Small cities drive China's retail growth

Warc, 18 June 2014

BEIJING: China continues to offer huge opportunities for retailers, with lower-tier cities set to lead a new phase of development, according to a report.

The Global Retail Development Index, a study from consulting firm AT Kearney, ranked the top 30 developing countries in terms of their retail expansion potential. Chile topped the list, with China in second.

Retail sales in China increased by 13% in 2013 to $2.6tr as consumer confidence rose. "A major retail driver in China is online sales, which stood at almost $300bn last year," Sherri He, a partner at AT Kearney in Beijing, told China Daily. That represented a 42% lift year-on-year and an 8% share of the retail market.

The ecommerce sector is expected to see further growth this year, but He noted that "online players are still struggling to make profits and retailers are still trying hard to find a winning formula for online and offline integration."

More broadly, the report highlighted four trends for ecommerce: consolidation among the major players; a blurring of the lines between online and offline; the rapid growth of mobile; and a shake-out on the logistics-side as the biggest firms build their own delivery services.

Future retail growth was expected to be driven by urbanisation, increasing disposable incomes and the relaxation of the one-child policy, with smaller cities at the forefront of new retail building opportunities.

Despite the rise of ecommerce, new mall construction in 2013 added 20% to the total space available, with many sites located in smaller towns and cities. Chinese consumers are drawn to these venues, which serve several purposes in one place. The report pointed out that food, entertainment, exhibitions and event spaces attracted more people than shoppers alone.

Department stores, however, were struggling as their offerings failed to stand out. "Stores need to boost public functions in order to attract more consumers, such as parking services, payment services, and wireless internet connections," said Zhen Shiqi, director of retail services at property services firm DTZ China.

Data sourced from China Daily, AT Kearney; additional content by Warc staff