BEIJING: Domestic and multinational retailers are adopting a mixed approach to expanding their operations in China as demand slows and competition intensifies, a trend which could offer opportunities to those chains with sufficient capital to invest.
Total sales across the Chinese retail market – which has an annual value of $824 billion (€584m; £501m) – rose by 15.2% in May year-on-year, but this rate of expansion marked a slowdown from the total of over 20% recorded over much of last year.
China Resources, the domestic supermarket chain, has also recently announced that it is reducing the number of stores it will open this year by a third, from 300 to 200.
Gome, the country's biggest electronics retailer, saw its profits fall by 39% in Q1 2009, and similarly plans to close 100 of its under-performing outlets, offsetting this decline by opening a similar number of new stores elsewhere.
Xinyu Hengdeli, a fast-growing retailer selling luxury watches, has signalled an intention to slow its planned expansion from 210 to 300 stores in China to 2011, a year later than originally scheduled.
Zhang Yuping, chairman of the company, said "we have been taking a very cautious approach in our expansion and are more selective in choosing the right locations for our stores."
Anta Sports Products, China's biggest sportswear trader by sales, will also decrease the number of units it opens this year to 900, from 950 in 2008, although its network will still reach 6,600 stores nationwide by the end of 2009.
By contrast, Lifestyle, a department store operator based in Hong Kong, is now aiming to increase its presence in mainland China, and Eliza Lo, its general manager, said the company sees "more potential for growth in China in the years to come."
Wal-Mart, the world's biggest retailer, has previously announced its intention to boost its operations in countries such as China, Russia and Brazil.
Carrefour is also looking to open six new stores in China this year, taking its total to 28, with a particular focus on providing value to consumers.
However, Giordano International, the multinational fashion chain, closed 14 of its branches in the country in the first three months of this year, while Yamada Denki, the Japanese electronics group, has scrapped its planned entry into the market until the next fiscal year.
Bei Fu, a director at Standard & Poor's, the credit ratings agency, said that the growth of the Chinese retail sector is "still better than other countries", but "over-expansion has been a concern and it's time to focus on store performance."
However, Fiona Wong, an analyst at Sun Hung Kai Financial, argued that "retailers with cash flow should look for expansion now," as "once the economy recovers, expansion will be difficult as costs shoot up."
Data sourced from Reuters; additional content by WARC staff