BEIJING: Retail revenues are likely to rise rapidly in China over the period to 2015, but many chains will have to tackle inflation, changing habits and ageing business models if they are to tap this trend.
According to the the China General Chamber of Commerce, the country's 100 biggest retailers generated sales of RMB2tr in 2011, a 20.9% increase year on year.
This equated to 10.9% of all sector returns, which topped RMB20tr over the course of 2011. Looking ahead to 2015, it was predicted total retail expenditure would reach RMB32tr.
"China's retail industry still has a promising future, largely due to the country's ongoing urbanization and pent-up demand," Yuan Yue, chairman of the Horizon Research Consultancy Group, said.
The China Chain Store & Franchise Association recently revealed that Balian Group, a supermarket and department store operator, was the biggest retailer of 2011, with revenues of RMB118.2bn and 5,604 branches.
Suning, the electronics and appliances specialist, and Gome, its major rival, claimed second and third respectively, delivering approximately RMB110bn, and with more than 1,700 stores apiece.
However, Guo Geping, president of the China Chain Store & Franchise Association, warned it was vital to move beyond "scale and price-based competition", and instead target more sustainable growth.
"It's crucial to downsize stores, control costs of raw materials and human resources, reshape the retail brand image, upgrade retail services and offer differentiated customer experience," Guo said.
As an example, McKinsey, the consultancy, reported the number of hypermarkets in China rose from almost zero in 1997 to over 2,400 today. Average sales per square metre are just 40% of those in the US and 11% of their UK counterparts, it added.
"The low-hanging fruit has been picked," the company said. "Not only is the competition tightening, but retail dynamics are changing. To win, players need to understand the Chinese market, and then learn how to ... meet the market on its own terms."
Indeed, according to the National Bureau of Statistics, retail sales hit RMB1.56tr in April 2012, a 14.1% annual lift, the slowest expansion for 66 months. Suning and Gome have also both stated that profits are under pressure in the short term.
"With GDP growth forecasted to moderate to around 7.5% and consumer prices remaining high, weak income expectations will continue to hold back consumer spending," said Zhao Ping, deputy director of consumer research at the Ministry of Commerce.
Data sourced from China Daily, Xinhua, Global Times; additional content by Warc staff