk, market saturation, and time pressure, shows that China is still a huge market that retailers cannot ignore, despite the slower growth. The second rank is also China's best rank after 2010, when it occupied the top slot.
Retail sales in the world's most populous country increased 13 percent in 2013 (to $2.6 trillion) on the back of rising consumer confidence. "A major retail driver in China is online sales, which stood at almost $300 billion last year", said A. T. Kearney partner Sherri He.
That represents a 42 percent year-on-year growth and accounts for 8 percent of the total retail sales in China, He said.
The e-commerce market will see further growth in China this year as key players step up market consolidation efforts. Innovative integration of online and offline business and mobility expansion will also help companies. Profits for third-party logistics companies may, however, fall, due to higher land and labor costs, the report said.
"Online players are still struggling to make profits and retailers are still trying hard to find a winning formula for online and offline integration," He said.
On the other hand, hypermarkets and supermarkets－particularly multinationals－are facing flattening revenue growth. Costs such as wages have grown by more than 15 percent every year and rents in some locations have grown by 10 percent every year, the report said.
Some retailers closed under-performing stores or engaged in mergers and acquisitions to counter this. In 2013, US-based retailer Wal-Mart Stores Inc closed 14 stores across China while UK retailer Tesco Plc shut down three and CP Lotus Corp shuttered two.
Department stores are struggling, too. Store totals dropped by more than 4 percent, and total revenue growth was minimal, the report said.
"Stores need to boost public functions in order to attract more consumers, such as parking services, payment services, and wireless Internet connections," said Zhen Shiqi, director of retail services at property services firm DTZ China.
Chinese consumers are more drawn to shopping malls because they offer several functions within one destination. Food, entertainment, exhibitions, and event spaces are attracting more people than pure shoppers. Mall restaurants have also expanded, the report said.
China will see fast growth of shopping malls in the next few years, with mall construction area set to go up by 20 percent. Most of the malls under constructions are expected to start operations in the next few years, mostly in smaller cities and towns.
According to data provided by CBRE, a property services provider, about half of the global area under mall construction is in China, around 200 million square meters as of April.
Industry sources said China's shopping malls need to have their own character to provide consumers a wider range of choices and to avoid head-to-head competition.
