Continuing Expansion Forecast for China’s Retail Sector

China’s retail sector will continue to expand vigorously over the next few years, with a growing and increasingly affluent population driving a strong rise in household spending across all retail subsectors says Business Monitor.

In its just-published ‘China Retail Report’, the business advisory firm notes that a sizeable multinational retail presence, which developed following the lifting of foreign direct investment (FDI) restrictions in 2001, ensured the early adoption of modern retail best practices in China. As a result, organised retail – including Western-style chain outlets, department stores and supermarkets – already account for an estimated 22.5% of the total retail market, far higher than India’s 5%.

Although the Chinese retail market remains highly fragmented – with small, independent retailers throughout the countryside serving a population of more than one billion people – malls and department stores are now the preferred shopping venues for many consumers. In addition, as major cities have slowly begun to saturate, retailers are expanding into tertiary towns and cities or rural areas, looking to guarantee future growth prospects.

Business Monitor see long-term potential in the Chinese consumer market, particularly for non-essential items and aspirational purchasing by a growing, affluent middle class. It forecasts the average net household income will be US$13,333 in 2013, with 73.8% of households falling into the bottom wage bracket of US$5,000+. However, by 2018, 63% of households fall into the US$10,000+ income bracket, which represents the key demographic for increased household spending on luxury items beyond necessities such as food, utilities and transport.

The report forecasts that this number will grow, resulting in a corresponding increase in household spending on clothing, footwear and high-end household appliances. Meanwhile, transport expenditure will also continue to rise as a larger number of households purchase cars and bikes and travel longer distances, including the purchase of holiday flights.

Among the key trends and developments discussed in the report:

• France’s Carrefour has pledged some 25 new hypermarket openings annually, and the UK’s Tesco has announced it is to incorporate its Chinese operations into a new joint venture with China Resources Enterprise, paying around £345m in the process. The alliance, which requires regulatory and shareholder approval, would give Tesco a 20% stake in a combined business operating more than 3,000 stores in China.
• Thailand’s largest retail conglomerate, the Central Retail Corporation, is to set up luxury malls in mainland China. Over the next 10 years, the company plans to launch at least two malls each year in China’s top 20 cities.
• South Korean retailer Lotte Shopping plans to add another 20 department stores in China over the next eight years.
• Leading Chinese appliance chain Suning’s 10-year development plan will see it open 200 new stores every year between 2011 and 2020, increasing its outlets to 3,500. The company is also launching a network of superstores that will sell home appliances, general merchandise, books and daily necessities.

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