5. Retail Venture Formats
5.a Department Stores
§ As defined by the SETC, “Department Stores” are located in downtown areas and occupy a floor space of 5000m2 or more. Stores have appropriate facilities and decoration, a good shopping environment, a wide variety of goods on sale, and multiple service desks.
§ The trend of decreasing profits amongst department stores in Beijing continues, mainly due to store saturation and resultant price competition. Average profits have now fallen to an annual 3.7%. The city government is therefore restricting the building of further department stores within the city’s Second Ring Road, where most are currently concentrated. Instead, hypermarket and convenience store retailing is being encouraged on the city’s outskirts, where new residential centres are being created.
§ In Shanghai, decreased sales among city department stores are partly attributable to an increased hypermarket presence. Shanghai No. 1 Department Store, with the highest sales in the city, saw a 6.4% drop in profits from 1999 to 2000.
§ These figures may in part explain emergent trends in both cities. In Shanghai, discount department stores selling designer goods at a fraction of their market price are beginning to spring up. Shanghai Friendship Store opened such an outlet in March this year, the first of its kind, whilst Shanghai Lianhua Supermarket is currently engaged in talks to open a similar store in the city. In Beijing, department stores are merging or looking to expand into other retail formats. Last year, for example, the city’s Xidan Department Store joined forces with Shanghai’s Hualian to form the Xidan Shanghai Hualian (Beijing) Company, which is opening supermarkets across north China. As profits fall, so stores are looking for new ways to make money.
5.b Hypermarkets
§ “Hypermarkets” are defined by the SETC as “big supermarkets,” and can occupy 2500m2 or more of floor space. They offer a “one-stop shop” opportunity for customers by providing a wider choice of goods, including garments, foodstuff and consumer products.
§ Shanghai now has more than 40 hypermarkets, accounting for 34% of total sales in the hypermarket, supermarket and convenience store sectors in 2000. This reflects Shanghai’s status as one of China’s most developed cities, and its subsequent popularity with foreign retailers looking to enter China.
§ In a recent development, the Shanghai Commercial Commission announced plans to require any new hypermarket of 10,000 m2 or more to go through the additional procedure of a public hearing before establishing operations. The backing of local residents will now be required in addition to that of the government. This may reflect the local government’s conviction that Shanghai already has an adequate supply of hypermarkets, and a desire to encourage other retail formats.
§ Competition among Guangzhou’s hypermarkets is increasing. In 2001 alone, three new hypermarkets opened in the city - Chai Tai Macro (Macro’s second store in Guangzhou), Trust-Mart (Guangzhou’s fifth) and Carrefour (the company’s first in Guangzhou). This was a milestone for joint venture hypermarket development in Southern China. As Guangzhou’s urban area expands to the real estate compounds on the outskirts of the city, further opportunities for development and investment in the retail sector are anticipated over the next five years.
§ On a national scale, however, an ACNielsen survey revealed that hypermarkets in China still have major growth potential, with market saturation another four to five years away. This may reflect the fact that most hypermarket enterprises have to date mainly been concentrated in a small number of coastal cities, with comparatively few moving inland. Foreign retailers, including Carrefour, Wal-Mart, and Makro, operate no more than 3% of all retail outlets in China, but account for roughly 40% of transactions in the grocery sector.
§ The same study revealed that hypermarkets are fast growing in popularity, dominating weekend shopping. 46% of consumers shop at hypermarkets on the weekends, spending on average RMB 174.27 (GB£ 14.75) per visit. As disposable income increases, this figure is likely to rise.
5.c Convenience Stores
§ As defined by the SETC, “Convenience Stores” are small stores located in residential areas, railway stations, hospitals, or along main roads etc., that sell food, drink, and small consumer items. Their location ensures consumers have easy access to shopping, and their business hours range from 16 to 24 hours.
§ China is readying for increased growth in its convenience stores industry, evidence of the government’s desire to diversify the presence of foreign firms in its retail sectors. Furthermore, since many Chinese shop by public transport and have relatively restricted food-storage space, analysts believe the market is ideally suited to the convenience store format. With the market size for convenience stores in China estimated at more than 20,000 outlets, convenience stores are likely to be a growth area in the near future.
§ 7-Eleven is presently planning an ambitious expansion program across the Mainland to open 1,000 stores in three years. In August 2001, Dairy Farm Group announced it had received central approval to manage a further 300 7-Eleven outlets in China, in addition to its original 50.
§ Convenience Retail Asia (CRA), Pacific-rim operator of America’s Circle K, recently revealed ambitious growth plans for Mainland China, with the planned opening of 40 convenience stores. The stores will initially target southern China, later expanding to Shanghai, Beijing, and Tianjin.
§ In Shanghai alone, more than 1,000 convenience stores are to open over the coming year. In October 2001, the city already boasted 1,800.
5.d Mall Developments
§ The SETC defines “Malls” as complexes offering a full range of retail and service facilities. A mall is usually located in a central business district, or at a communications hub between urban and rural areas. A department store or supermarket is the most important aspect of the shopping centre; however, additional specialty or exclusive stores and fast food restaurants are also located inside. Malls are pre-planned, and spaces are leased or rented to stores inside the centre.
§ Based on this definition, the Beijing Commercial Commission maintains that the city has no “malls” as yet. However, Beijing currently has several large shopping centres built with foreign investment, including the Oriental Plaza in Wangfujing (developed by Hong Kong entrepreneur Li Ka-Shing), and the shopping centre at the China World Towers.
§ In preparation for the 2008 Olympic Games, Beijing has plans for four new malls over the next five years. The first, the Beijing Mall, will be constructed in the city’s southeast suburb of Yizhuang. The RMB 3.3 billion (GB£ 279 million) project, financed by Beijing Dadi Investment Group, will reportedly be anchored by Wal-Mart’s membership outfit, Sam’s Club. The second will be constructed in Zhongguancun, an area in northeast Beijing regarded as China’s ‘Silicon Valley’. This will be financed by the Wangfujing Department Store. The third, which as yet has no investors, will be built in Sunhexiang, Chaoyang District, just off the Airport Expressway. The fourth is expected to be built in the southwest of the city, but a site has still to be decided upon.
§ Chia Tai Square, a Shanghai shopping centre touted as Asia’s largest, opened its doors in October 2001. The 240,000 m2, RMB 2.75 billion (GB£ 233 million) investment was funded by the Chia Tai Group of Thailand.
§ Overseas investment in the retail sector was also directed toward the building of The Exchange, Tianjin’s largest mall. The 30,000 m2 shopping centre is a new retail format for the city.
§ Shenzhen is building the largest shopping plaza in southern China, a RMB 1.3 billion (GB£ 109 million) invested venture called the New City Shopping Centre. Commerce and Trade Investment Holdings Ltd., one of the city’s three largest asset-management companies, is to manage construction of the project.
