China’s multi-trillion-dollar retail scene has terrific potential but holds risk for Canadians, says Hong Kong-born Anthea Wong, a China retail analyst with Pricewaterhouse Coopers. Wong presented a seminar on China retail recently in Vancouver. She cautioned that it is a tough market, even for the established merchants.
Home Depot pulled out of the Beijing last year, shutting six stores after a losing a battle against lower priced competition and convincing middle-class Beijing residents to do home repairs themselves when labourers can be hired for less than $2 a day.
Best Buy shut its last store in China a year ago, and has relaunched under the Five Star banner with a Chinese joint venture. Even Mattel closed its Barbie store in Shanghai, unable to compete against much cheaper knock-offs. Still, Ikea is thriving, Apple outlets are packed, the Gap chain is expanding, and Levis found that sales increased in Beijing when they doubled the price of their blue jeans to $200 a pair. Vancouver-based White Spot now has six locations, all doing well, in Hong Kong.
Brand names are huge among the growing middle-class in China, Wong said. China’s middle-class – defined by those earning the Canadian equivalent of $10,000 to $80,000 per year – now totals about 104 million consumers, but there are at least one million Chinese with a personal wealth of more than $1.5 million and 60,000 individuals worth in excess of $20 million.
It takes deep pockets, though, to lease retail space in the major cities that represent 86 per cent of China’s $2.3 trillion consumer market.
In Shanghai – pop. 19 million - annual lease rates for ground-floor space on East Nanjing Road, a premium shopping district, run to $347 per square foot, while even lower-tiered streets can top $150 per square foot, comparable to Vancouver’s Robson Street, according to a report from Cushman Wakefield’s Shanghai office.
For more on breaking into China’s retail market, see the August issue of Western Investor.
