China draws tremendous interest from global retailers due to the opportunities in its domestic consumption market.
CBRE’s recent report, MarketScore: the Key to Investing in the China Retail Market, provides a framework to evaluate China’s “notoriously opaque” retail market using 11 macro and retail-specific indicators.
Based on the study, Shanghai, Beijing and Hangzhou currently offer the brightest prospects for retail investment. However, China’s second-tier cities such as Shenyang and Wuxi have high oversupply risk. According to CBRE, some of the new retail projects in these two cities have a vacancy rate of as high as 40 percent.
Consumption patterns of Chinese shoppers in tier 1 cities vary. Beijing shoppers spend a larger share on clothing, about 11 percent of their consumption expenditures, and less on food consumption than the other tier 1 cities.
Shanghai attracts both the luxury and mid-end retailers with 30 luxury outlets and 83 fast fashion stores. The current “decentralization” trend in Shanghai, driven by more people moving to suburban areas and the trend among fast-fashion retailers to expand to decentralized areas, is expected to continue and will provide more expansion opportunities for retailers, according to CBRE.
Shanghai and Beijing are the cities with the greatest number of luxury brands. Chengdu places third. Despite slowing luxury sales across China, international brands have continued to expand in Chengdu as the “self-use demand is a strong trend in the Chengdu luxury sector,” according to CBRE. The number of Burberry, Gucci, Louis Vuitton, and Prada stores in Chengdu have exceeded those in Guangzhou and Shenzhen. In the first quarter of 2014, about 20 new luxury brands, including Chanel and Giorgio Armani, have opened in IFS, the city’s new shopping mall.
image credit: flickr/aaron sorrell, cbre