Free Subscription

  • Access 15 free news articles each month

Professional

Try one month for $5
  • Unlimited access to news,insights and opinions
  • Quarterly and weekly magazines
  • Independent research reports and forecasts
  • Quarterly webinars with industry experts
  • Q&A with retail leaders
  • Career advice
  • Exclusive Masterclass access. Part of Retail Week 2021

Chinese cheer

 

China, shanghaiThere is no denying it. China is a country going places. At least that’s what the delegates of the Westfield World Retail Study Tour found when we visited the burgeoning and bustling city of Shanghai.

The world’s fastest growing economy and largest population, China is definitely on the up. The stats back that up.

A series of presentations to delegates by brands including King & Wood Mallesons, Y&R Shanghai, Super Retail Group, Bo Concept, Cisco, Austrade, and Apparel Group provided a myriad of facts and statistics to China’s dazzling growth and projections.

Chief among these, and most relevant to Inside Retail Magazine readers, are those surrounding retail sales, which according to differing figures sit between 14 and 18 per cent annually – growth Australian retailers can only dream of.

Chinese retail sales in 2011 came in at $2.1 trillion.

Most would already be aware of China’s love of luxury goods, with the People’s Republic said to be the world’s largest luxury market – predicted to grow by a further 35 per cent.

Despite all this, research shows that just 20 per cent of the retail market in China is accounted for by organised retail. This includes modern retail concepts such as shopping centres, chains, and franchised stores.

According to Mark Schaub, partner at King & Wood Mallesons in Shanghai, while China has always been known for its exports, it is increasingly turning from this model to one of domestic consumption.

This is where opportunities arise for international retailers for expansion – with Australia well placed to cash in, given its close proximity.

Domestic bliss

With a population of 1.3 billion, most of which dwell outside capital cities, the best is yet to come.

China is now the world’s second biggest economy, and McKinsey indicates that Chinese urban households are becoming both bigger and richer, with 328 million urban households predicted by 2020.

China’s people are also becoming wealthier, which has in turn spurred on retail spending, with more than half of urban households to have a middle class or higher income.

Shopping is ranked in the top three most loved activities of the Chinese.

“Selling to China, sometimes people think it’s just Shanghai and Beijing,” Schaub told the Westfield World Retail Study Tour.

“For many retailers it’s a bit daunting because the country is so big. There are more than 150 cities with over one million people living in them in China,” he said.

The province of Guangzhou alone has a population of 12.8 million, a staggering number when compared to Paris, which has 10.5 million.

Shenzen in China, known to many as the home of China’s consumer electronics manufacturers, has a population of 8.6 million. There are 8.5 million living in London.

“Affordable luxury is going to be the next trend, as the fastest growing part of the economy is the middle class,” Schaub predicts.

china

E-commerce

E-commerce also presents a strong opportunity, though it accounts for around the same percentage as online sales in Australia – around five to six per cent. The difference, however, is that China’s e-commerce market is valued at $210 billion a year.

Said to have grown at around 78 per cent a year since 2006, China’s e-commerce market is dominated by a few key local players, most notably, Alibaba’s Taobao and Tmall, in addition to 360Buy.

Like a good percentage of the Chinese e-commerce, Taobao, China’s largest e-tailer, is an online marketplace, described by Schaub as a mixture of eBay and Amazon.

Independent online merchants account for just 10 per cent of China’s e-commerce market.

Taobao attracts 150,000 visits a minute, with 50,000 items sold in that same minute.

And while America has its Cyber Monday sales day, China too, has its own day for record online sales – Singles Day.

Also known as Ones Day and held on the 11/11 of each year, Singles Day was initiated by university students in the 1990s as day to celebrate their single relationship status.

Since then (with a little help from Taobao promotions), it has become the largest online shopping day on the calendar, last year generating $3 billion in sales in 24 hours.

Another point to note is design differences between Chinese and western e-commerce sites.

Where the western world favours clean, design focused aesthetics, Chinese sites in contrast can look cluttered and messy.

According to Charles Sampson, CEO greater China, at Y&R Shanghai, these design differences have been a pain point even for one of the world’s most successful e-tailers, Amazon.

“One of the arguments was over the homepage of the website,” Sampson told the group. “Head office in the US wanted to change it.

“The Amazon home page in China was really cluttered. If you go to Taobao or any of the Chinese e-commerce sites, they are all messy looking, and as a westerner, it’s hard to get your head around that.

“It’s a cultural thing in China, if you see all this busyness going on it means there are deals to be had and lots of bargains.”

Brand, brand, brand

Sampson, explained to the WRST group the importance of brands in the Chinese market.

“The Chinese have a love affair with brands,” Sampson said.

“Chinese consumers have a closer affinity to brands – twice as much as the rest of the world.

“Building brands and giving a brand meaning is really the heart of the success in this market.”

Schaub was of similar sentiments, reiterating the importance of registering both an English and Chinese name.

“You can strengthen a foreign brand identity with a Chinese name.

“Many people do not register the Chinese trademark, and that’s much more important,” Schaub said.

“If you put in Louis Vuitton’s name in Google, you get 3.5 million hits – use the Chinese name, and you get 17.5 million.”

Tapping the Chinese market

In the last six years the Chinese government has made it easier for new international businesses to enter the market, with no local partner required.

However, it can be an expensive task and proper investment is required for success.

“Setting up is pretty easy. Until 2004 it was very hard to do retail or trading at all, but since 2007, getting approval from the local authorities takes two months and you don’t need a Chinese partner anymore,” according to Schaub.

He says there are few legal restrictions to opening a new business in China, with a minimum registered capital required of only US$140,000.

When it comes to challenges, logistics is still one area that requires improvement, with delivery to smaller second and third tier cities largely dependent on local couriers with lower reliability. As a result, many foreign retailers are investing heavily in their own logistics.

Real estate can also become a minefield. Standard leases generally run for three years or less, and in some cases, it is not uncommon for the landlord to put in their own similar shop in the space afterwards.

But there is still hope – looking beyond Shanghai and Beijing can bring windfalls, with second tier government authorities keen to encourage new retailers in their cities.

This story originally appeared in Inside Retail Magazine’s August/September 2013 edition as part of our exclusive coverage on the 2013 Westfield World Retail Study Tour.

Inside Retail Magazine’s October/November issue, featuring Inside Retail Magazine’s annual 50 Most Powerful Retailers List is available now. For more information, click here.

You have 7 free articles.