How China’s Retail Market Is Changing

on January 6 2015 | in Retail Trends | by | with No Comments

Brands from across the world continue to flock to China’s rapidly changing market. China is providing companies with new and potentially lucrative opportunities for growth as it becomes more global, more digital, and more accessible to the middle-class consumer. InsideRetail.Asia reports that “China will ensure a long term, lucrative market for western retailers prepared to take on the complex challenge of establishing a brand and retail network in the world’s greatest trading nation and second largest economy.”

Some of the more significant recent market changes for retailers to take into account include:

The Rising Middle Class

The gap between poor and affluent Chinese is narrowing with the expansion of the country’s middle class. Retail sales in China now exceed US$1 trillion each year. For the past two decades, the average consumer income has been increasing by 14 percent every year, according to data from JLL. By 2020, half of the country’s population will have attained middle class status, and by 2022, 320 million people will be earning more than US$20,000 annually.

Such data reflects considerable shifts in cultural values, which in turn are driving China’s economic development. In the past, Chinese consumers tended to save money “to create a future for their children,” but rising incomes are encouraging them to spend more on themselves. Affordable luxury brands, including Michael Kors, Coach, and Tory Burch, are experiencing growth, as are mid-market brands which particularly appeal to middle-class consumers: H&M, Gap, Old Navy, and F21 among them.

Department Stores vs. Shopping Centers

The way that China’s consumers shop is also changing, according to Rebecca Tibbott, head of retail leasing for eastern China with JLL in Shanghai.

“China always used to be a department store market,” Tibbott says. “It was fashion heavy and suited older consumers, was typically state-owned, and sold from concessions. Now we are in the shopping mall era. Modern middle class Chinese want a more diverse shopping experience.”

JLL defines a shopping center as “a mall with more than 30,000sqm in floor area.” Shopping centers occupy much of the retail market in China’s first-tier cities: 67 percent of Beijing’s, 79 percent of Shanghai’s, 88 percent of Shenzhen’s, and 90 percent of Guangzhou’s. This profusion of malls is a recent development; in 2001, there were only 50 of them in all of China, and they now number about 850, with 165 new shopping centers opened in 2014 alone.

The lifestyle appeal of shopping centers, which offer attractions and entertainment on top of retail, is a large draw. Consumers now prefer “going to a destination for a day rather than a department store anchored mall.” This trend is expected to “turn into vital protection for retailers from the growing trend to shop online.” 

Going Global

China’s retail market is becoming a boon for international brands, and the global retailers that have appeared in the country over the past year or so include Chipotle, Innisfree, House of Fraser, Abercrombie & Fitch, Legoland, Victoria’s Secret, and NBA. Of China’s major cities, Shanghai has been most receptive to these newcomers, and most of them begin there, as it is “culturally less intimidating for new arrivals.”

“Shanghai is becoming more and more cosmopolitan,” Tibbott says. “When I first arrived here I ordered my coffee in Chinese. Now I order it in English.”

However, consumer awareness of international brands still has a ways to go. According to China Retail Group Chairman Andrew Wyles Waters, many shoppers consider country of origin before quality when purchasing products from international brands.

“Australia might be good for lifestyle and Italians are good at shoes,” Waters says. “You could have the worst pair of shoes from Italy and they’ll pay for them, but if the best pair of shoes comes from Australia, you’d have to discount them.”

image credit: jheffry swid

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