– A bit of scaling back is in evidence from some retailers in China – B&Q is shutting some branches, Best Buy’s expansion appears stalled and posh watch brand Vacheron Constantin has closed 12 stores. The reasons vary from high import duties, rising rents, the new supplier-retailer laws limiting discounting and intense competition. None are new problems in China’s retail market (except the new laws). What is new is that there is trouble in the home markets of many foreign brands, which makes them more insistent on seeing some profits repatriated now. Add to this the fact that in the retail rush of the last few years some operators over-extended, and now is the right time to retrench a little and “prune” operations.
– Retail rents are an oft-cited problem, rising at double-digit rates in Beijing and Shanghai, while the standard six-month lease enables developers to quickly boost rents on popular locations. In 2006, peak retail rents in Shanghai were US$131 per square-meter; in 2007 they rose nearly 20%, and some prime locations are now charging US$160-plus. However, in Beijing this may all change post-Olympics. In a market like Beijing where there’s been lots of new space opening, the six-month deal means you can “taste test” new developments and then depart if they under-perform. The “Olympics bounce” may be just that for some mall developments, as a large number of leases in new malls are up for renewal on September 1. Retailers can then either argue down the price if traffic has been weak or vacate altogether for greener pastures.
– The competition to quantify and understand the new Chinese middle class continues apace. We’ve had white, gray and golden collars as well as a couple of hundred other sobriquets for this group. A good one popped up recently from a Shanghai advertising agency: ben ben zhu – a bouncing pig – to describe people who frequently jump jobs to get a more wages and consequently a little more of the fat.
– Food inflation continues to haunt the consumption debate and remains a subject of much grumbling among shoppers. However, for the average urban consumer, the recent price increases are fairly insignificant in terms of their pocket. If the price of the average “basket” went up 30% in 2007, then urban consumers spent about US$584 a year on food, based on national stats. That equates to US$135 more than 2006, or US$2.60 a week. But average wages increased by 10.6% in 2007 officially (and given the “grayness” of income stats, probably more), which makes average annual urban disposable income approximately US$1,877. This equates to an extra US$3.45 per week compared to 2006. Of course, other costs are rising too but it should still be easily manageable. However, this is a stat-head’s argument. The point about inflation is whether or not consumers perceive it to be slamming their wallet and if they do, rightly or wrongly, then they may become more cautious in their spending.
– Despite some serious price inflation affecting pork, it’s still the case that consumption grew by 90% in per capita volume terms between 2001-2007. This means the “average” consumer has doubled their pork intake in five years – consider how much this has increased for the “exception” – those who fit into the middle-income bracket! Indeed, China is more of a pork nation than ever: Pork’s “share of throat” (the various foods comprising the Chinese diet) increased from 3.5% in 1997 to nearly 5% in 2007. Additionally, beef consumption doubled in a decade and chicken is up too. More interestingly perhaps, consumption of goat, guineafowl and rabbit has grown by double digits. Only consumption of buffalo has declined – by 2% since 2001.
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