Retail Boom in China


Even though the average income in China currently lags behind the U.S., the Chinese economy is experiencing explosive growth over the past few years giving rise to a dynamic consumer culture and a tremendous surge in retailing.

In late June 2005, I had the opportunity to visit Shanghai, along with executives from Intel, Business Objects, Oracle and RIS News, on a tour to explore the retail industry in China, and the results of that experience were nothing less than extraordinary for all participants.

The scale of the Chinese landscape is overwhelming. From the observation deck of the Pearl TV Tower (the third tallest tower in the world), the skyline of Shanghai seems to go on forever - a mix of high-rise buildings and residences that feels like the skyline of Chicago...except that it extends in every direction, as far as the eye can see.

Retailing in China could best be described as a study in contradictions. Huge mega stores sit on streets next to shops akin to 10- by 10-foot self-storage units. Point-of-sale equipment is either very modern or simply a calculator and paper receipt pad. Within a one-block radius, visitors can find different stores selling children's shirts for the equivalent of as little as one U.S. dollar to as much as $90. There are 236,000 millionaires in China, and hundreds of millions of Chinese who make less than $500 a year.

A Nation of Shopkeepers
China is a "nation of shopkeepers," to quote Napoleon, with more than three million retail businesses ranging from tiny mom-and-pop storefronts selling items as obscure as PVC pipe to huge hypermarkets.

While the overall average income lags behind the U.S., the sheer number of middle class shoppers in China has led to some startling statistics: one store on Nanjing Road, the Shanghai Number One Department Store, has reported an average of 150,000 shoppers per day.

The Pudong area of Shanghai is home to the 12-story Nextage Department Store, second in size only to the Macy's flagship department store in New York City.

Though some 92 percent of the total volume of retail sales in China still is flowing through the millions of mom-and-pop stores, large chain retail is clearly on the rise. The total sales volume of the top 100 chains is expected to grow by almost 30 percent in 2005. And many of the barriers to "modern retailing" are falling fast: Shanghai has just established the first city-wide credit evaluation system, bringing 14 million cash-only customers into the credit-card age.

Merchandising Precision
One of the most striking aspects of Chinese stores is the quality of the merchandising and presentation. In Lotus and Carrefour hypermarkets produce is immaculately stacked and incredibly fresh. Other than the tanks of live fish and frogs, the scene could easily be out of HEB's Central Market store.

This wasn't limited only to the hypermarkets: the display of bathroom fixtures at a B&Q store would be more at home in a high-end boutique than a typical Western DIY superstore. Even small kiosks at the Yu Gardens displayed an attention to detail rarely found in most U.S. stores.

Many of the more recent shopping developments are focused on showcasing international brands. A pavilion on Nanjing Road featured more than 100 micro stores ranging from Levis to Louis Vuitton, but the shoppers in these areas are overwhelmingly Chinese rather than foreign, showing the hunger of a population that has money to spend. High-end brands abound, including a Ferrari store adjacent to the fashionable Xintandi shopping development.

Rather than thinking of China as a Communist country, the description "centrally planned capitalism" is more apropos. Entrepreneurial spirit is pervasive, but combined with a national sense of destiny and strong government policies driving growth. Faced with an increasing strain on oil imports, the Chinese government responded by instituting some of the world's most stringent fuel economy standards. For the Olympic Games in 2008, China is extending the maglev train line that currently connects Shanghai and its airport - already the fastest train in the world - all the way to Beijing.

Take an immense and eager labor pool and a government eager for growth, add a sense of national destiny and plentiful natural resources, and you have all the ingredients for a very dynamic retail economy.

Jim Crawford is a vice president with Retail Forward. He has 10 years' experience in technology management for Fortune 500 companies and specializes in multi-channel retail integration, next-generation store technology and the use of RFID in retail. Formerly, Crawford was a research analyst with Forrester Research and the Director of Internet Marketing for the Nautilus Group.

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