In this post from Reportlinker, we take a look at the Chinese retail market and why it’s one of the fastest growing markets for retail and luxury brands.
The Chinese retail market will be the world’s largest by 2018. Four years later, according to a new by A.T. Kearney, the market will be worth $8 trillion, double that of the United States. China, along with the rest of Asia, is the fastest growing emerging market for both retail and luxury brands. Let’s examine the top five tips for understanding China’s growing retail market.
1. China holds the top position on the Global Retail Development Index Ranking because it is experiencing retail growth of 11.6% annually. The fastest growing market is Sheng Lu. Like other emerging markets, Chinese shoppers are conscientious and sophisticated as their quality of life increases. In 2009, they had an average disposable income of $2,515; in large cities this increases to $3,810. The market is dominated by small and medium sized retailers, and they face major competition. It is rare for stores to have a presence in more than one province, and box retailers, departments stores and supermarkets are rare. Only 5% of retail business are held by foreign investors because heavy restrictions were placed on foreign retailers prior to 2001. The sectors that represent the best places for foreign investment include ecommerce, non-fuel services at gas stations and drug stores. To succeed in China, it’s best for retailers to understand government policies, working with local partners and offering third-party services.
2. The Chinese retail market is changing, thanks to technology and changing customer behaviors. Traditional brick-and-mortar businesses are improving in store service and setting up ecommerce websites. The latest trend in large cities is to build third generation shopping centers that include not only stores but entertainment facilities. Smaller cities have an oversupply of shopping mall stock that’s as high as 15%. To deal with change, shopping mall retailer Dalian Wanda Group is changing its business model to focus on services related to the planning and management of shopping malls.
3. By next year, the Chinese will overtake the United States as the world’s largest apparel market. In recent years, the market has experienced double digit growth. On average, urban households spend an average of $306 annually on clothing. Women’s wear is the large segment, with 32.7% of the market, while children’s clothing and sportswear are experiencing the highest growth. Brick-and-mortar stores represent the most sales but ecommerce sales are increasing quickly. As the market grows, so does the presence of foreign retailers. UK based New Look and House of Fraser, which was purchased by a Chinese conglomerate, have opened stores in China.
4. In 2014, ecommerce sales increased 50%. Despite this increase, only 300 million Chinese out of a population of 1.4 billion shops online. Clearly, this market has room to expand much further. Some retailers have devised ways to lure customers to their ecommerce sites by including such benefits as ordering online and picking up in store, and offering medical insurance rebates with orders. The Chinese ecommerce market is focused on mobile applications and social networks, and many ecommerce vendors have no physical store while traditional retailers are slow to have an online presence.
5. The Chinese market for luxury and high-end goods is increasing, especially among young people who want to increase their standard of living. The majority of luxury purchases, 76%, were made overseas, however. To cater to these customers, European luxury outlets have begun opening in China. The market for electronics also is increasing with customers purchasing smartphones, wearable technology and smart appliances.
Top image: TonyV3112
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