China: 20 per cent growth in retail trade in 2008

Citation

(2008), "China: 20 per cent growth in retail trade in 2008", International Journal of Retail & Distribution Management, Vol. 36 No. 12. https://doi.org/10.1108/ijrdm.2008.08936laf.001

China: 20 per cent growth in retail trade in 2008

Article Type: Press release From: International Journal of Retail & Distribution Management, Volume 36, Issue 12

China’s rapid economic growth, low unemployment and growing affluence of society all mean that the Chinese retail market, already huge, has strong potential for further growth. The market is continuously evolving, mostly due to the expansion of foreign chains, frequent takeovers and changes in the purchasing habits of Chinese consumers.

According to estimates by research and consulting company PMR, the value of the Chinese retail market in 2008 will increase by 20 per cent and exceed €970 bn (Figure 1). This means that retail turnover will have almost doubled in the last four years. Similarly, the market’s value will be more than 2.5 times higher than the value of retail sales in Russia, where retail trade is growing at a similarly dynamic rate. The difference in value between the two markets is chiefly due to the size of China’s population, but it is worth nothing that most of the turnover of Chinese trade (almost 70 per cent) stems from urban regions which are inhabited by approximately 45 per cent of China’s population. In addition, it is these regions which are the driving force of the market.

In China there are still vast disproportions in the level of growth and the affluence of urban and rural regions. The incomes of the Chinese city population are three times higher than those living in the provinces (average annual per capita discretionary income in urban households amounts to €1,259, compared to €378 for rural households), and grow more rapidly, at 7-12 per cent per annum in real terms. The residents of Shanghai and Beijing, the two largest cities in China, have the highest incomes in the country.

Figure 1 Retails sales value in China (bn) and growth dynamics (per cent) (2004-2008)

With its concentration on the country’s largest cities, retail trade in China is growing dynamically in every segment, along with changes in consumer behaviour, and as a result of the activities of Chinese authorities. Traditionally, Chinese consumers have made small but frequent purchases at marketplaces or small independent family stores located close to their homes. This is due to cultural, housing (small apartments, small refrigerators) and proprietal conditions (relatively few households own a car). However, the purchase behaviours of Chinese consumers are changing, chiefly as a result of the growth in modern sales channels (hypermarkets, supermarkets, specialist stores), dynamic development of shopping centres and trends dictated by foreign companies and popularised by the mass media. In addition, products sold in large, often chain stores, are considered to be of a higher quality, which Chinese consumers are increasingly more often able to afford.

The development of modern distribution channels and chain stores has been significantly affected by legal changes introduced in China, opening its market to foreign investment, enabling foreign firms to operate independently, restoring the possibility of direct trade and systematising franchise rules. The attitude of local Chinese authorities is also not insignificant; they are supporting the development of modern stores as a more hygienic alternative to traditional Chinese wet market.

The Chinese retail market is dominated by local firms, usually operating very numerous chains of smaller stores, however the performance of some international players such as Wal-Mart and Carrefour, some of which have been on the Chinese market for more than 10 years, is consistently improving. Companies at the forefront of global trade (five of the largest retail companies in the world are present in China) are constantly working at adapting themselves to the specificities of the local market, optimalising supply and concurrently working on expansion.

Figure 2 Selected mergers and takeovers on the retail market in China (2006-2007)

Due to legal requirements of the time, most international companies commenced their operations in China by taking over shares in local chains, or establishing joint ventures. The years 2006-2008 show that takeovers are also an important element of geographic growth, and a means of strengthening market position. Spectacular transactions can be observed in, e.g. the grocery, consumer electronics and DIY markets (Figure 2).

Chain retailers are strengthening their position via takeovers and continual organic growth. However, it is only in the grocery and consumer electronics segments that modern channel stores have a significant share; on average chain stores in China have approximately a 15 per cent share of the market. It is evident, therefore, that chains in China have significant potential for development, taking into account good growth perspectives for the whole market over the next few years, resultant from rapid economic growth, the increasing affluence of Chinese society and the abundance of regions in which modern commerce has not yet appeared.

Other interesting data from the report are shown in Figures 3 and 4.

Figure 3 Store count of selected foreign retailers in Chine (2005-2007)

Figure 4 Store count of selected Chinese retailers in China (2005-2007)

More information on the report go to www.pmrcorporate.com