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Successful retail business model in China

Understanding China’s Retail Market

Some foreign retailers are finding success in China. (China Foto Press)Some foreign retailers are finding success in China. (China Foto Press)

China’s growing retail market offers a range of opportunities for foreign investors, but some sectors are easier to access than others.China has one of the most lucrative and rapidly growing retail markets in the world. Despite the global economic downturn, China’s retail sales hit ¥12.5 trillion ($1.8 trillion) in 2009, up 15.5 percent year on year. China’s booming retail sales are underpinned by the steady rise of household income. In 2009, the per capita disposable income in urban areas reached ¥17, 175 ($2, 515), nearly triple what it was a decade ago. In economically advanced cities such as Beijing and Shanghai, the average per capita disposable income is more than ¥26, 000 (, 810).

Lu table 1Better living standards have shifted people’s focus from satisfying basic needs to pursuing a higher quality of life, creating significant opportunities in the retail market. In 2008, China’s urban and rural households spent 37.9 percent and 43.7 percent of their incomes on food, respectively, down from 44.7 percent and 53.4 percent in 1998. Between 2001 and 2008, China’s household spending on clothing, healthcare, transportation, and telecom services more than doubled. These changes indicate that Chinese households have more cash available for discretionary spending than they did a decade ago.

China’s retail market structure

Lu table 2Because of the wide disparities among China’s regions and the country’s rural-urban income gap, purchasing power and retail demand vary greatly. According to the PRC National Bureau of Statistics, 42 percent of China’s total retail sales in 2008 came from (by rank) Guangdong, Shandong, Jiangsu, Zhejiang, and Henan—most of which are prosperous eastern provinces. In comparison, Tibet, Qinghai, Ningxia, Hainan, and Gansu had the lowest retail sales that year.

Lu table 3China’s retail market is highly fragmented and composed of many small and medium-sized retailers, unlike in the United States, where big-box retailers dominate. In 2008, China was home to about 549, 000 retail enterprises, each with an average of 15 employees. Though the number of chain stores has been growing in recent years, cross-provincial retailers are still rare in China, in part because of local market access barriers.

Companies face different levels of competition depending on the retail sector in which they operate. China’s integrated retail business, which includes department stores and supermarkets, is dominated by slightly larger players. Businesses in this sector averaged 44 employees each and ¥17.8 million ($2.6 million) in earnings in 2008. Foreign-invested enterprises (FIEs) in China’s integrated retail market include giants such as Wal-Mart Stores, Inc. and Carrefour SA.

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