Current Status of China's Retail Industry

David F. Miller Center For Retailing Education and Research

International Retailing Education and Training (IRET )

Current Status and Format

of China’s Retail Industry

page 2Current Retail Status Module David F. Miller Center for Retailing Education and Research

Current Status of China Retailing

Overview

Total volume of retail sales of consumer goods is

$1,253 Billion RMB, an increase of 15.5% (2009)

Top 100 Chain Store Retailers in 2009

$136 Billion in sales, an increase of 13.5%

137,000 stores, an increase of 18.9%

Market share, 11%

Foreign retailers

Sales increased 20.4%;

Number of stores increased 15.7%


Sales of Top 100 Chain Store Retailers in

China (Billion Yuan)

0

200

400

600

800

1000

1200

1400

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

38.462.9

98.2

162

246.5

358

497.2

707.6

855.2

1002.2

1199.9

1357.9


Current Status of China Retailing

Overview (Cont.)

Regional growth

First Tier Cities

Sales increased 5.3%


Second and Third Tier Cities

Sales increased 19.3%



Types of Retailers in US (Levy and Weitz, 2004)

Conventional Supermarket

Big-Box Food Retailers

(Supercenters,

Hypermarkets, and

Warehouse Club)

Convenience Stores

Discount Stores

Specialty Stores

Category Specialist

Department Stores

Drugstores

Off-Price Retailers

Value Retailers

Food Retailers General Merchandise Retailers

Nonstore Retailers

Electronic Retailing

Catalog and Direct-Mail Retailing

Direct Selling

Television Home Shopping

Vender Machine Retailing

page 6Current Retail Status Module David F. Miller Center for Retailing Education and Research 2-6

Characteristics of Food Retailers

page 7Current Retail Status Module David F. Miller Center for Retailing Education and Research 2-7

Characteristics of

General Merchandise Retailers


Types of Retailers in China (China’s National Standards on

Classification of Retail Industry)

Conventional Grocery Stores

Convenience Stores

Value Retailers

Supermarkets

Hypermarkets

Warehouse Clubs

Department Stores

Category Specialist

Specialty Stores

Home Improvement Center

Shopping Centers

(Community, CBD, Suburb)

Factory Outlets

Electronic Retailing

Catalog and Direct-Mail Retailing

Direct Selling

Television Home Shopping

Vender Machine Retailing

Store-based Retailers Nonstore Retailer


Retail Shop Format Features

Location Residential area or traditional business

area

Trade Area and Target Customers Radius of 0.3km; relatively fixed resident

customers

Size 100 square meters

Commodity Structure Mainly cigarette, soft drinks, alcohol drinks,

snack foods

Selling Form On counter style or self-choice style or

combination of the 2

Service Open more than 12 hours a day

Information System None or very basic information system

Conventional Grocery Store


Conventional Grocery Store (Cont.)


Conventional Grocery Store (Cont.)

page 12Location Module David F. Miller Center for Retailing Education and Research

Conventional grocery store in China vs. Mom and pop stores

Privately owned small business

Mom and pop stores

Privately owned small business

Mainly sell cigarette, drinks, snacks and everyday merchandise

Conventional grocery store


Mom and pop store (US)Conventional grocery store

(China)


Street/Open Market


Street/Open Market


Open Market


Open Market


Open Market


Open Market


Open Market


Open Market


Department stores in China



Location Center of business area of cities;

Business districts formed in history

Trade Area and Target

Customers

Mainly flow customers who pursue fashion and taste

Size 6,000-20,000 square meters

Commodity Structure Various categories of commodities; such as clothes, footwear,

bags and suitcases, cosmetics, appliances

Selling Form Open-shelf self-choice style combined with on counter trade

Service Emphasize on service;

Built in restaurant, cafeteria, and entertainment facilities

Information System High level


597

930

1275

1482

1801

2197

0

500

1000

1500

2000

2500

2003 2004 2005 2006 2007 2008


Key Players (2008)

Retailers Sales (100 M

RMB)

Number of Stores

Bailian 943 6418

Dashang 626 150

Chongqing Shangshe 263 294

Hefei 194 125

Yinzuo 187 164

New World 148 33

Wuhan Zhongbai 142 630

Liqun 139 866

Changchun Yatai 121 18

Wangfujing 120 17


The Market Share of Department Stores

New World 7%

Wangfujing5%

Parkson5%

Intime4%

Xidan1%

Others78%


Current Status

Fast Growth

30% Growth Rate

Relatively High Profitability

Gross margin =15.8%

Profit = 4.4%

Geographically Unbalanced

Sales in Shanghai, Beijing, Tianjing, Liaoning and

Shandong comprise 46.5% of national sales.

Industry is Relatively Fragmented

CR4 = 21%

Mainly Regional and No National Leaders


Current Status (Cont.)

It has been influenced the most by the current economic

recession, but the industry is continuously growing.

Market is further segmented

Community Department Stores, Fashion Department

Stores, High-end Department Stores, and Shopping Mall

Department Stores

Customer service has significantly improved

Large scale discounts hurt the profitability

Distribution system needs changes.

Buying from regional agents




Location Business area, inner city, and communities


Customers

Radius of 2 km

Mainly residents in the trading area

Size Less than 6,000 square meters

Commodity Structure Mainly prepackaged food, fresh food and commodity

Selling Form Open-shelf self-choice style

Differentiated entrances and exits

Pay at exit

Service Open more than 12 hours a day;

Information System Relatively high level



Location Business district, inner city, suburb, vital thoroughfare, and

large residential area


Customers

Radius of 2 km

Mainly residents in the trading area and traffic

Size More than 6000 square meters

Commodity Structure Various categories of commodities

Willing to develop self-owned brand

Selling Form Open-shelf self-choice style

Differentiated entrances and exits

Pay at exit


Information System Relative high level


Introduced in the early 1990s

Serving International Visitors

1990s: Shifted focus to the local community.

Supermarket developments took off in big cities.

2000 to Present: Have been experiencing rapid growth

and competition became fierce.


Supermarket and Hypermarket Sales

(Billion RMB)

193

234

311

344

401

477

0

100

200

300

400

500

600

2003 2004 2005 2006 2007 2008


Number of Supermarket and

Hypermarket Stores

11717

12877

18924

21066

25166

27762

0

5000

10000

15000

20000

25000

30000

2003 2004 2005 2006 2007 2008


Key Players (2008)

Retailers Sales (100M

RMB)

# of Stores Market share

China Resources

Vanguard

638 2,698 13.4%

Lianhua 500 3,932 10.5%

Carrefour 338 134 7.2%

RT-Mart 336 101 7.0%

Wu-Mart 302 2,010 6.4%

Wal-mart 278 123 5.8%

Nonggongshang 267 3,330 5.6%

Xinyijia 175 105 3.7%

Trust Mart 164 104 3.4%

Hualian 150 1,946 3.1%


Current Status

Hypermarkets

Gross margin is 13.43%, profit is 4.53%

Supermarkets

Gross margin is 12.32%, profit is 4.15%

Market concentration

CR4=40%

CR8=60%



Fresh food is becoming the “cash cow”.

The relationship with suppliers needs

improvement.

Hypermarket growth is the fastest among the

various formats.

Saturated in the first and second tier cities

Expanding in the third and fourth tier cities

Foreign retailers dominate the Hypermarket format.

Innovations and Differentiations

High-end Supermarkets, Fresh Food Supermarkets, and

Community Supermarkets.

Supermarkets pursue regional advantages and

serve communities.


Convenience Store



Location Business area center; vital thoroughfare and public area

(surrounding stations, hospitals, business buildings,

entertainment centers, gas stations, etc.)


Customers

Within a five minute walk; single and young people

Size 100 square meters and highly space efficient

Commodity Structure Mainly fast food and commodities, priced higher than market

average

Selling Form Mainly open-shelf self-choice style

Pay at cash register at the door


Provide facilities for fast food and some other services

Information System High level

Convenience Stores


U.S. Vs. China

Convenience store (US)

Convenience store (China)


Convenience Store (Cont.)


Convenience Stores


Convenience Stores


Convenience Stores


Number of Convenience Stores

36256027 6574 6076

8073 8874822

17283469

11929

1246712685

0

5000

10000

15000

20000

25000

2003 2004 2005 2006 2007 2008

Franchise store

Directly-managed store


Sales of Convenience Stores (Billion

RMB)

5.6

11.3

15.517.9

20.925

1.1

2.5

2.9

4.4

5.7

6.8

0

5

10

15

20

25

30

35

2003 2004 2005 2006 2007 2008

Franchise store

Directly-managed store


Meiyijia , 9.28%

Kuaike, 9.08%

Kede, 6.49%

7-Eleven, 6.41%

Haode, 4.61%

Jinhu, 3.86%

Liqun, 3.83%

Tianfu, 3.71%

Weike, 3.71%Shanghao, 3.53%

Suguo, 3.40%

Guoda, 3.25%

Others , 38.85%

Market Share of Convenience Stores


Current Status

Convenience stores are mainly regional.

Haode, Kede and Suguo in Eastern China

Meyijia, Tianfu and Shanghao in Southern China

Liqun and Weike in Shandong

7-11 is a national store chain

12 leading retailers own 60% convenience stores

Domestic retailers dominate the convenience store

format, with the exception of 7-11.

Shanghai and Zhejiang have half of the

convenience stores.



Competition with other retail formats has become

intensive.

More attention is paid to fresh food

Instant food and meal boxes

Improved distribution

Foreign convenience retailers replenish twice daily

Chinese convenience retailers replenish once daily

Constructed distribution centers

Become big chain or die

Most of the convenience stores are in the red.




Location Center of city business areas

Inside department stores and shopping centers

Trade area and target

customers

Mainly attract customers who are shopping for certain kind of

product

Size Differs with the products offered

Commodity Structure Mainly specific kind of product

Professional, various kinds, plenty of choices

Selling Form Open-shelf, self-choice style combined with on the counter

trade

Service Emphasize on quality service

Salespeople are knowledgeable and professional

Management System High level


# of Specialty Stores

2,129 3,016 3,853 5,353 6,064

22,132

47,825

67,47163,997

68,967

0

10000

20000

30000

40000

50000

60000

70000

80000

2003 2003 2005 2006 2007

Department Stores

Specialty Stores


Sales of Specialty Stores (100M RMB)

597930

1,275 1,4821,801

1,1911,581

7,782

8,868

10,573

0

2000

4000

6000

8000

10000

12000

2003 2003 2005 2006 2007

Department Stores

Specialty Stores


Non-Store Retailing

Source: ACMR-IBISWorld Databasen-Store Retailing


Online Retailing - Products and Services

Segmentation-products and service


Revenue and Revenue Growth Rate


Geographic Distribution of Revenue

About 97.4% of industry revenue was generated in

East China, North China and Middle South China

in 2009.


Online Retailing

The number of Internet users increasing fast

1996, 0.1 million;

1999, 4 million

2009, 340 million (No. 1 in the World)

110 million internet shoppers, increased 45.9% in

2008

2009 online sales was $248.35 billion

31 out of top 100 chain store retailers in China had

online retailing as of 5/2010


Online Consumers

On-line consumers are most of the age groups 18-

24 and 25-30,according to CNNIC (China Internet

Network Information Center)


Business to Business (B2B)

E.g.: Alibaba

Customer to Customer (C2C)

E.g., Taobao，Paipai

Business to Customer (B2C)

E.g., Dangdang, Joyo, and Jingdong Shangcheng

Business Models


Industry Characteristics

Big market with great potential

Barriers to entry are low

Competition is increasing

Government supports

The level of regulation is decreasing.

C2C dominates the market

B2C is 1/8 of C2C


Market Share of Online Stores(China Internet Information Center, 2009 Survey report on China Internet Market)

Taobao, 76.50%

Paipai, 6.10%

Dangdang, 5.80%

Joyo, 2.20%

Jingdong Shangcheng, 2.20%

Youa, 1.50%

Eachnet, 0.90%

Honghaier, 0.90%

Yunwang, 0.40%

Maiwang, 0.30%

99, 0.30%

others, 3.20%


Market Share of Online Stores

Taobao

Sales in 2008 were

$146.2 M, an increase of

131%

Close to 100 million

registered users (by the

end of 2009).

Age 25-32 = 48%; Age

16-24 = 35%


Sizes of Different Retail Formats (2008)

Sales

(Million

Yuan)

Growth

(%)

Acreage

(Square

meters)

Growth

(%)

# of

Employees

Growth

(%)

# of SKUs Growth

(%)

Hypermarkets 212.9 12.4 11,275 1.8% 239 0.7 25,537 4.8

Supermarkets 72.4 11.3 2,672 1.4% 101 2.8 14,325 7.4

Department

Stores

883.97 11.1 32,531 1.4% 887 0.0 93,422 0.8

Convenience

Stores

4.73 12.3 139 0 9.1 5.8 2,614 -0.4

Home

Electronics

501.64 2.0 7,667 1.9% 289 -1.0 14,216 11.4

Drug Stores 37.06 7.1 752 0 61 0.0 6,739 4.0


Efficiency and Profitability of Different

Formats (2008)Sales

/#

empl

oyee

(1000

Yuan)

Gro

wth

(%)

Sales/

Squar

e

Meter

(1000

Yuan)

Growt

h (%)

Sales/

# SKU

(1000

Yuan)

Growt

h (%)

Transa

ction/

day

Growt

h (%)

Sales/

custo

mer

(Yuan)

Growt

h (%)

Gross

Margi

n (% )

Growt

h (%)

Hyperma

rket

891 1.8 17.6 6.27 7 8.4 10059 1.0 58.1 12.9 12.9 0.3

Superma

rket

719 8.3 27.1 9.81 5 3.5 4554 6.5 43.6 4.5 12.9 0.9

Departm

ent Store

997 15.3 27.2 9.3 3.5 9.2 10839 -5.2 226.4 1.5 14.1 0.3

Convenie

nce Store

521 6.6 34 12.3 1.8 12.7 758 -2.7 16.2 11.1 16.4 0

Home

Electroni

c

1733 7.9 65.4 6.89 35.3 -8.5 729 -7.8 1901.0 2.3 10.8 1.0

Drug

Store

610 6.6 49 7.1 5.5 2.9 1724 -3.8 48.2 1.3 23.0 -0.7

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Current Status of China's Retail Industry

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