Consulting firm, McKinsey noted “over the course of the next decade, the global face of the retail industry will change dramatically. Emerging markets will continue to see spectacular growth, both in regards to new shoppers and per capita spending”.
Indeed, the most prominent such market is that of China. Despite weakness in its economy, China ranked number one on AT Kearney’s 2015 Global Retail Development Index. Its retail grew at almost 12.0% in 2014 and is projected to exceed $8 trillion, double the size of the US market, by 2022. For 2015, retail sales will probably be less than 2014’s 12.0% but still in double digits.
For the month of October, a 10% government tax cut on smaller cars helped spur the biggest monthly auto-sales increase. Despite gloomy Chinese economic data, Chinese consumers appear to be optimistic. Year-to-date through October, total retail sales of consumer goods are up 10.6%.
China’s retail sector is fragmented. Research from Denzan Shira & Associates indicates that the top 100 retailers account for only 11.0% of total retail sales. Improving infrastructure and the rise in urbanization have resulted in retailers focusing on third and fourth tier cities.
In terms of sales, hypermarkets still reign in China but the convenience stores and premium supermarkets are gaining as Chinese consumers become less price sensitive and more proximity and convenience-centric. International retailers such as Walmart and Carrefour have struggled in the Chinese market as domestic players gain market share.
Not surprising, e-commerce is playing an increasing role in China’s retail industry. Retailers are incorporating it into their business strategy much like those in the US and Europe. For example, some retailers are partnering with e-tailers as alternative delivery locations. Still, much like US and Europe, many retailers are finding themselves falling behind e-tailers. Differing approaches have been undertaken to combat this growing disparity. In 2014, Sun Art Retail Group Ltd, China’s largest hypermarket operator, launched an online store while ecommerce provider Alibaba invested $4.6 billion in electronics retailer, Suning. This investment is an interesting one as it will provide online customers to go into one of Suning’s 1,600 outlets in China to try out a product before purchasing it on Alibaba’s website using their smartphone.
Much like many emerging markets, m-commerce and social media play an increasing role and China is no exception. China’s retailers are utilizing both mediums to offer digital coupons, payment, price comparison, goods ordering and digital membership cards to gain customer loyalty.
As China’s retail industry undergoes its transformation, logistics are an important component in terms of delivery services, fulfillment and value-added services. But, China’s infrastructure remains problematic and many retailers and e-commerce providers such as Suning, Amazon, Alibaba and JD.com have made varying investments in logistics to solve this dilemma. Meanwhile, property management companies such as Goodman and GLP are investing in warehousing to further meet the growing needs of retailers. Many opportunities are available for logistics providers. However, these opportunities may also prove challenging for those that enter this market.