China's Retail Industry Growth and Formats

David F.
Miller Center For Retailing Education and Research

International Retailing Education and Training (IRET )
Current Status and Format

of China’s Retail Industry
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%
Current Retail Status Module David F. Miller Center for Retailing Education and Research page 2
Sales of Top 100 Chain Store Retailers in
China (Billion Yuan)
1400 1357.9
1199.9
1200 1002.2
1000 855.2
800 707.6
600 497.2
400 358
246.5
200 162
62.9 98.2
38.4
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
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)
Food Retailers General Merchandise Retailers

Conventional Supermarket Discount Stores Specialty
Big-Box Food Retailers Stores Category Specialist
(Supercenters,
Department Stores Drugstores
Hypermarkets, and
Off-Price Retailers Value
Warehouse Club)
Retailers
Convenience Stores
Nonstore Retailers
Electronic Retailing
Catalog and Direct-Mail
Retailing
Direct Selling Television
Home Shopping Vender
Machine Retailing
Characteristics of Food Retailers
Current Retail Status Module David F. Miller Center for Retailing Education and Research 2page-6
Characteristics of
General Merchandise Retailers
Current Retail Status Module David F. Miller Center for Retailing Education and Research 2page-7
Types of Retailers in China
Classification of Retail Industry)
(China’s National Standards on
Store-based Retailers Nonstore Retailer

Conventional Grocery Stores Electronic Retailing
Convenience Stores Catalog and Direct-Mail
Value Retailers Retailing
Supermarkets Direct Selling
Hypermarkets Television Home Shopping
Warehouse Clubs Vender Machine Retailing
Department Stores
Category Specialist
Specialty Stores
Home Improvement Center
Shopping Centers
(Community, CBD, Suburb)
Factory Outlets
Conventional Grocery Store
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 (Cont.)
Conventional Grocery Store (Cont.)
Conventional grocery store in China vs. Mom and pop stores
Mom and Conventional

pop stores grocery store
Privately owned Privately owned
small business small business
Mainly sell
cigarette, drinks,
snacks and
everyday
merchandise
Location Module David F. Miller Center for Retailing Education and Research page 12
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 Mainly flow customers who pursue fashion and taste
Customers
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
2500
2197
2000
1801
1482
1500
1275
1000 930
597
500
0
2003 2004 2005 2006 2007 2008
Key Players (2008)
Retailers Sales (100 M Number of Stores
RMB)
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 Wangfujing

7% 5%
Parkson
5%
I
m
e
4
%
Xidan
1%
Others
78%
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
Trade Area and Target Radius of 2 km

Customers 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
Trade Area and Target Radius of 2 km
Customers 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)
600
500
477
400 401
344
311
300
234
200 193
100
0
2003 2004 2005 2006 2007 2008
Number of Supermarket and
Hypermarket Stores
30000
27762
25166
25000
21066
20000 18924
15000
12877
11717
10000
5000
0
2003 2004 2005 2006 2007 2008
Key Players (2008)
Retailers Sales (100M # of Stores Market share
RMB)
China Resources 638 2,698 13.4%
Vanguard
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
Convenience Stores
Location Business area center; vital thoroughfare and public area
(surrounding stations, hospitals, business buildings,
entertainment centers, gas stations, etc.)
Trade Area and Target Within a five minute walk; single and young people
Customers
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
U.S. Vs. China
Convenience store (US)

Convenience store (China)
Location Module David F. Miller Center for Retailing Education and
Research page 40
Convenience Store (Cont.)
Convenience Stores
Convenience Stores
Convenience Stores
Number of Convenience Stores
25000
20000
15000 11929 12467 12685 Franchise store
10000 Directly-managed
3469 store
1728
5000
822 6027 6574 6076 8073 8874
3625
0
2003 2004 2005 2006 2007 2008
Sales of Convenience Stores
(Billion RMB)
35
30
6.8
25
5.7
2.9 4.4 Franchise store
20
15 Directly-managed
2.5 25 store
15.5 17.9 20.9
10
1.1 11.3
5 5.6
0
2003 2004 2005 2006 2007 2008
Market Share of Convenience Stores
Meiyijia , 9.28%
Kuaike, 9.08%
Others , 38.85%
Kede, 6.49%
7-Eleven, 6.41%
Haode, 4.61%
Jinhu, 3.86%
Guoda, 3.25%
Liqun, 3.83%
Suguo, 3.40%
Tianfu, 3.71%
Shanghao, 3.53% Weike, 3.71%
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 Mainly attract customers who are shopping for certain kind of
customers 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
80000
70000 68,967
67,471 63,997
60000
50000 47,825
40000 Department Stores

Specialty Stores
30000
22,132
20000
10000 2,129 3,016 3,853 5,353 6,064
0
2003 2003 2005 2006 2007
Sales of Specialty Stores (100M RMB)
12000
10,573
10000
8,868
8000 7,782
6000 Department Stores

Specialty Stores
4000
1,191 1,581 1,275 1,482 1,801

2000
930
597
0
2003 2003 2005 2006 2007
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 Models
 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
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)
Eachnet, 0.90% Yunwang, Maiwang, 0.30%

0.40% 99, 0.30%
Youa, 1.50% Honghaier, 0.90% others, 3.20%
Jingdong
Shangcheng, 2.20%
Joyo, 2.20%
Dangdang, 5.80%
Paipai, 6.10%
Taobao, 76.50%
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 Growth Acreage Growth # of Growth # of SKUs Growth
(Million (%) (Square (%) Employees (%) (%)
Yuan) meters)
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 883.97 11.1 32,531 1.4% 887 0.0 93,422 0.8

Stores
Convenience 4.73 12.3 139 0 9.1 5.8 2,614 -0.4

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

Electronics
Drug Stores 37.06 7.1 752 0 61 0.0 6,739 4.0
Efficiency and Profitability of Different
Formats (2008)
Sales Gro Sales/ Growt Sales/ Growt Transa Growt Sales/ Growt Gross Growt
/# wth Squar h (%) # SKU h (%) ction/ h (%) custo h (%) Margi h (%)
empl (%) e (1000 day mer n (% )
oyee Meter Yuan) (Yuan)
(1000 (1000
Yuan) Yuan)
Hyperma 891 1.8 17.6 6.27 7 8.4 10059 1.0 58.1 12.9 12.9 0.3
rket
Superma 719 8.3 27.1 9.81 5 3.5 4554 6.5 43.6 4.5 12.9 0.9
rket
Departm 997 15.3 27.2 9.3 3.5 9.2 10839 -5.2 226.4 1.5 14.1 0.3
ent Store
Convenie 521 6.6 34 12.3 1.8 12.7 758 -2.7 16.2 11.1 16.4 0
nce Store
Home 1733 7.9 65.4 6.89 35.3 -8.5 729 -7.8 1901.0 2.3 10.8 1.0
Electroni
c
Drug 610 6.6 49 7.1 5.5 2.9 1724 -3.8 48.2 1.3 23.0 -0.7
Store

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David F.

Miller Center For Retailing Education and Research

Current Status and Format

 Top 100 Chain Store Retailers in 2009

Food Retailers General Merchandise Retailers

Store-based Retailers Nonstore Retailer

Size 100 square meters

Commodity Structure Mainly cigarette, soft drinks, alcohol drinks,

Selling Form On counter style or self-choice style or

Service Open more than 12 hours a day

Information System None or very basic information system

Mom and Conventional

Size 6,000-20,000 square meters

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

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

Service Emphasize on service;

Bailian 943 6418

Hefei 194 125

New World Wangfujing

 It has been influenced the most by the current economic

Trade Area and Target Radius of 2 km

Size Less than 6,000 square meters

Commodity Structure Mainly prepackaged food, fresh food and commodity

Selling Form Open-shelf self-choice style

Information System Relatively high level

Size More than 6000 square meters

Commodity Structure Various categories of commodities

Selling Form Open-shelf self-choice style

Information System Relative high level

1990s: Shifted focus to the local community.

2000 to Present: Have been experiencing rapid

Size 100 square meters and highly space efficient

Selling Form Mainly open-shelf self-choice style

Service Open more than 16 hours a day

Convenience store (US)

15000 11929 12467 12685 Franchise store

 Convenience stores are mainly regional.

 Competition with other retail formats has become

Size Differs with the products offered

Commodity Structure Mainly specific kind of product

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

Service Emphasize on quality service

40000 Department Stores

10000 2,129 3,016 3,853 5,353 6,064

6000 Department Stores

1,191 1,581 1,275 1,482 1,801

Source: ACMR-IBISWorld Databasen-Store Retailing

 110 million internet shoppers, increased 45.9% in

 2009 online sales was $248.35 billion

 31 out of top 100 chain store retailers in China had

 Business to Business (B2B)

Eachnet, 0.90% Yunwang, Maiwang, 0.30%

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

Convenience 4.73 12.3 139 0 9.1 5.8 2,614 -0.4

Home 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

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