Poll: Foreign retailers still have eyes firmly on China

17  January 2013

Top international retailers still consider China as a top target market for future growth, as the population continues to become wealthier and people migrate in greater numbers to the bigger cities.

According to the Global Retail Index, a survey carried out among 200 retailers worldwide, international retailers view China and India as their top growth markets.

Multinational operators said they expect sales to increase in both countries while those operating elsewhere remain cautious about future growth, according to the report released at the World Retail Congress in London this week.

The report said that companies polled appreciate that China’s economy is slowing down, but they didn’t think it’s in anything like a recession.

Marc Bolland, CEO of Marks & Spencer, the largest retailer in the United Kingdom, said recently the company is looking to Asia and Europe to provide its best growth prospects, and that it aims to open 100 international stores annually.

Commenting on the Global Index report, experts said that continued urbanization in China presents a tempting prospect for companies, like M&S, with global ambition.

Lim Beng Chee, chief executive of CapitaMalls Asia, a leading retail real estate developer in Asia, said he considered China’s 7 to 8 percent economic growth “still very good”, especially if compared to other key Asian retail markets traditionally targeted by Western retailers, such as Singapore which is currently looking at a 2-3 percent annual growth.

“Each year around 30 million people move to China’s cities from rural areas, and that means the country’s retail industry is developing rapidly.

“The scale of China’s urbanization is like a whole Hong Kong moving to cities every two years,” he added.

However, Frank Wei, managing director of Warburg Pincus Asia LLC, the private equity firm that has invested in Gome, China’s No 2 home appliance chain, said foreign players now need to be more creative and innovative to succeed in China.

“The market has become much more competitive, with places like Beijing and Shanghai close to saturation.”

He added more firms are looking at opportunities in second- and third-tier cities, as well as having to offer specialized kinds of retail offerings.

Warburg recently invested in a retailer in Nanjing in Jiangsu province, specializing in children’s care, and Wei added that despite the overall economic slowdown, some of the companies his firm has equity in, are still seeing annual sales increases of around 30 to 40 percent.

In the third-tier cities now being targeted, it is all about building strong infrastructure, and having a strong local presence, he added.

CapitaMalls’ Lim also said that international retailers need patience to learn about the market.

CapitaMalls, from Singapore, first came to China in 1995 and failed to make a profit in the first six years.