In China’s large cities, customers are spoiled for choice. Between all the hypermarkets, supermarkets, malls, and convenience stores, there is no shortage of options for China’s urbanites. This includes not only the affluent coastal cities but also second- and third-tier urban centers with populations of 3-10 million.
Good examples of the type of places big international retailers are focusing are Wuhu, Anhui province (population 2.2 million) and Yueyang, Hunan (5 million), both of which have Wal-Mart outlets. The US retailer also has stores in Kunming, Yunnan province, and Shaoxing in Zhejiang – neither an economic powerhouse.
Wal-Mart’s major competition is French chain Carrefour, the clear leader in China for some time with 334 stores and 2005 revenue of US$2 billion. Wal-Mart has 67 China outlets and reported sales of US$1 billion in 2005.
But the numbers are misleading. Of Carrefour’s China locations, only 85 are huge hypermarkets of equivalent size to Wal-Mart’s "supercenters"; the rest are smaller grocery and convenience stores.
Furthermore, Wal-Mart is set to acquire 100 Trust-Mart outlets over the next three years, in a US$1 billion deal still awaiting approval.
That deal is part of a larger trend favoring hypermarkets in China. Carrefour and Wal-Mart both plan on further expansion in 2007. Tesco, the UK’s leading retailer, is also active. Tesco’s stake in its China joint venture, which operates 44 Hymall hypermarkets, has risen from 50% to 90%.
The hysteria isn’t limited to fruit, veg and fast-moving consumer goods. Gome, China’s leading seller of home appliances, last year bought out third-ranked China Paradise, and American rival Best Buy took over fourth-ranked Jiangsu Five-Star, while opening its own store in Shanghai.
Starbucks is increasing its stakes in its China franchises and Home Depot and B&Q are fighting for control of the home improvement market.
But are these expansion plans based on sound science? According to the National Bureau of Statistics (NBS), China’s retail market was worth US$832 billion in 2005, and estimates for 2006 were running at about US$860 billion.
Yet market research firm Access Asia studied the government’s figures and tentatively concluded that the true value of China’s retail market is only about half this, roughly US$452 billion in 2005.
If accurate, this suggests there is a major kink in the marketing strategies of both foreign and domestic retailers. Indeed, suspicions of a smaller-than-imagined retail market are borne out in the uninspiring performance of most foreign luxury brands in China – only one in 10 is said to be turning a profit.
Foreign retailers also have to keep an eye on the government. Last year regulators tamed the notoriously anti-union Wal-Mart, organizing all of its China-based workers. Two thirds of all foreign enterprises are to be unionized before 2007 is out.
Yet in cities across China, developers are scrambling to build the biggest malls to win over consumers. Some are or will be among the world’s largest shopping complexes. In suburban areas around large cities, massive parking lots are also being installed to accommodate an army of car-driving shoppers.
CapitaLand, the Singapore development firm, operated 30 malls inside China in mid-2006, with plans to expand.
They are driven on by ambitions to reel in the affluent consumers. While the disposable income of the average Chinese was about US$1,327 in 2005, there are some 15 million people making over US$32,000 a year. Analysts put the size of China’s middle class at anything between 100 and 300 million.
Still, no matter one’s income, there are basic necessities for which one must go to the store. From the looks of it, shoppers in China will continue to have a bounty of options.