Foreign retail enterprises began trickling in as early as 1992, and by 2000, over 350 such enterprises were operating under various local sanctions, but only 40 of them had gained proper approval from the central government. A clampdown followed, requiring foreign investors to conform to a set of trial regulations passed in 1999 which limited investors geographically to provincial capitals and municipalities, and set tough requirements on assets and profitability. But it was a short-lived pullback.
Soon after China's entry to the WTO 2001, the regulations were changed again, liberalized to meet WTO requirements on foreign business access, and also to aid the retail sector's transformation. The rules with regard to geographical limits, joint ventures with domestic enterprises, and limits on the number of ventures and branch networks were relaxed and have now been dropped completely.
Perhaps the most successful retail format in China today is the hypermarket. 2005 alone, hypermarkets increased in store numbers by 37% with an increase in revenue of 26%. Chinese consumers greatly value the attractive shopping environment and consistently high standards provided by these stores. Furthermore, many have established themselves in centrally located areas, greatly increasing convenience. Although prices may be slightly higher than other local stores, consumers are willing to pay more for a more convenient and enjoyable shopping experience.
The world's two largest hypermarket retailers, Wal-Mart of the US and Carrefour of France, both endured hard times for nearly a decade following their debuts in China. Carrefour, China?s largest foreign retailer, saw its first profitable year late as 2003. That same year, Wal-Mart was still reporting net loss, having done so consecutively each year since its introduction to China 1996.
Both Wal-Mart and Carrefour have large-scale plans to expand into smaller cities. In 2005 Carrefour was already operating 240 stores in China with 100 more open by 2006. Wal-Mart, at distant second, had 43 stores with 10 in the works. The third major foreign retailer, Germany's Metro, has 24 locations with plans to expand to 40 by 2010.
Foreign retailers at this point still occupy a very small share of the traditional department store sector. The Malaysia-based Parkson group has a number of high-end department stores in a few of China's large and medium-sized cities, and Lane Crawford has a flagship store in Shanghai. But huge numbers of outdated state-run department stores still exist, even while they appear headed for extinction.
One of the largest retail trends to watch in the near future is the massive growth of shopping malls. In cities across China, developers are scrambling to build the biggest, glitziest and most imposing malls to win over consumers. Some are or will be among the world's largest shopping complexes. Moreover, with the growth of automobile ownership, malls are springing up in suburban areas around large cities, particularly Beijing, with massive parking lots to accommodate an army of shoppers all arriving in their own cars. CapitaLand, the Singapore development firm, planned to build 15 malls across China in 2005 alone.
Those Chinese with a bit more money are also indulging in the good life like never before. While the average Chinese still earns only about US$1,200 a year, by 2005 there were over 250,000 Chinese classified as millionaires. To cater to this market, luxury brands have set their sights on affluent coastal cities. In Shanghai, for example, Prada is investing in an 'epistore,' a flagship store along the same lines as those in Tokyo and New York. Other than serving as a retail point, luxury mega-stores in China also aim to increase brand awareness for affluent Chinese who often shop while traveling abroad.
As foreign retailers are gaining more and more ground in China, domestic firms are being forced to adapt to the new environment, restructuring and revising their management structure just to stay afloat in the increasingly competitive market.