China to Overtake the U.S. in Retail Sales in 3 Years

on March 5 2015 | in Retail Trends | by | with No Comments

New data suggests that China’s retail market will exceed that of the United States in three years.

A recently released report by PricewaterhouseCoopers (PwC) and the Economist Intelligence Unit (EIU) looks at the country’s 2015 retail market and shows its tremendous growth potential for the future. China’s retail sales volume growth is expected to reach 7.9 percent by 2018, while North America will hit 2.6 percent and the global average only 3.4 percent. The Chinese retail market will be worth $10.3 trillion that year, while North America will only reach $5 trillion in sales.

These predictions may come as a surprise to some, as China is currently enduring an economic slowdown. According to CNBC, the country’s gross domestic product (GDP) for 2014 came in at just 7.4 percent, “the slowest pace since 1990.”¬†

Retail sales have also decreased from 15.6 percent in 2009. But PwC finds no cause for alarm, as the country’s growth is expected to average 8.7 percent for the next two years. The firm also noted in the report that “China remains irresistible to global retail chains.”

The country’s e- and m-commerce boom is a considerable contributing factor to retail growth. As RT notes, “retail growth¬†retail market growth in China is increasingly shifting away from brick-and-mortar stores towards online with customers actively using mobile devices for purchasing.”

China has already overtaken the United States as the largest e-commerce market in the world; in 2013, American e-commerce sales amounted to $263 billion, while China’s hit $306 billion, a figure that McKinsey expects to reach $650 billion by 2020. And since 2008, online discount retailing in China has experienced yearly growth in the triple digits.

A rise in the use of mobile devices among Chinese consumers has been a major driver of e-commerce growth. The personalized appeal of these devices makes them attractive to shoppers. Eight percent of online transactions in 2013 were made on mobile devices, compared to just 1.5 percent in 2011. PwC believes that this figure could rise to 20 to 30 percent next year.

Michael Cheng, PwC’s retail and consumer leader for Asia Pacific and Hong Kong/China, also expects social media to play a larger role in e-commerce in the future.

“While shopping via social media platforms is still a new trend, it won’t be long before consumers jump on the s-commerce bandwagon,” he said.

China’s growing middle class is also expanding the retail market. Urbanization, improved standards of living, and higher wages have given the average Chinese consumer more buying power over the past ten years. An estimated 75 percent of Chinese consumers living on the mainland will be classified as middle class by 2022, a major increase from only 4 percent in 2012.

PwC’s report stressed that while the outlook for growth is excellent, international retailers must remain innovative as they strategize for expansion in China. Jon Copestake, chief retail and consumer goods analyst at EIU, noted that brands should be “engaging with local partners and developing products to cater to local tastes.”

Retailers should also consider expanding their reach outside of China. The report indicates that the entire Asia-Pacific region is expected to experience growth, with sales volumes expected to reach $10.3 trillion in 2018. India, though far behind China, is nevertheless expected to “drive much of the growth in the region,” according to the International Business Times, with sales volumes projected to reach 6.6 percent in 2018.



image credit: mike lau

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