China: Asia’s largest retail economy

China is now Asia’s largest retail economy with sales of US$1.7 billion forecast for 2013.

As such it has become the primary target for many retailers entering Asia, and the market is now among Asia’s most international, according to a report by Cushman & Wakefield.

“Retail growth in China has remained vigorous while signs of moderation have surfaced as the economy undergoes a restructuring process,” said Annie Lei, national director of China consulting at Cushman & Wakefield.

Lei said that first-tier cities Beijing, Shanghai, Shenzhen and Guangzhou have the wealthiest and brand-conscious consumers and now show retail sales growth of nine per cent to 16 per cent, while in major second-tier cities, such as Chengdu, Wuhan, Nanjing, Shenyang and Chongqing, retail sales growth is higher ranging from 13 per cent to 17 per cent.

“Overall, we expect a steady rise in income levels to nurture an aspiring middle class population and, barring any economic surprises, this should underpin balanced retail growth for the next decade,” said Lei.

While growth in retail demand is unprecedented, the surge in supply is stronger still, and as a result, many major cities in China have the potential for some measure of oversupply.

Oversupply stands to affect weaker projects in the market; expect suburban locations and inexperienced developers to be most vulnerable, with high vacancy and project failure in extreme cases.

Oversupply will have little impact on prime rents which will continue to exhibit strong growth as retailers compete for key locations to define their brand in China and generate the strongest sales.

The top retail centres in China including Shin Kong Place in Beijing, Grandview Plaza Guangzhou and MixC Shenzhen achieved sales of around US$1 billion per annum and rising.

The recent crackdown on gift-giving to government officials has had a significant impact on some luxury brands, notably those focused on watches and accessories.

A study by Italian luxury goods association Altagamma and consultants Bain expects Greater China luxury sales growth to fall to six to eight per cent in 2013, down from an estimated 20 per cent in 2012.

While sales growth may slow, China’s love affair with luxury is expected to last for some time. Despite sometimes limited spending power, luxury demand is likely to broaden beyond the best known brands as more sophisticated consumers begin to discover their own style.

“The retail growth story in Asia, especially in emerging markets like China, is real and likely to continue over the longer term. Though near-term growth has shifted to a lower gear, long-term prospects remain intact given solid economic growth and relatively favorable demographics, especially in growth markets in South and Southeast Asia,” said Randall Hall, executive MD of Greater China at Cushman & Wakefield.

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