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China Powers of Retailing 2010
Contents
1. Preface .......................................................................................................... 3
2. Executive Summary ...................................................................................... 4 2.1 The Retail Industry in China in 2009 ................................................... 4 2.2 Main Trends in Retailing in China ........................................................ 8
3. Overview of the Chinese Retail Industry .................................................. 12
3.1 The Global Retail Industry Recovers from Recession .................................... 12
3.2 China Leads the Global Retail Rebound ....................................................... 15
4. The Top 100 Retail Chains, 2009 ............................................................... 18
2009 Rankings of Top 100 Chinese Retail Chains ............................................... 20
4.1 Retail Industry Players Diversify Overall, while Chain/Franchise Retailers Become More Concentrated ............................................................................. 26
4.2 Foreign Companies Continue to Penetrate China's Retail Sector .................... 28
4.3 Geographical Focus of Top 100 Retailers Affects Performance ...................... 31
4.4 Sector Profiles ........................................................................................... 35
Leading Companies by Sector ........................................................................... 41 4.5 The Fastest Growing Retailers .......................................................... 43
5. Retailers' Counter-Crisis Measures ........................................................... 46
6. Major Retail Trends .................................................................................... 48 6.1 Integrating Channels to Promote Sales .............................................. 48 6.2 Mergers and Acquisitions .................................................................. 50 6.3 Supply Chain Management ............................................................... 52
7. Contact Information ................................................................................... 57
Exhibits Figure 1. Comparative Growth Trends of Monthly Retail Sales of Consumer Goods in China,
2000-2010 ................................................................................................................. 5 Figure 2. GDP Growth Rates of the World's Key Economies (%), 2007-2009 ..........................12 Figure 3. U.S. GDP vs. Retail Sales Growth, Year-on-Year (%), 2007-2009 .............................13 Source: STAT-USA, OECD ..................................................................................................13 Figure 4. 4th Quarter Retail Sales Growth of 21 Main OECD Countries (%), 2009 vs. 2008 ......14 Source:OECD ..................................................................... Error! Bookmark not defined. Figure 5. China Consumer Confidence Index,2007-2009 ....................................................16 Figure 6. China's GDP vs. Total Retail Sales of Consumer Goods, Year-on-Year (%), 2007-2009
................................................................................................................................18 Source:National Bureau of Statistics, China .......................................................................18 Figure 8. Growth in Sales vs Store Number Among Top 100, by Regional Base of Retailer, (%),
2009 .........................................................................................................................31 Figure 9. Contribution to Total Sales Revenue among Top 100 by Geographical Coverage, 2009
................................................................................................................................34 Figure 10. Growth Rate of Revenue vs Store Number Among the Top 100, by Geographical
Coverage (%), 2009 ..................................................................................................35 Figure 11. Sales Growth of the Top 100 (%), by Sector, 2009 ...............................................36 Figure 12. Growth Rate of Revenue vs Store Number in the Top 100, by Sector, (%), 2009 ....41
China Powers of Retail 2010
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1. Preface
Deloitte China and the China Chain Store & Franchise Association (CCFA) are
pleased to present the China Power of Retail 2010. The report reviews the
industry performance of the last year and summarizes the key findings.
Findings are based both on a survey conducted by CCFA of the top 100 retail
chains in China, and on Deloitte's perspective on China's retail sector. Also
discussed are possible future directions in which China's retail industry may
develop, as well as four major industry trends, in light of the recovering
global economy and China's own continuous economic development.
China Powers of Retail 2010
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2. Executive Summary
2.1 The Retail Industry in China in 2009
In late 2008 and 2009, China's overall economy experienced a sharp decline
from its high growth rates of recent decades and then a sharp recovery, in
the span of only three quarters. As a result of the government's aggressive
economic stimulus efforts, China's economy was the first to enter a clear
recovery phase among the major economies in the world. Government-driven
fixed asset investments saw rapid growth. Weakened foreign demand was
offset by strong domestic demand, much of it for infrastructure and property
development related to stimulus, as well as major consumer purchases also
fueled by rebates and subsidies.
In order to maintain growth in this year of financial crisis, many retailers of
unsubsidized non-durables focused on increasing sales volume and shifted
their focus of expansion to third and fourth tier urban markets. Since early
2009, department stores, supermarkets, home appliance chains, retailers of
home construction materials, and furniture chains all offered aggressive
promotions to attract customers and increase sales volumes.
Although sales volumes increased overall, in the face of tough financial
conditions, profit margins declined considerably, a phenomenon like other
major consumer markets. Early in the downturn, Chinese consumer
confidence fell dramatically. It was boosted again by the recovering global
economy, as well as by central and local government policies designed to
stimulate domestic demand, maintain growth, and restructure certain
industries. China's retail sales of consumer goods increased 15.5 percent from
2008 to 2009.
China Powers of Retail 2010
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Figure 1. Comparative Growth Trends of Monthly Retail Sales of Consumer
Goods in China, 2000-2010
However, as is evidenced by the figure above, retail sales of consumer goods
as measured in China is often an aggregate of sales of consumer goods that
extends far beyond the scope of individual or household retail purchases.
Often this number includes not only food, apparel, electronics, furniture, and
recreation products, but also construction materials. This last category
encompasses building materials used in the construction industry and its
sharp upswing in 2009 occurred with a corresponding increase in consumer
confidence and an upturn in the property market. When making comparison
to retail sales data from other economies, it is important to be aware of the
broad data catchment of the Chinese data.
In this report, we present data against the unique background of the Chinese
retail sector. Sustained growth in the 12%-15% range for years has created
a sizeable base, very fast expansion, and some volatility in the sector. As
Chinese consumer demand branches and diversifies, retailers are doing the
same in response, showing substantial innovation with respect to format,
channel strategies, and consumer relations. Foreign operators and financial
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Total Retail Sales (RMB bn) Total FoodApparel Sports & Recreation Products Home ElectronicsFurniture Petroleum & Related Products Construction & Decoration Materials
Growth rate, Long-term trend (%)
Retail Sales(RMB bn)
Comparative Growth Trends of Monthly Retail Sales of Consumer Goods in China – Inflation and Seasonally Adjusted
Source: NBS, CEIC database, The Conference Board
China Powers of Retail 2010
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investors have been drawn into the sector, from the Bamboo Network and
from well-known multinational retailers.
The speed of growth and diversity of players mean that there are many ways
to parse the data, and many ways to interpret what it says. Some of these
are familiar to readers of sector data globally, by store format, product class,
chain size, inventory strategy, product strategy, and the like.
Others are more unique to China, like the divergent strategies of state,
domestic private and foreign chains, strong regional differences in consumer
behavior, divergent supply chain relationships, and even various fixed and
negotiated pricing approaches. For example, the analysis of tier one, tier two,
and smaller cities is a particular feature of China's data and market
development.
Also somewhat unique to China is the channel diversity, with chains and
franchise retailers capturing only a part of the retail value. Niche malls, for
things like computers, accessories, and parts, or flooring and wall coverings,
are also becoming branded chains, but they only brand and rent the space,
occasionally distribute or warehouse goods. They are retail-relevant brand
owners but they do not engage in retail themselves. Many of these
comparison variables are captured in our data, but we are steadily working to
improve the resolution we get on the issues the data addresses. In particular,
as chains begin to cross national borders, with more foreign retailers entering
China and Chinese retailers expanding though acquisition in off-shore markets,
understanding how they perform in their home markets will be the key to
anticipating primary global trends in retail.
There is no argument that modern retail formats are displacing traditional
ones. Hypermarkets are visibly displacing farmer's markets or wet markets.
But there is also no argument that modern retail formats in China have been
significantly reshaped by traditional local formats and practices. It goes
without saying that a major factor in the success of the top 100 chain
retailers is their ability to build their formats and value proposition on an
understanding of traditional consumer demand drivers as well as emerging
China Powers of Retail 2010
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ones. How that is actualized is of great interest to all retailers competing in
the Chinese marketplace, and it is one of the focal points of our analysis.
A key point is that the top 100 chain retailers in 2009 actually
underperformed the sector average. Their sales totaled 1.36 trillion RMB
(USD 199 billion), up 13.5 percent annually, also underperforming the Top
100 increase in 2008 of 18.4%. The top 100 accounted for 10.8 percent of
total domestic retail sales. Within that group, the Top 10 chain retailers
demonstrated an aggregate sales growth of 10.1 percent, even lower than
the 13.5 percent total sales growth of the Top 100 chain retailers.
The fact that sales by the Top 100 chain retailers accounted for a reduced
percentage of total sales of consumer goods, combined with the fact that the
Top 10 accounted for a shrinking proportion of sales in the Top 100, seems at
first mystifying in light of the fact that consumer confidence is increasing in
China, and the Chinese customer has ever more disposable income to use
towards the purchase of consumer goods. Retailers should be having
increasing success as opposed to diminishing sales.
We postulate that this apparently contradictory trend may be reflective of
several competing phenomena. First, it may reflect that the retail sector
became more diverse in 2009, with market share less concentrated within a
small group of key players. However, because M&A activities are noticeably
increasing, we argue that retailing among chains/franchise operators is in fact
becoming more concentrated, as national/regional players work to optimize,
strategize, and strengthen, often by absorbing local operators. Simultaneously,
retailing on the whole is becoming more diversified as non-branded retail
channels increase in number, size, and market share. So the trend may
actually reflect intensifying competition for chain operators from China's
alternative retail formats we described above.
2009 also saw changes in the Top 10 rankings, but they did not represent
major shifts. For example, Suning Appliance Group maintained consistent
growth, surpassing Gome Electrical Appliances Co., Ltd. in sales to grab the
number one spot.
China Powers of Retail 2010
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2009 sales of all foreign retailers in the Top 100 increased by 26.3 billion RMB
(3.85 billion USD) compared to 2008, reaching 307 billion RMB (44.96 billion
USD) in total. This represents an increase in sales of 9.4 percent in 2009
compared to 2008.
Among the retailers in the Top 100, nationwide and single province/city
retailers took the lead in controlling the retail market, contributing the most to
total sales. In terms of average sales volume, nationwide retailers led all
other types of retailers, while average sales volume of inter-regional retailers
was about equal to that of regional (inter-provincial/city) retailers. Revenue
growth rates for single province/city retailers were the highest among all
retailers. Regarding the performance of various retail sectors in 2009, multi-
sector retailing grew strongly, while convenience stores saw diminished
results. The growth rates of electronics/home appliances stores and
supermarkets decreased even more significantly. Drug stores, meanwhile,
saw slightly increased rates of growth.
In response to the financial crisis, retailers developed many strategies to
minimize the impact of the economic downturn. For instance, many retailers
of agricultural products increased profitability by purchasing products directly
from farmers' cooperatives. Others launched private brands as a means of
opening up new areas for growth; many also focused on store upgrades,
including renovations, improved layouts and branch restructuring. In order to
manage and reduce costs, retailers took a number of measures, including
improving supply chains, establishing logistics and distribution centers,
optimizing human resources structures, and improving budget controls to
minimize unnecessary expenditures.
2.2 Main Trends in Retailing in China
Looking forward, Chinese retailers will largely focus development efforts on
developing and expanding multi-channel operations. For instance, after years
China Powers of Retail 2010
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of modest results, recently the explosive growth and huge potential of online
retailing has made this sector increasingly important for retailers. Transaction
settlement options and delivery options are maturing, and other impediments
to on-line retailing are being addressed. As a result, a steadily growing
number of traditional retailers have started to engage in eBusiness, including
developing online retail channels and otherwise expanding internet-based
operations, although it is important to note that many approach this new
endeavor cautiously and conservatively. The structure on China's on-line
market also reflects unique characteristics. Multi-channel retailers often use
online channels as the initial interface through which customers purchase
goods, with physical stores serving as delivery terminals; the companies
continue to use their own logistics networks for delivery to warehouses, while
outsourcing to logistics service providers for distribution to customers. In
terms of the integration of supply chain management, information
management systems and other back office structures, multi-channel retailers
normally use a gradual process to integrate online and offline retail channels.
Online retailing is only one of a number of new and varied channels that will
grow as a focus for retailers in the future who are looking to tap into new,
non-traditional, or previously inaccessible consumer groups.
In 2009, organic growth was augmented by mergers and acquisitions (M&A)
which were particularly significant in two well-established segments of China's
retail industry: supermarkets and department stores. In China, M&A activities
are traditionally initiated by national chain leaders who merge with or acquire
regional chain retailers, or by regional chain leaders who merge with or
acquire local retailers within the same industry or sector. With this in mind,
and because the retail industry is a classical example of economies of scale
and economies of scope, we see increasing market concentration for China's
chain/franchise retail market to be inevitable in the next few years; as the
diffusion of revenue growth from the Top 10 to the Top 100 to retailers
China Powers of Retail 2010
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outside the top 100 indicates, China's retail sector is currently not as
concentrated as retail markets in the developed world.
In terms of geography, more deals are taking place in developing regions as
M&A competition increases in velocity and intensity. Because the growth
potential of retailers in second and third tier cities is greater than of those in
large cities, where markets are mature and often undergoing price wars,
retailers anticipate larger profit margins in developing markets. These markets
will likely become a focus of M&A activities in China's retail industry in the
future.
Looking ahead, we believe cost management will remain a top priority.
Supply chain management and optimization will be a critical factor for
retailers' growth in the future. To keep pace with network expansion, retailers
need to increase their investment in logistics infrastructure in order to
establish an appropriately-sized logistics network. Retailers normally manage
products via product categorization to simplify things logistically. Ideally,
direct supplying (i.e. suppliers deliver to retailer stores independently or via
their distributors) is frequently employed to distribute goods.
In addition, retailers continue to improve their relationships with suppliers.
Cooperation with suppliers and manufacturers was strengthened by
innovative win-win processes. For example, a supermarket chain might
cooperate with a farmer for mutually beneficial results; the supermarket
receives fresher products at a lower price, and the farmer receives help in
procuring financing, through support of the retailer's stronger credit position.
On the marketing front, manufacturers cooperate with retailers to increase
the effectiveness of sales promotions and attract more customers. In terms
of the value chain, retailers can create win-win situations with real estate
developers through inter-industry cooperation. Strategic alliances that add
China Powers of Retail 2010
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efficiency, reliability, and stability to the entire value network on which
retailers depend are becoming a strong feature of China's maturing retail
sector.
Note:
Tier 1 city: Beijing, Shanghai and Guangzhou
Tier 2 city: capital cities for all provinces
Tier 3 city: prefecture-level city
Tier 4 city: county-level city
Tier 5 city: villages and towns
China Powers of Retail 2010
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3. Overview of the Chinese Retail Industry
3.1 The Global Retail Industry Recovers from Recession
2009 was the worst year for economic performance in recent memory, but
the year ended on a more positive note, with economists anticipating an all
but certain recovery and only differing on its speed and strength. Most of the
world's major economies are now growing; some even began to rebound
sooner than many analysts expected. The global crisis was notable for the
near synchronicity of the downturn among markets; likewise, the recovery
also appears to be simultaneous in many places, an unusual phenomenon
when compared to previous recessions. This concurrent rebound is
strengthening global demand in a self-perpetuating cycle, especially as it
boosts trade flows and export-oriented production. Among the major
economies, China and India are leading the growth trend, bringing hope to
other countries that continue to struggle.
Figure 2. GDP Growth Rates of the World's Key Economies (%), 2007-2009
Source:IMF April 2010 Report
-10
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10
15
US UK EURO Zone
Japan Brazil Russia India China2007
2008
2009
China Powers of Retail 2010
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Figure 3. U.S. GDP vs. Retail Sales Growth, Year-on-Year (%), 2007-2009
Source: STAT-USA, OECD
The recovering economy has put the global retail industry back on a growth
track. As the most important market in the retail industry, the U.S. has
demonstrated an increasingly healthy economy since the second half of 2009;
both GDP and retail sales showed reduced quarter-on-quarter declines, finally
exhibiting positive growth at the end of 2009. Consumption expenditure was
also on the rise.
The global retail market started to recover gradually in the third quarter of
2009. At that time, out of 24 member countries of the Organization of
Economic Cooperation and Development (OECD), more than 60 percent
showed reduced quarter-on-quarter decline in growth of retail sales.
Furthermore, certain European countries like Poland, Sweden, Austria and the
U.K. all demonstrated quarter-on-quarter growth. In the fourth quarter of
2009, more than 60 percent of the 21 main OECD member countries showed
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China Powers of Retail 2010
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quarter-on-quarter growth, and most of them exhibited trends that pointed to
recovery.
Figure 4. 4th Quarter Retail Sales Growth of 21 Main OECD Countries (%), 2009 vs. 2008
Source:OECD
-6 -4 -2 0 2 4 6 8
US
UK
Sweden
Spain
Portugal
Poland
Norway
Netherlands
Mexico
Korea
Japan
Italy
Germany
France
Finland
Denmark
Slovakia
Canada
Belgium
Austria
Australia
China Powers of Retail 2010
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3.2 China Leads the Global Retail Rebound
With highly effective government stimulus action in place, China's economy
was the first to rebound from the economic downturn among the major
economies in the world. The official GDP growth rate reached 8.7 percent,
surpassing the country's growth target of 8 percent. China's retail industry in
particular demonstrated remarkable topline growth but also suffered serious
margin compression.
Overall, the Top 100 did see growth in 2009. The best performers saw
remarkable growth. But, a majority of the top 10 saw top line growth fall
(some very significantly). Profits were down across the sector, most likely a
result of intensifying competition. We hold that the reason top 10 leaders saw
growth fall so dramatically, while overall the retail sector maintained stability,
was that these leaders were the companies poised for expansion, ready to
deploy resources and develop, at the time the crisis hit. Ready to take risks,
they seemingly hit a brick wall when the financial downturn struck. Also, as
competition rises, leaders are those that other companies mimic when
deploying new business models, products, brands, and ad campaigns. There
are emerging many new players that offer similar or identical shopping
experiences, brands, goods, services, to market leaders, but have low
overhead. Although these newcomers might not be viable players in the long
term, and may go bankrupt or otherwise exit the marketplace, they can still
wreak significant damage on the market and on competitors in the short
term.
An additional factor contributing to the Top 100 chain retailers accounting for a reduced percentage of total sales of consumer goods is the growing consumer demand in third and fourth tier cities, where Top 100 chain retailers have a weaker presence. Their reduced presence may be attributed to the the logistical difficulties involved in supplying these areas, as many suppliers of products and logistical services are segmented. Further contributing is the extremely rapid growth of some markets: retailers have not had a chance yet to solidify market presence in these municipalities. As well, standardized business models are often difficult to apply uniformly in third and fourth tier cities because customer demand differs widely across regions. Poor
China Powers of Retail 2010
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information systems and a general lacking of retailing talent in more rural or remote areas is a further factor.
Although Chinese consumer confidence fell dramatically as a result of the
global financial crisis, it was boosted again by the recovering global economy,
as well as by central and local government policies designed to stimulate
domestic demand, maintain growth, and restructure certain industries. In the
first quarter of 2009, Chinese consumer confidence showed that it was
beginning to rebound, exhibiting a significant increase since the end of 2008.
The combination of an improving macroeconomic outlook and general
optimism about future employment conditions and household income was
reflected in the steadily increasing Chinese consumer confidence index
throughout 2009, which gradually trended positive over that time.
Figure 5. China Consumer Confidence Index,2007-2009
Source:National Bureau of Statistics, China
The "Study of Consumer Confidence, Fourth Quarter 2009" conducted by the
National Bureau of Statistics of China and The Nielsen Company breaks down
the main uses of disposable income nationally. Survey respondents could
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07Q1 07Q2 07Q3 07Q4 08Q1 08Q2 08Q3 08Q4 09Q1 09Q2 09Q3 09Q4
China Powers of Retail 2010
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choose as many answers as applicable, and as such, a majority of consumers
agreed that disposable income was used towards shopping (62 percent of
respondents) and then for savings (54 percent of respondents). For
consumers with increased household expenditures, the main products
purchased for consumption included food and groceries, communications
products and services, water, electricity and heat, and clothing. In addition,
spending on vacations, household products, dining out and consumer
electronics accounted for an important portion of increased consumer
expenditure. In the next 12 months, consumers predicted that they would be
most willing to spend towards the purchase of digital products and home
appliances, which accounted for 28 percent and 22 percent of forecasted
spending, respectively. Consumers also exhibited high willingness to spend on
furniture, real estate and automobiles, at 14 percent, 13 percent and 13
percent of spending, respectively. The rebound of consumer confidence was
also reflected in the quarter-on-quarter increase of retail sales of consumer
goods in the first quarter of 2009, which were also up 15.5 percent from 2008
to 2009. With the economy getting back on track and with effective policies in
place to stimulate domestic demand, the total consumption of retail goods will
continue to increase.
China Powers of Retail 2010
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Figure 6. China's GDP vs. Total Retail Sales of Consumer Goods, Year-on-Year (%), 2007-2009
Source:National Bureau of Statistics, China
Looking at the three figures above, it is important to recall that total retail
sales of consumer goods is a broad category also encompassing construction
materials, as discussed above. As GDP and consumer confidence rose in early
2009, retail sales also rose; however, retail sales as a category includes much
more than individual purchases of consumer goods and this should be kept in
mind.
4. The Top 100 Retail Chains, 2009
Growth rates of both sales volume and store number of the Top 100 chain
retailers in 2009 hovered near 13 percent, a figure that represents the lowest
growth rate ever recorded by the CCFA (China Chain Store and Franchise
Association). After having been so severely impacted by the economic
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15
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25
07Q1 07Q2 07Q3 07Q4 08Q1 08Q2 08Q3 08Q4 09Q1 09Q2 09Q3 09Q4
Total retail sales of consumer goods GDP
China Powers of Retail 2010
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downturn, retailers in the Top 100 for 2009 became more cautious about
opening new stores, which weakened their revenue growth momentum. Most
did still see growth (except for the notable exceptions in the Top 10,
discussed above) but it was slower growth than in many previous years.
Several major trends will be discussed in detail below.
• Retail industry players diversify overall while franchise/chain operators
become more concentrated
• Foreign players continue to penetrate the Chinese market
• Geographical focus of Top 100 Retailers affects performance
• Sector profiles reveal who is weak and who is strong
o Multi-sector retailers maintain dominant market position
o Electronics retailers maintain good performance
o Convenience stores, home appliances retailers, and
supermarkets struggle
o Drug store growth rates rise
• The fastest growing retailers are diversified, multi-sector players
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2009 Rankings of Top 100 Chinese Retail Chains
Rank Company Sales(RMB
10k) Growth
(%) Stores Growth (%)
Net Profit Rate (%)
Sector Region
1 Suning Appliance Group 11,700,267 14.3 941 15.9 4.8 Electronics specialty store
More than 200 cities in all regions
2 Gome Electrical Appliances Co., Ltd 10,680,165 2.1 1170 -14.1 2.6 Electronics specialty
store More than 200 cities
in all regions
Of which:Sanlian
Commerce CO.,LTD 137,996 -27.0 5 -37.5
Electronics specialty store Shandong
3 Bailian Group Co.,Ltd 9,791,537 3.8 6153 -4.1 N/A
Supermarket、Department store、Convenience store、Home improvement
store
East China
Of which: Lianhua Supermarket Co.,
Ltd.(including Hualian) 6,716,978 3.2 5599 -4.7 N/A
Supermarket、Drug store
East China
Hualian GMS Shopping
Center Co., Ltd 392,618 -2.9 22 4.8 1.2 Department store East China
Homemart Decoration
Materials Co., Ltd 210,000 -17.0 14 -44.0 N/A Home improvement store
Shanghai、Wuhan、Hefei、Nanjing、
Ningbo、Guangzhou
4 Dashang Group Co., Ltd. 7,053,590 12.8 160 6.7 N/A
Supermarket、Department store、Electronics specialty
store、Home improvement store
Northeast, north and west
5 Vanguard Co., Ltd 6,800,000 6.6 2926 8.5 N/A Supermarket 25 provinces and cities in China
Of which: Suguo
Supermarket Co., Ltd. 3,323,600 9.5 1852 2.8 1.0 Supermarket、
Convenience store
Jiangsu、Anhui、Shandong、Henan、
Hebei
6 RT-MART International Co.,Ltd 4,043,169 20.5 121 19.8 N/A Supermarket 21 provinces and
cities in China
7 Carrefour (China)
Management Consulting Services Limited
3,660,000 8.2 156 16.4 N/A Supermarket 21 provinces and cities in China
8 Anhui Huishang Group Co,Ltd 3,437,883 13.5 2884 15.5
Supermarket、Department store、Convenience store、Electronics specialty
store
Anhui
Of which: Anhui
Shangzhidu Co,Ltd 726,413 14.6 928 41.9
Supermarket、Department store、Convenience store、Electronics specialty
store
Anhui
Anhui Huishang
Nongjiafu Co, Ltd 184,490 4.9 1918 6.2 1.2 Supermarket Anhui
9 Wal-Mart (China) Investment Co.,Ltd 3,400,000 22.2 175 45.8 N/A Supermarket 22 provinces and
cities in all regions
10 Wumart Holding Group Co., Ltd 3,270,000 6.7 2333 16.1 N/A
Supermarket、Department store、Convenience store、Electronics specialty
store
Beijing、Tianjin、Shanghai、Hangzhou、Suzhou、Shaoxing、Bengbu、Yinchuan
China Powers of Retail 2010
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Rank Company Sales(RMB
10k) Growth
(%) Stores Growth (%)
Net Profit Rate (%)
Sector Region
Of which: Beijing
MerryMart Chain Ltd. 436,596 6.6 35 12.9 6.4 Supermarket Beijing
Zhejiang Gongxiao Supermarket Co,Ltd 220,207 10.1 2000 4.2 6.0
Supermarket、Convenience store
Zhejiang
11 Chongqing General
Trading (Group) Co., Ltd
3,004,698 14.4 313 6.5 N/A
Supermarket、Department store、Electronics specialty
store
Chongqing、Sichuan
Of which:Chongqing General New Century
Department Store 1,380,065 32.1 115 8.5 Department store Chongqing
Chongqing Department
Store Co., Ltd 834,285 13.0 123 5.1 2.2
Supermarket、Department store、Electronics specialty
store
Chongqing、Sichuan、Guizhou
12 New Cooperation Joint-stock trade chain CO.,
Ltd. 3,000,000 76.5 88653 24.8 2.0
Supermarket、Donvenience store、
Drug store
More than 16 provinces and cities in
all regions
Of which:Jiangsu New Cooperation
Changkelong Chain Supermarket Co Ltd
172,115 12.8 816 22.5 1.8 Supermarket、
Donvenience store、Drug store
Jiangsu
13 Yum! Brands Inc., China Division 2,880,000 9.9 3200 18.5 Food and beverage All the regions
14 NGS Supermarket Group 2,673,800 0.2 3331 0.0 N/A
Supermarket、Convenience store
Shanghai、Jiangsu、zZhejiang、Anhui、
Jiangxi
15 Best Buy China Co.,Ltd 2,570,000 262 Electronics specialty
store Shanghai、Suzhou
Of which: Five Star Appliance Co., Ltd. 2,470,000 7.4 256 0.0 4.3 Electronics specialty
store
Jiangsu、Anhui、Zhejiang、Shandong、Henan、Sichuan、
Yunnan
16 Shandong Commercial Group Cooperation(
Yinzuo Group) 2,564,116 37.0 206 25.6 N/A
Supermarket、Department store、Convenience store、Electronics specialty
store、Home improvement store
Shandong、Hebei、Henan
17 Hefei Department Store Group CO., Ltd. 2,090,000 7.7 136 8.8 5.1
Supermarket、Department store、Electronics specialty
store
Anhui
Of which: Hefei Baida Hejiafu Chained
Supermarket Inc 202,560 12.4 102 15.9 N/A Supermarket Anhui
18 A Best Supermarket Co.,Ltd 1,723,600 -2.0 109 3.8 1.5 Supermarket
Guangdong、Hunna、Hubei、Shandong、Sichuan、Shannxi、Jiangsu、Zhejiang、Tianjin、Hebei
19 Wuhan Zhongbai Group Co., Ltd. 1,685,519 18.4 674 7.0 N/A
Supermarket、Department store、Convenience store、Electronics specialty
store
Hubei、Chongqing
Of which:Wuhan
Zhongbai Chain Store-1,050,606 25.4 139 13.9 N/A Supermarket Hubei
China Powers of Retail 2010
22
Rank Company Sales(RMB
10k) Growth
(%) Stores Growth (%)
Net Profit Rate (%)
Sector Region
Supermarket Co.,Ltd
Wuhan Zhongbai Bianming Chain
Supermarket Co.,Ltd 272,760 8.1 500 4.6 Supermarket Hubei
20 Trust-Mart Management
Consulting Services (Shanghai) Co Ltd
1,650,000 0.6 104 0.0 Supermarket More than 16
provinces and cities in all regions
21 Hisap High Technology Corporation 1,593,775 -11.2 170 -11.5 2.2 Electronics specialty
store
Beijing、Shanghai、Jiangsu、Zhejiang、
Anhui
22 Wenfeng Great World Chain Development
Corporation 1,566,457 11.1 978 7.2 N/A
Supermarket、Department store、Convenience store、Electronics specialty
store、Home improvement store
Jiangsu、Shanghai
23 Liqun Group Co.,Ltd 1,516,622 9.4 890 3.9 2.3
Supermarket、Department store、Convenience store、Electronics specialty
store
Shandong
24 New World Department Store China.Co, Ltd 1,500,000 1.4 34 3.0 Department store
North China、East China、Southwest
China、Central China
25 Wuhan Wushang Group Co., Ltd 1,352,248 17.6 75 27.1 3.0
Supermarket、Department store
Hubei
Of which:WuShang
BulkSale Chain Co.,LTD 730,790 23.8 69 30.2 N/A Supermarket Hubei
26 Changchun Ouya (Group) Co.,Ltd 1,347,068 11.0 30 66.7 2.9
Supermarket、Department store、Convenience store
Changchun,Jilin,Siping,Tonghua,Baicheng,Liaoyuan,Shenyang,Ji
nan
27 TESCO 1,330,000 15.7 79 29.5 N/A Supermarket 36 provinces and cities in all regions
28 Beijing Wangfujing Department Store CO.,Ltd.(GROUP)
1,327,000 10.6 19 18.8 N/A Department store Beijing,Sichuan
29 Shanghai Lotus
Supermarket Chain Store Co., Ltd
1,300,000 0.0 77 1.3 Supermarket 30 provinces and cities in all regions
30 Parkson Retail Group Ltd. 1,237,000 15.7 44 10.0 department store 26 provinces and
cities in all regions
31 Metro Jinjiang Cash & Carry Co.,Ltd 1,202,277 -4.9 42 10.5 0.7 Supermarket
Zhejiang、Shanghai、Beijing、Tianjin
32 ShijiaZhuang Beiguo Renbai Group corp 1,167,541 37.3 80 14.3 0.7
Supermarket、Department store、Electronics specialty
store
Hebei
33 Rainbow Department Store Co.,Ltd 1,161,990 22.7 37 15.6 N/A department store
Guangdong、Hunan、Jiangxi、Fujian、Jiangsu、Zhejiang、
Beijing
34 Yonghui Group Co.,Ltd 1,021,800 45.6 268 30.7 3.0 Supermarket、
Convenience store Fujian、Chongqing、
Beijing
35 Shandong JiaJiaYue Department Store
Group Co, Ltd 1,012,021 18.6 489 7.2 2.1
Supermarket、Department store、Convenience store
Shandong
China Powers of Retail 2010
23
Rank Company Sales(RMB
10k) Growth
(%) Stores Growth (%)
Net Profit Rate (%)
Sector Region
36 Beijing Jingkelong Company Limited 1,006,410 1.9 247 1.6 1.9
Supermarket、Department store、Convenience store
Beijing,Langfang
37 Renrenle Commercial Group CO.,LTD. 1,003,779 13.8 90 25.0 2.6 Supermarket
Guangdong、Sichuan、Shannxi、
Chongqing、Tianjin、Guangxi、Fujian、
Hunan
38 Shandong Xinxing Group Co.,Ltd 987,787 17.6 532 13.2 4.5
Supermarket、Department store、Convenience store、Electronics specialty
store、Home improvement store、
Drug store
Shandong
39 Auchan (China) Investment Co.,Ltd 986,000 21.0 35 12.9 Supermarket
Shanghai、Beijing、Jiangsu、Zhejiang、
Anhui、Sichuan
40 Shandong Wuifang Department Store
Group Co ,Ltd 952,521 14.0 318 0.3 0.6
Supermarket、Department store、Convenience store、Electronics specialty
store、Home improvement store
Weifang、Qingdao、Taian、Yantai、
Binzhou
41 Golden Eagle Retail Group Limited 936,000 33.9 17 30.8 11.2 department store
Jiangsu、Shanghai、Shannxi、Yunnan
42 Jiangsu Times Supermarket Co, Ltd 929,590 2.8 68 1.5 N/A Supermarket
Jiangsu、Zhejiang、Shandong、Anhui、
Shanghai
43 Wuhan Zhongshang Group Co , Ltd 880,687 14.2 42 2.4 1.4
Supermarket、department store、convenience store
Hubei
Of which:Wuhan Zhongshang Group Co ,
Ltd Discount Chain 424,249 3.7 32 3.2 N/A Supermarket Hubei
44 AEON China 861,077 11.7 21 16.7 N/A Supermarket Beijing、Shandong、
Guangdong
45 Intime Department Store(Group) Co, Ltd 758,659 34.9 22 46.7 Department store Zhejiang
46 Zhengzhou Dennis
Department Store Co Ltd
710,000 16.2 50 8.7 Department store Henan
47 Fujian NewHuaDu Supercenter Co, Ltd 694,678 29.2 75 44.2 2.2
Supermarket、Department store
Fujian
48 Beijing New Yansha Holding (Group) Co.,Ltd 690,988 12.4 10 0.0 N/A Department store
Beijing、HARBIN 、Taiyuan
49 Beijing D Phone Co. Ltd 687,255 4.0 1310 2.0 3.5 Electronics specialty store
East China、Central China、South China、Sichuan、Beijing
50 Mc Donald's China 650,000 6.6 1100 10.0 Food and Beverage More than 25
provinces and cities in all regions
51 Guangzhou Grandbuy Co, Ltd 643,690 9.7 19 58.3 N/A
Department store、Electronics specialty
store Guangdong
52 Liaonoing Xinglong Happy Family Business 639,159 16.6 15 36.4 N/A
Supermarket、Department store
Liaoning
China Powers of Retail 2010
24
Rank Company Sales(RMB
10k) Growth
(%) Stores Growth (%)
Net Profit Rate (%)
Sector Region
Group
53 Inner Mongolia Little Sheep Catering Chain 621,700 2.1 431 9.7 Food and beverage
25 provinces and cities in all regions, 6 countries overseas
54 Bu Bu Gao Busincss Chain Store Co.,Ltd 572,400 10.0 123 11.8 Supermarket Hunan、Jiangxi
55 Hunan Friendship & Apollo Co.,Ltd 519,861 11.9 22 15.8 N/A
Supermarket、Department store
Hunan
Of which:Hunan Jiarunduo Supermarket
Co, Ltd 147,099 2.4 15 25.0 1.1 Supermarket Hunan
56 Chengdu Hongqi Chain Co.,Ltd 502,938 7.0 980 14.2 3.5 Supermarket Sichuan
57 Sanjiang Shopping Club Co.,ltd 496,362 10.4 127 19.8 N/A Supermarket Shanghai、Zhejiang
58 HNA Retail Business Holding Co.,Ltd 470,841 14.2 64 4.9 1.1
Supermarket、Department store
Shannxi、Gansu、Tianjin
59 Sichuan Huhui Business Group Co , Ltd 450,000 7.1 1200 50.0 1.0 Supermarket Sichuan
60 Nanjing Central Emporium.Co,Ltd 448,000 17.9 7 0.0 Department store Jiangsu
61 Park N Shop China (not including Hong Kong) 358,196 -9.5 39 -9.3 N/A Supermarket Guangdong、Sichuan
62 Chengdu Ito Yokado Co.,Ltd 351,380 21.9 3 0.0 6.7 Department store Sichuan, Chengdu
63 Emart Supermarket Co., Ltd. 351,000 9.7 20 11.1 Supermarket
Shanghai、Tianjin、Beijing、Wuxi、
Ningbo、Suzhou and Hangzhou
64 Oriental home Co., Ltd. 350,000 21.6 25 0.0 3.1 Home improvement store
Beijing、Shenyang、Chengdu
65 Qingdao Weekly Group Co, Ltd 328,135 6.5 828 -1.4 2.0
Supermarket、Department store、Convenience store
Qingdao、Weifang、Yantai
66 GuangZhou Friendship Group Co., Ltd. 320,000 6.7 4 0.0 Department store Guangzhou、Nanning
67 Beijing ShunYi Guotai Plaza 316,000 25.1 12 20.0 2.5 Department store Beijing
68 IKEA GROUP China 312,000 15.6 7 16.7 Home improvement
store
Beijing、Shanghai、Guangzhou、
Shenzhen、Chengdu、Nanjing
69 Beijing Cuiwei Plaza Co. Ltd 311,214 11.7 3 0.0 3.0 Department store Beijing
70 Shenzhen Nepstar Chain Drugstore 310,000 10.7 2867 5.8 N/A Drug store
13 provinces and 3 cities including
Guangdong、Fujian、Zhejiang、Jiangsu
71 Shanxi Meet All United Supermarket Co Ltd 306,800 14.2 27 28.6 1.6 Supermarket
Shanxi、Shandong、Hebei、Inner
Mongolia
72 Jiabei Logistic Co. Ltd 305,000 22.0 314 0.3 2.5 Supermarket、
Convenience store Zhejiang、Jiangxi
73 Hebei Bao-Long Wharf Business Development
Co., Ltd 302,000 14.8 14 7.7 3.1 Supermarket Hebei、Shandong
74 Jiangxi Hongkelon Touzi Co.,Ltd 300,000 18.1 26 23.8 2.0
Supermarket、Department store
Jiangxi
China Powers of Retail 2010
25
Rank Company Sales(RMB
10k) Growth
(%) Stores Growth (%)
Net Profit Rate (%)
Sector Region
75 Beijing Xidan Youyi Market Company 294,137 5.9 222 16.2 1.9 Department store Beijing
76 Hunan Jiahui Department Store Inc 288,000 13.1 200 4.2 1.8
Supermarket、Department store、Convenience store
Hunan
77 Handan Yangguang Department Store
Group 272,404 23.9 60 130.8 1.2
Supermarket、Department store
Hebei
78 Ito Yokado 271,000 -4.9 9 12.5 N/A Supermarket Beijing
79 Hunan Laobaixing Drug Store Co., Ltd 268,000 5.1 350 66.7 2.5 Drug store
Hunan、Hubei、Henan、Hebei、
Guangdong、Guangxi、Beijing、Tianjin、Shandong、Shanghai、Jiangxi、Jiangsu、Zhejiang、Shannxi
80 Beijing Chaoshifa Supermarket Co., Ltd 264,381 14.5 80 21.2 1.2 Supermarket
Beijing、Chengde、Xuanhua、Zhangjiakou
81
Shandong Quanfuyuan Commerce (Group)
Co.,Ltd ( Shouguang Department Store)
261,808 36.3 72 16.1 2.6
Supermarket、Department store、Convenience store、Electronics specialty
store、Home improvement store
Shandong
82 Home Inns & Hotels Management Inc. 260,064 39.0 616 30.8 Express Hotel More than 100 cities
in all regions
83 Zhejiang Renben Supermarket Co. Ltd 258,426 13.2 599 54.8 1.1
Supermarket、Convenience store
Zhejiang
84 Shenzhen Shirble Department Store 250,085 8.1 11 22.2 N/A Department store Shenzhen
85 Zhejiang Hualian Shopping Center Co. Ltd 248,000 15.9 221 -5.2 1.0
Supermarket、Department store、Convenience store、
Drug store
Zhejiang
86 Shanxi Taiyuan Tangjiu Supermarket Co. Ltd 238,673 5.6 1006 10.7 1.2 Convenience store Shanxi
87 Changsha Tongcheng Holdings Co.,Ltd 230,000 27.0 56 21.7
Supermarket、Department store、Electronics specialty
store
Hunan
88 Telephone World Digital Chain Group Co.,Ltd 225,000 1.6 283 14.1 1.0 Electronics specialty
store Zhejiang、Shanghai
、Anhui
89 China Quanjude (Group) Co. Ltd 219,627 8.6 85 6.3 Food and Beverage 7 cities in all regions
90 Xiongfeng Group Co.,Ltd 200,775 4.5 115 8.5 0.6
Supermarket、Department store、Convenience store、Electronics specialty
store
Zhejiang、Anhui、Chongqing、Fujian
91 Ajisen (China) Holding Limited 199,409 35.7 380 35.7 Food and Beverage 23 provinces and
cities in all regions
92 Chongqing Peace Drugstore Co. Ltd 198,000 15.1 2460 0.8 0.5 Drug store
Chongqing、Sichuan、Guizhou、
Guangdong、Hubei
93 Fuyang Hualian Supermarket Co. Ltd 192,660 9.5 555 17.8 2.5
Supermarket、Department store、 Anhui
China Powers of Retail 2010
26
Rank Company Sales(RMB
10k) Growth
(%) Stores Growth (%)
Net Profit Rate (%)
Sector Region
Convenience store
94 Guangxi Nancheng
Department Store Joint-Stock Co.,Ltd
191,250 28.5 17 112.5 5.3 Supermarket Guangxi、Nanning、
Guilin
95 Shanghai Hsdrug Pharmacy Co.,Ltd 190,362 34.9 811 47.2 N/A Drug store
Shanghai、Guiyang、Huangshan、Ningbo、Nantong、Jiaxing、
Kunshan、Suzhou
96 Chengshang Group Co.,Ltd 172,224 20.8 11 22.2
Supermarket、Department store
Chengdu
97 Shenzhen Baijiahua Stores Holdings Limited 171,595 14.8 18 20.0 2.6
Supermarket、Department store
Guangdong、Guangxi
98 Harbin Zhongyanhong Group Co., Ltd 163,833 9.0 183 24.5 2.3
Supermarket、Department store、Convenience store
Harbin、Daqing
99 Jinan Hualian Supermarket Co.,Ltd 161,181 61.1 15 25.0 1.8
Supermarket、Convenience store
Shandong
100
Home Depot Investment
Management (Shanghai) Co, Ltd
160,000 4.6 12 0.0 Home improvement
store
Beijing、Tianjin、Shenyang、Qingdao、Xi‘an、Zhenzhou
Source:CCFA
4.1 Retail Industry Players Diversify Overall, while
Chain/Franchise Retailers Become More Concentrated
In 2009, sales of the Top 100 chain retailers grew at the reduced pace of 13.5
percent, compared to 18.4 percent in 2008, but still reached 1.36 trillion RMB
(USD 199 billion). This accounted for 10.8 percent of the total nationwide
retail sales of consumer goods, down from 11.1 percent and 11.2 percent in
2008 and 2007, respectively. Furthermore, the percentage that the combined
sales of the Top 10 retailers contributed to the total sales volume of the Top
100 fell from 48.3 percent in 2008 to 47 percent in 2009. Both the declining
influence of the Top 100 chain retailers in total sales of consumer goods and
the declining weight of the Top 10 in the Top 100 reflect that the total retail
sector is becoming less concentrated among a small number of players, as
non-branded retail channels gain increasing market share. The channel
diversity inherent in the Chinese market poses a challenge to both domestic
China Powers of Retail 2010
27
and foreign retail chains as they seek to increase their competitiveness in the
marketplace.
The Top 10 chain retailers demonstrated aggregate sales growth of 10.1
percent, even lower than the total sales growth of the Top 100 chain retailers
at 13.5 percent. In fact, only half of the Top 10 chain retailers maintained
two-digit growth rates. Besides Anhui Huishang Group Co., Ltd., all other nine
chain retailers experienced reduced growth rates, with Dashang Group Co.,
Ltd., Vanguard Co., Ltd. and RT-MART International Co., Ltd. showing
especially significant declines in growth. This was discussed above and is
most likely a result of increasing competition, with new players emerging that
damage market share for leading by promoting similar goods and business
models. It is also probably a lingering result of the downturn, as market
leaders struggle to recoup the losses sustained when they were blindsided at
a time of company growth by a rapid and sharp economic decline.
There were also changes in the Top 10 rankings. For example, Suning
Appliance Group maintained consistent growth, finally surpassing Gome
Electrical Appliances Co., Ltd. in sales for the first time to become the leading
retailer nationwide. Anhui Huishang Group Co., Ltd. also rose substantially to
become the eighth largest in sales. However, Vanguard Co., Ltd. and
Carrefour both moved down one spot from last year, and Wumart Holding
Group Co., Ltd. dropped two places, to tenth. NGS Supermarket Group fell
from the Top 10 list and was ranked the 14th.
China Powers of Retail 2010
28
Top 10 Retailers, 2009
Rank Company Main Sector Sales
(100M) Growth(%)
1 Suning Appliance Group Electronics specialty store 1,170 14.3
2 Gome Electrical Appliances Co., Ltd Electronics specialty store 1,068 2.1
3 Bailian Group Co.,Ltd Supermarket, Department store, Convenience store, Home improvement store
979 3.8
4 Dashang Group Co., Ltd.
Supermarket, Department store, Electronics specialty store, Home improvement store
705 12.8
5 Vanguard Co., Ltd Supermarket 680 6.6
6 RT-MART International Co.,Ltd Supermarket 404 20.5
7 Carrefour (China) Management Consulting Services Limited
Supermarket 366 8.2
8 Anhui Huishang Group Co,Ltd
Supermarket, Department store, Convenience store, Electronics specialty store
344 13.5
9 Wal-Mart (China) Investment Co.,Ltd Supermarket 340 22.2
10 Wumart Holding Group Co., Ltd
Supermarket, Department store, Convenience store, Electronics specialty store
327 6.7
Total of Top 10 6,384 10.1 Total of Top 100 13,579 13.5 Top 10 Share of Top 100 total Sales 47.0%
Remark: According to data from the Top 100 retailers Source: CCFA
4.2 Foreign Companies Continue to Penetrate China's
Retail Sector
With China's retail industry being the first of its kind to rebound in 2009,
foreign retailers experienced growth in their Chinese businesses. In that year,
sales of all foreign retailers in the Top 100 increased by 26.3 billion RMB (3.85
billion USD) compared to 2008, reaching 307 billion RMB (44.96 billion USD)
in total. However, the percentage of combined sales of foreign retailers in the
Top 100 fell from 23.4 percent in 2008 to 22.6 percent in 2009. In terms of
China Powers of Retail 2010
29
retailer ownership, most of the foreign retailers in China were based in the
U.S., Hong Kong, Taiwan or Europe.
Figure 7. Breakdown of Share of Revenue in the Top 100, by Regional Base of Retailer, 2009
Source: CCFA
In terms of retail sectors, American retailers covered a wider range, whereas
Asian retailers, including Japanese, focused primarily on department stores
and supermarkets. American retailers led in sales and in scope of operations,
with average annual sales of 19.3 billion RMB (2.83 billion USD) far above the
average for the Top 100. Hong Kong-based, Taiwanese and European
retailers also ran operations larger in scope than the average, while other
Asian retailers generally operated on a smaller scale.
Average Sales Revenue in the Top 100, by Regional Base of Retailer, 2009
Country Number of Companies Number Sector Coverage Average Sales
(100M)
Top 100 100 - All Sectors 135.8
EURO 5 (1) Supermarket, Home improvement store 149.8
US 5 - Supermarket, Food & Beverage, Electronics 193.2
Euro5.5% US
7.1%
Asia3.0%
HK & TW6.8%
China Mainland
77.6%
China Powers of Retail 2010
30
Country Number of Companies Number Sector Coverage Average Sales
(100M)
specialty store, Home improvement store
Asia 6 1 Supermarket, Department Store 72.8
HK & TW 6 - Supermarket, Department Store 153.2
China Mainland 78 - All Sectors 133.0 Source: CCFA In 2009, sales of all foreign retailers in the Top 100 demonstrated a growth
rate of 9.4 percent compared to 2008, which was lower than the 14.4 percent
of domestic retailers in the Top 100. As for store number, foreign retailers
had an average increase of 13.6 percent since last year, quite similar to that
of domestic retailers (13.3 percent). Ito Yokado's entry into the Top 100 list
changed the lay of the land, as it has few branches but high sales volume per
store (over 1 billion RMB, or 146 million USD). Its entry drove sales of Asian
retailers up significantly, with sales growing at 27 percent, despite the
number of stores having increased only 9 percent. However, as Wal-mart and
Yum continued to expand their coverage in China, the number of American
retailers' stores increased by 16 percent over the previous year. On the other
hand, due to the fact that B&Q dropped from the Top 100 because its sales
were down significantly, both sales volumes and number of stores among
European retailers fell.
China Powers of Retail 2010
31
Figure 8. Growth in Sales vs. Store Number Among Top 100, by Regional Base of Retailer, (%), 2009
Source: CCFA
However, when discussing foreign versus domestic retail chains, we must
bear in mind the potentially different growth and development models used
by companies originally based in different national markets. Top line growth,
often higher in the case of Chinese companies, may not always be the best
measure of long-term profitability. Foreign retailers often employ more
measured development strategies, focusing on longer term goals. This is
evidenced by the facts that while average sales for foreign retailers in the Top
100 remain lower than those of Chinese retailers, increase in number of
stores among both foreign and domestic operators was roughly the same,
with foreign chains leading slightly. For the space they utilize, foreign retailers
often have higher yield per meter, and better margins, better profitability, and
healthier growth overall.
4.3 Geographical Focus of Top 100 Retailers Affects
Performance
Retailers have a variety of geographic strategies, i.e., aiming for nationwide,
inter-regional, regional or province/city-wide coverage; in 2009, nationwide
companies contributed the most in total sales volume. In terms of growth
rates, single province/city-wide retailers grew the fastest, followed by regional
-4
14
27
1014
-5
16
96
13
-10-505
1015202530
EURO US Asia HK & TW China Mainland
Sales GrowthStore No. Growth
China Powers of Retail 2010
32
(inter-province/city) retailers, both exceeding 20 percent growth. In
comparison, nationwide and inter-regional retailers were mainly focused on
expanding their number of stores; they increased total stores by 17 percent
and 20 percent respectively.
Based on an analysis of geographically-focused operations, a company can
expand the scale of their sales efforts mainly by increasing the depth of their
network coverage within a single area, or by increasing the breadth of their
network coverage over a number of areas. Using the sales of the Top 100 as
an example, nationwide retailers have a considerable competitive edge over
others. This reveals that coverage expansion and scale effects are still
important components of company expansion and sales growth.
Among retailers in the Top 100, nationwide and single province/city retailers
were the main players in the retail market, with a similar numbers of chains
(38 and 39 respectively) in 2009. In comparison, there were 12 regional
(inter-province/city) retailers and 11 inter-regional retailers.
Nationwide retailers led all other types of retailers in sales volumes, with an
average of 20.9 billion RMB (3.06 billion USD), followed by 14.6 billion RMB
(2.14 billion USD) for inter-regional retailers. Nonetheless, retailers confined
to one region could still achieve decent performance—the key seemed to be a
certain degree of market dominance or monopolization. On average, regional
(inter-province/city) retailers reached 14.2 billion RMB (2.08 billion USD) in
average sales. In terms of the number of stores, nationwide retailers naturally
had the most stores per company, with 3,025 stores on average, followed by
regional (inter-province/city) retailers with 817 stores per company on
average. These two types of companies expanded their geographical
coverage by continuous mergers and acquisitions of leading regional
China Powers of Retail 2010
33
supermarkets and local department chain stores, so their number of stores
continuously kept ahead of that of others.
Performance of Top 100 Companies by Geographical Coverage, 2009
Region No of Companies Average Sale(100M)
Average No of Stores
Top 100 100 136 1369
Single Province/city 39 60 211
Regional (inter- province/city) 12 142 817
Inter-regional 11 146 354
Nationwide 38 209 3025
Note: Single province/city: stores of the retailer are located within only one province/city Regional (inter-province/city): stores of the retailer are located in more than one single province/city, but within a geographic region or two adjacent provinces/cities Inter-regional: stores of the retailer are located in two or more geographic regions, excluding two adjacent provinces/cities Nationwide: stores of the retailer are located more than two geographic regions, and coverage is extensive
Source: CCFA
In 2009, within the geographical breakdown of Top 100 retailers, nationwide
companies had the highest contribution to total sales revenue at 58 percent,
followed by single province/city retailers, with 17 percent. Regional (inter-
province/city) and inter-regional retailers contributed 13 percent and 12
percent, respectively. This distribution was similar to the previous year, with a
slight increase for single province/city retailers and a small decline for
nationwide ones.
Based on these observations, nationwide and single province/city retailers are
the two most important segments in the retail market. Nationwide retailers
realize sales growth by expanding the breadth and scale of their operations
China Powers of Retail 2010
34
throughout the country (often through M&A), whereas single province/city
retailers focus on deepening their presence in their respective markets.
Specifically, single province/city retailers use their local resources and unique
market advantages to meet the particular needs of local consumers, in order
to achieve consistent growth in sales.
Figure 9. Contribution to Total Sales Revenue among Top 100 by Geographical Coverage, 2009
Source: CCFA
In 2009, single province/city retailers grew the fastest, with a year-on-year
growth rate of 29 percent, followed by regional (inter-province/city) ones with
23 percent. Significantly below them, nationwide and inter-regional retailers
showed similar growth rates of 9 percent and 8 percent, respectively.
In terms of the number of stores, nationwide retailers demonstrated the
fastest growth, up 20 percent in 2009, comparable to the rate in 2008. Inter-
regional retailers were second, with a growth rate of 17 percent. For
nationwide retailers, the growth was mainly driven by M&A of supermarkets
and department stores, as well as by the rapid expansion of hypermarket
Single Province/city
17%Regional (inter-province/city)
13%
Inter-regional12%
Nationwide58%
China Powers of Retail 2010
35
chain retailers including Suning Appliance Group, Wal-mart, Carrefour and RT
Mart. Single-province/city retailers also demonstrated a growth rate of 10
percent. However, regional (inter-province/city) retailers saw store numbers
shrink significantly, but this can be attributed to the fact that Luohe
Shuanghui Commerce Chain Store Co., Ltd., a convenience store chain with
over 4,000 stores, did not participate in the 2009 survey in this category.
Figure 10. Growth Rate of Revenue vs. Store Number Among the Top 100, by Geographical Coverage (%), 2009
Source: CCFA * Due to the fact that Luohe Shuanghui Commerce Chain Store Co., Ltd., a convenience store chain retailer with over 4,000 stores, did not participate in the 2009 survey in the Regional (inter-province/city) category, this category saw significant drop in number of stores.
4.4 Sector Profiles
The Top 100 chain retailers can be classified into seven sectors: supermarkets,
department stores, convenience stores, electronics/home appliances retailers,
retailers of home construction materials, pharmacy chains, and food retailers.
Companies with operations spanning a number of sectors were considered
multi-sector, while those with relatively insignificant sample sizes were
classified in the others category.
2923
9 810
-31
17 20
-40
-30
-20
-10
0
10
20
30
40
Single Province/city Regional (inter-province/city)
Inter-regional Nationwide
Sales GrowthNo of Store Growth
China Powers of Retail 2010
36
Figure 11. Sales Growth of the Top 100 (%), by Sector, 2009
Source : CCFA
Profile of the Top 100 by Sector, 2009
Number of Companies
Average Sales(10k)
Average Store number
Sales per store(10k)
Top 100 100 1,357,871 1369 992
Multi-sector 35 1,583,304 3169 500
Supermarket 28 1,224,555 275 4,453
Department Store 17 692,333 47 14,879
Convenience Store 1 238,673 1006 237
Electronics Store 6 4,576,077 689 6,638
Home improvement
store 3 274,000 15 18,682
Drug Store 4 241,591 1622 149
Food and beverage 5 914,147 1039 880
Others 1 260,064 616 422
Source: CCFA
13.9
-41.8
6.1
-22.2
21.3
6.6
-50 -40 -30 -20 -10 0 10 20 30
Drug Stores
Home Improvement Stores
Home Appliances Stores
Convenience Stores
Department Stores
Supermarkets
China Powers of Retail 2010
37
4.4.1 Multi-sector Retailers Retain Dominant Market Position
The largest sector in the Top 100 was the multi-sector group, consisting of 35
chain retailers. The average sales volume of retailers in this category reached
15.8 billion RMB (2.31 billion USD), second only to that of electronics/home
appliance retailers. Most of the multi-sector retailers were state-owned
enterprises, usually retailers that had been owned by local governments
before being merged into sizeable regional retail groups by overseeing
government entities.
To a certain extent, multi-sector retailers maintained the ability to offset
economic volatilities, as they could reach across industries and product lines
to meet the demands of varied consumer groups. Additionally, these retailers
enjoyed significant advantages from their cost structure and broad product
coverage, helping them to reduce risks and maintain steady growth.
There were 28 supermarket chains in the Top 100, which was the second
largest sector by number of companies after the multi-sector group. The
average annual sales of supermarket chains were 12.2 billion RMB (1.79
billion USD), with a year-on-year growth rate of over 10 percent. Among the
supermarket chains in the Top 100, although foreign retailers accounted for
only about half overall, among the top ten, seven were foreign. Most of the
foreign supermarkets had nation-wide coverage, whereas more than half of
the domestic supermarkets operated only regionally, contributing to the
success of these foreign chains.
4.4.2 Electronics Retailers Maintain Strong Performance
Although there were only 6 electronics/home appliances retailers in the Top
100, their average annual sales were 45.7 billion RMB (6.69 billion USD), far
above the volumes demonstrated in other sectors. The high aggregate
revenues in this niche were sustained by the government's stimulus plans and
subsidies promoting home appliance sales in rural areas and encouraging
China Powers of Retail 2010
38
replacement of used, inefficient appliances nationwide. Also, given the capital
intensity and high barriers to entry of electronic retailing competition is
intense but pricing less volatile than other retail categories. The average
sales per store stood at 66.38 million RMB (9.72 million USD), below the rate
for department stores and home building retailers. All 6 major home
appliances retailers were regional or domestic retailers, with the exception of
Best Buy, which rose to the third spot in this category after acquiring Jiangsu
Five Star Appliance Co., Ltd. All 6 retailers had already established nationwide
sales coverage at the time of the survey.
While Suning Appliance Group continued to expand its network, Gome
Electrical Appliances Co., Ltd. put an end to its expansion plans, closing
almost 200 stores, due to internal shake-ups within the firm. Nevertheless,
the total number of stores of home appliance retailers remained the same as
in 2008.
The government's stimulus plans provided important support to this category,
which would be very susceptible to the economic downturn and decline in
consumer confidence. But it did not drive exceptional growth rates. The
growth rate of total sales was only six percent, and other indicators such as
sales per store saw no apparent growth.
4.4.3 Convenience Stores, Supermarkets, and Home Appliance Retailers Struggle
Hit hard by the financial crisis, convenience stores suffered, taking Shanghai
Liangyou Jingban Convenience store out of the Top 100. Additionally, the
ranking of SanXi TangJiu Supermarket, another convenience store retailer in
the Top 100 in 2008 fell dramatically in the rankings. Together, the
performances of these two struggling companies reduced revenue growth
rates of convenience stores in Top 100 by about 20%.
China Powers of Retail 2010
39
In addition, the growth rates of both home appliance retailers and
supermarkets fell, with home improvement goods retailers down 3 percent
year-on-year. Supermarkets suffered an even more drastic slow down, with
growth rates decreasing from 18.9 percent in 2008 to 7 percent in 2009.
The dramatic negative sales growth of home improvement stores (-42%) in
2009 made evident in Figure 11 stands in stark contrast to the sharp increase
in retail sales of construction materials that began in early 2009, seen in
Figure 1.
It is important to note that B&Q fell from the Top 100 list between 2008 and 2009, and no retail chain in home improvement entered the Top 100 to take its place last year, resulting in a statistically glaring drop in the apparent growth of this sector. This elimination, however, does not tell the whole story.
The statistics still seem contradictory—how can there be an increasing
number of homes built but a decreasing number of homes decorated?—we
suggest that the market for home improvement goods is still struggling to
recover from the downturn while the property and construction sectors have
already pulled out of it. There exists a lag of at least two quarters between
when a property is constructed and when it is furbished (that is, if it is
immediately bought and decorated at all). Given this inherent lag time, the
construction market began to improve with rising GDP and consumer
confidence in early 2009, while the market for home improvement goods is
still waiting to catch up. It continues to suffer from the lingering effects of the
market downturn during the remainder of this "lag period" before purchased
homes are decorated. We will continue to see the home improvement sector
impacted by the prior downturn in the property market through the rest of
2009.
Additionally, we note that overall, the home improvement industry did grow last year, but retailed chains faced stiff competition from malls and other retailers. The growth of mall-style retailers far outstripped any gains chian retailers may have made. The number of home improvement supermarkets in TOP 100 retailers decreased from 4 to 3 with B&Q's departure and closure of more than 20 shops. The remaining three in the Top 100 realized only moderate growth.
China Powers of Retail 2010
40
Rank Company Revenue in 09 Growth rate 64 Oriental
home Co., Ltd. 3.5 Bil 21.6%
68 IKEA 3.1 Bil 15.6% 100 Home Depot
Investment Management (Shanghai) Co, Ltd
1.6 Bil 4.6%
Mall-style store, in contrast, grew at a much more rapid pace.
Company Revenue in 09 Growth rate Redstar (红星美凯龙) 31.3 Bil 18% Juran(居然之家) 10.5 Bil 31%
Home improvement products are very diverse in China. For instance, dozens of brands exist for a single product such as a sofa. Such diversity confuses consumers, making it hard for them to decide which brand they should buy. Thus, a mall format becomes a more attractive shopping experience to consumers because malls normally offer introduction by a salesperson from suppliers, which facilitate consumer's decision-making process. As a result, home improvement malls have grown more quickly than other retailing formats.
4.4.4 Drug Store Growth Rate Rise
With further market expansion, drug retailers performed well in 2009,
showing growth rates reaching 14 percent. This is a small increase compared
to that of 2008 (10.8%), but still comes in just behind growth rates of multi-
sector and department store retailers.
China Powers of Retail 2010
41
Figure 12. Growth Rate of Revenue vs Store Number in the Top 100, by Sector, (%), 2009
Source: CCFA
Significant changes in rankings were only observed for a small number of
retailers. Among the Top 10 multi-sector chain retailers, Anhui Huishang
Group Co., Ltd., rose to third place, while Wenfeng Great World Chain
Development Corporation dropped out of the Top 10. In the home appliance
sector, Best Buy moved up to the third place after acquiring Jiangsu Five Star
Appliance Co., Ltd. There were no significant changes in rankings in other
retail sectors besides changes due to member participation in the CCFA. For
instance, Luohe Shuanghui Commerce Chain Store Co., Ltd. was used in the
calculation of the Top 100 in 2008 but was omitted in 2009. Similarly, Ito
Yokado was not in the calculation for department stores in 2008, but was in
the tenth place this year.
Leading Companies by Sector
Top 10 Multi-sector Chain Companies, 2009
No Rank Company Sales (100M)
Country
1 3 Bailian Group 979 China
24
721
-22
6
-42
14 1320 14 10
-8
0
-60
1025
-70-60-50-40-30-20-10
0102030
Multi-sector Supermarket Department Store
Convenience Store
Electronics Store
Home improvement
store
Drug Store Food and beverage
Sales Growth Rate
China Powers of Retail 2010
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2 4 ↑ Dashang Group Co., Ltd. 705 China 3 8 ↑ Anhui Huishang Group Co,Ltd 344 China 4 10 ↓ Wumart Holding Group Co., Ltd 327 China 5 11 Chongqing General Trading (Group) Co., Ltd 300 China 6 12 ↑ New Cooperation Joint-stock trade chain CO., Ltd. 300 China 7 14 ↓ NGS Supermarket Group 267 China 8 16 ↓ Shandong Commercial Group Cooperation(Yinzuo
Group) 256 China
9 17 ↓ Hefei Department Store Group CO., Ltd. 209 China 10 19 ↑ Wuhan Zhongbai Group Co., Ltd. 169 China
Source: CCFA
Top 10 Supermarkets, 2009
No Rank Company Sales (100M)
Country
1 5 ↓ Vanguard Co., Ltd 680 China
2 6 ↑ RT-MART International Co.,Ltd 404 Taiwan
3 7 ↓ Carrefour (China) Management Consulting Services Limited 366 France
4 9 Wal-Mart (China) Investment Co.,Ltd 340 US 5 18 ↓ A Best Supermarket Co.,Ltd 172 China
6 20 ↓ Trust-Mart Management Consulting Services (Shanghai) Co Ltd 165 Taiwan
7 27 ↓ TESCO(China) 133 UK 8 29 ↓ Shanghai Lotus Supermarket Chain Store Co., Ltd 130 Tailand 9 31 ↓ Metro Jinjiang Cash & Carry Co.,Ltd 120 Germany 10 37 ↓ Renrenle Commercial Group CO.,LTD. 100 China
Source:CCFA
Top 10 Convenience Stores, 2009
No Rank Company Sales (100M)
Country
1 86 ↓ Shanxi Taiyuan Tangjiu Supermarket Co. Ltd 24 China
2 Dongguan Sugar & Liquor Group Meiyijia Convenience Store Co.,Ltd 17 China
3 Shanghai Buddies Convenience Store Co.,Ltd 14 China
4 Shanghai Jieqiang Tobacco Sugar & Wine (Group)Co.,Ltd 12 China
5 Hebei Guoda Chain Commerce Co.,Ltd 9 China 6 Dongguan Sun-High Trades Co.,LTd 6 China 7 Shanxi Jinhu Convenience Chain Store Co.,Ltd 3 China 8 Gongguan Xiyangyang Convenience Store Co.,Ltd 2 China 9 Hangzhou Huachen Chain Store Co.,Ltd 2 China 10 Guizhou Baihui Store Co.,Ltd 1 China
Source:CCFA
Top 10 Department Stores, 2009
No Rank Company Sales (100M)
Country
1 24 ↓ New World department store China.Co, Ltd 150 China
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43
2 28 Beijing Wangfujing Department Store CO.,Ltd.(GROUP) 133 China
3 30 Parkson Retail Group Ltd. 124 China 4 33 ↑ Rainbow Department Store Co.,Ltd 116 China 5 40 Shandong Wuifang Department Store Group Co ,Ltd 95 China 6 41 ↑ Golden Eagle Retail Group Limited 94 China 7 45 ↓ Intime department store(Group) Co, Ltd 76 China 8 48 ↑ Beijing New Yansha Holding (Group) Co.,Ltd 69 China 9 51 ↑ Guangzhou Grandbuy Co, Ltd 64 China 10 60 Nanjing Central Emporium.Co,Ltd 45 China
Source: CCFA
Top 10 Electronics/Home Appliance Stores, 2009
No Rank Company Sales (100M)
Country
1 1 ↑ Suning Appliance Group 1,170 China
2 2 ↓ Gome Electrical Appliances Co., Ltd 1,068 China 3 15 Best Buy China Co.,Ltd 257 China 4 21 ↓ Hisap High Technology Corporation 159 China 5 49 ↓ Beijing D Phone Co. Ltd 69 China 6 88 ↓ Telephone World Digital Chain Group Co.,Ltd 23 China 7 Sanlian Commerical Co.,Ltd 14 China 8 Huiying Household Appliances (Holdings) Co.,Ltd 12 China 9 N/A 10 N/A
Source:CCFA
Top 10 Drug Stores, 2009
No Rank Company Sales (100M)
Country
1 70 ↓ Shenzhen Nepstar Chain Drugstore 31 China
2 79 ↓ Hunan Laobaixing Drug Store Co., Ltd 27 China 3 92 Chongqing Peace Drugstore Co. Ltd 20 China 4 95 ↑ Shanghai Hsdrug Pharmacy Co.,Ltd 19 China 5 Yunnan Jianzhijia Health Drug Store Co.,Ltd 7 China 6 Beijing Jinxiang Drug Chain Store Co.,Ltd 7 China 7 Shanxi Wanmin Pharmacy Co.,Ltd 7 China 8 Guangdong Accordance Pharm Chain Store 7 China 9 Xian Yikang Drug Store Co.,Ltd 6 China 10 Sichuan Derentang Drug Store Co.,Ltd 6 China
Source: CCFA
4.5 The Fastest Growing Retailers
In 2009, the average growth rate of annual sales of the Top 100 chain
retailers stood at only 13 percent, while the fastest-growing 20 retailers
demonstrated an average growth rate of 37 percent. Among the fastest
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44
growing 20 retailers, 10 were multi-sector retailers, 11 were regional, and 8
were multi-sector, regional retailers. These fastest growing 20 retailers in
2009 included only two supermarket chains compared to seven in 2008, while
department stores rose from 3 to 5.
In 2009, foreign retailers exhibited relatively weak performance when
compared to domestic companies; amongst the 20 fastest growing companies
there were only three foreign retailers, Wal-Mart, food retailer Ajisen, and
Chengdu Ito-Yokado. Wal-mart was able to achieve continuous and rapid
growth by employing an aggressive expansion strategy, building out new
stores in second and third tier cities. However, as discussed above, this
probably due to the fact that foreign companies have different growth models
than Chinese firms and prefer, slow steady growth over the long term to high
top-line growth now.
Meanwhile, hypermarket competitors like Auchan and RT-Mart were knocked
out of the top 20 list of the fastest growing retailers by virtue of the fact that
they moved sluggishly in a quickly-evolving marketplace in 2009.
Programs across the country to link farmers' cooperatives to large retailers
have brought direct benefits to domestic regional retailers. For instance, New
Cooperation Joint-stock Trade Chain and Yonghui Supermarket are two
representative examples who engaged in this practice, ranking first and the
third respectively in the Top 20 Fastest Growing Companies list, with sales
increasing 76.5% and 45.6%.
Top 20 Fastest Growing Companies, 2009
Rank of
Top 100
Company Country Sector Coverage
Geographical Coverage
Sales Growth(%)
12 New Cooperation Joint-stock China Multi-sector Nationwide 76.5
China Powers of Retail 2010
45
Rank of
Top 100
Company Country Sector Coverage
Geographical Coverage
Sales Growth(%)
Trade Chain CO., Ltd.
99 Jinan Hualian Supermarket Co.,Ltd China Multi-sector Single
province 61.1
34 Yonghui Group Co.,Ltd China Multi-sector Nationwide 45.6
82 Home Inns & Hotels Management Inc. China Other Nationwide 39
32 ShijiaZhuang Beiguo Renbai Group corp China Multi-sector Single
province 37.3
16 Shandong Commercial Group Cooperation(Yinzuo Group) China Multi-sector Regional 37
81 Shandong Quanfuyuan Commerce (Group) Co.,Ltd ( Shouguang Department Store)
China Multi-sector Single province 36.3
91 Ajisen (China) Holding Limited Hongkong Food and Beverage Nationwide 35.7
45 Intime department store(Group) Co, Ltd China Department
Store Single province 34.9
95 Shanghai Hsdrug Pharmacy Co.,Ltd China Drug Store Inter-
regional 34.9
41 Golden Eagle Retail Group Limited China Department
Store Nationwide 33.9
47 Fujian NewHuaDu Supercenter Co, Ltd China Multi-sector Single
province 29.2
94 Guangxi Nancheng Department Store Joint-Stock Co.,Ltd China Supermarket Regional 28.5
87 Changsha Tongcheng Holdings Co.,Ltd China Multi-sector Single
province 27
67 Beijing ShunYi Guotai Plaza China Department Store
Single province 25.1
77 Handan Yangguang Department Store Group China Multi-sector Single
province 23.9
33 Rainbow Department Store Co.,Ltd China Department
Store Nationwide 22.7
9 Wal-Mart (China) Investment Co.,Ltd US Supermarket Nationwide 22.2
72 Jiabei Logistic Co. Ltd China Multi-sector Regional 22
62 Chengdu Ito Yokado Co.,Ltd Japan Department Store
Single province 21.9
Average Growth Rate of Top 20 36.7
Source: CCFA
China Powers of Retail 2010
46
5. Retailers' Counter-Crisis Measures
In response to the recession, retailers developed many strategies to minimize
the impact of the economic downturn. The most common of these measures
include purchasing directly from producers, creating private brands, and
upgrading, renovating and restructuring stores.
5.1 Purchasing Directly from Producers
Retailers of agricultural products have increased profitability by purchasing
directly from farmers' cooperatives. Encouraged and promoted by the Ministry
of Commerce, this practice has been tested in many provinces and cities
across the country, enabling many retailers to streamline procurement of
produce. This in turn reduces costs, improves overall operational standards
and increases profit margins.
5.2 Private Brands
Launching private brands also opens up new areas for growth. Typically, the
profitability of private brands is between 13 and 18 percent, although it can
reach as much as 30 percent for groceries, a significant profit margin that is
not achievable by name brands. Both domestic and foreign retailers have
increased their investment in private brands. For example, TESCO launched
its first private label for a vegetable product line in Shanghai. As well, Beijing
Chaoshifa Supermarket Co., Ltd., a Beijing-based domestic retailer, showed a
faster growth rate as a result of the success of its private brands.
5.3 Store Upgrades, Renovations, and Restructuring
Retailers across sectors, most specifically supermarkets, department stores,
and home appliance retailers, have focused on upgrading their branches and
improving store layouts as a way to increase sales. For example, Gome
Electrical Appliances increased its revenue per store by closing nearly one
China Powers of Retail 2010
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hundred stores and upgrading many other stores in 2009. Intime Department
Store and Beijing Chaoshifa Supermarket Co., Ltd., also did large scale store
renovations in 2009, for instance implementing energy-saving technologies to
reduce operating costs for retailers.
Additionally, retailers increasingly recognize the need to reduce costs and
improve their competitiveness within their industry. As such, many have taken
steps towards these goals by improving their supply chains, establishing
logistics and distribution centers, optimizing human resources structures, and
managing budgets prudently, reducing losses and minimizing unnecessary
expenditures.
China Powers of Retail 2010
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6. Major Retail Trends
6.1 Integrating Channels to Promote Sales
According to iResearch, a provider of research, data products, and consulting
services to customers in the internet industry and traditional industries, the
turnover of China's eBusiness market reached 2.43 trillion RMB (356 billion
USD) in 2009 with a year-on-year growth rate of nearly 90 percent.
Specifically, B2C showed an increase of almost 200 percent. As a result of the
rapid development of online retailing, sales of leading B2C retailers increased
dramatically.
The explosive growth and huge market potential of online retail, combined
with the frenzied push by existing market leaders to acquire market share,
have helped traditional retailers begin to overcome their concerns about
online shopping diverting customers from using conventional retail channels.
As a result, more and more traditional retailers have begun to engage in
eBusiness, accelerating their investments in online retail channels and
operations. Many industry leaders of department stores, supermarkets and
home appliance chains recently launched or upgraded their online shopping
malls in order to remain competitive in the online shopping war. Statistics
showed that retailers across all sectors, with the exception of convenience
stores and pharmacy chains, demonstrated a strong presence in the online
marketplace. Of the top eight home appliances chain retailers, five had online
stores. For department chains and multi-sector chain retailers, more than half
of the top ten players offered online shopping options for consumers.
Similarly, in the supermarket sector, half of the top ten operated online stores.
When entering the online retail market, leading retailers set high growth
targets for the development of their digital shopping channels.
With the exception of a few retailers that offer a limited range of products or
product categories, most leading online retailers offer a wide, comprehensive
China Powers of Retail 2010
49
selection of products in their dot com stores, and are careful to include most
of the products sold in real stores.
Multi-channel retailers have had to update and amend their operating models
when developing online retail networks and integrating these into their
existing businesses. Most use online channels as the initial interface by which
customers purchase goods; physical stores then function as delivery terminals.
The companies normally continue to rely on their own logistics networks for
delivery to warehouses, while outsourcing last-mile distribution to customers
to logistics service providers. In other words, retailers with both physical and
online stores would offer in-store pick-up and door-to-door delivery service
options for product distribution. Door-to-door delivery services may include
delivery fees if the delivery location is outside of the complimentary delivery
zone. Delivery costs differ by delivery destination, purchase quantity, cost of
the product, and weight. Multi-channel retailers with this operating model
have made significant progress in coordinating the operations of their physical
and online stores, online and offline payments, and distribution and post-
purchase services. Furthermore, in addition to direct online marketing, multi-
channel retailers can use online channels as important means for product
display, publicity and data collection on consumer behavior.
Integration of supply chain management, information management systems
and other back office infrastructure must also be carefully coordinated by
multi-channel retailers to reinforce the integration of online and offline
shopping channels.
In the future, online shopping channels will continue to become increasingly
important with the rapid, continuous development of the online marketplace,
the growth of which is constantly prompting more retailers to participate. In
order to tap into online channels from conventional channels most effectively,
it will be particularly important to leverage physical stores to maximize the
logistical efficiency and achieve economies of scale, and to provide a unique
China Powers of Retail 2010
50
shopping experience to customers. Meanwhile, leading e-commerce-only
companies, having investing heavily in infrastructure development, have
strengthened their logistical and service capabilities, and are now focusing on
product diversification with the goal of becoming large integrated websites
with a multitude of product offerings.
6.2 Mergers and Acquisitions
In 2009, mergers and acquisitions (M&A) continued to boom in two traditional
segments of China's retail industry: supermarkets and department stores.
Among the nearly 40 M&A deals that took place in China's retail industry in
2009, supermarkets accounted for nearly 40 percent, and department stores
close to 30 percent. For the supermarket and department store sectors, M&A
remained one of the established and proven strategies for market leaders to
increase market share in 2009. In China, M&A activities were often initiated
by national chain leaders which merged/acquired regional chain retailers, or
by regional chain leaders which merged/acquired local retailers of the same
industry or sector.
Private equity focused on B2C online retailing as the hotspot among China's
retailers in 2009; there were six deals involving B2C online retailers in that
time, with total financing reaching USD 110 million (751 million RMB). Besides
B2C online retailers, chain supermarkets were also a major focus for private
equity investment.
The main reason for companies to conduct M&A is to achieve scale effects,
and thus reinforce their operational and geographical advantages. Compared
to the retail industry in developed countries, China's market concentration is
relatively low. This leads to fierce competition, resulting in much lower
average profit margins relative to those seen by companies operating in more
developed markets. Through M&A, retailers may quickly increase industry
concentration to achieve scale and capitalize on synergies after consolidating
China Powers of Retail 2010
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the businesses, both of which lead to higher profit margins. Additionally,
companies may eliminate potential competitors in the region as a result of
their M&S activities, thus strengthening their market position. Finally, M&A
may help buyers to rapidly enter new regional markets, saving costs and time,
as stores, management, market resources, distribution channels, and
customers are all already established in the target market.
Although there are many advantages associated with M&A, many players
remain conservative on conducting deals, because there are major challenges
inherent in implementation.
(1) Difficulty obtaining financing. Among the 59 retailers currently listed on
the Shanghai and Shenzhen stock exchanges, most are small or medium face-
value stocks difficult to finance through the stock market. Many retailers in
China use large amounts of the supplier's capital, resulting in high current
liability and low liquidity and profits. Therefore, these retailers find it difficult
to accumulate funds to support M&A deals, and are often forced to use loans
to support such activities. This increases the risk associated with M&A and
corporate growth.
(2) Difficulty in integration. Integration is crucial in determining whether or
not an M&A deal will be successful. Often after the deal is completed,
consolidation of resources of the two companies becomes problematic.
Although the logo and stores might change physically, the two companies
could still be operating independently and wasting significant resources. The
remains a persistent fear of the difficulties involved in integrating
management teams. This may be particularly true when one of the companies
is a foreign entity with widely different corporate culture, employee
expectations, corporate governance, and business models.
(3) Inappropriate choice of the target company. This is mainly due to (a)
unclear M&A objectives: M&A deals are not aligned with corporate
development needs, but rather the result of pressures from imitation or
competition; (b) inadequate due diligence; and (c) directionless pursuit of
China Powers of Retail 2010
52
M&A to achieve scale and quantity, causing a scarcity of corporate resources
and barriers to smooth operations.
Because the retail industry is a classical example of economies of scale and
economies of scope, increasing market concentration for China's chain retail
market is inevitable in the next few years as it is currently not as
concentrated as the developed markets. As a result of increasing competition
and rising costs, shake-outs in the Chinese retail industry will be accelerated,
and M&A deals initiated by market leaders will become a norm. Foreign
franchise companies will also increase their M&A activities in China, especially
after certain government restrictions have been lifted, particularly those that
pose barriers to developing in certain geographic regions, to how equity may
be used in M&A deals, and to the number of M&A deals involving a specific
buyer that are allowed take place. Foreign firms are developing rapidly and
are quick to adapt their expansion strategies, meaning that M&A of domestic
firms is not only an important way to swiftly expand their scale of operations,
but also one of the most powerful means to compete with domestic retailers.
Finally, in terms of geography, more deals are taking place in developing
regions of China as M&A competition increases. Because the growth potential
of retailers in tier-2 and tier-3 cities is greater than that of those in large cities,
where markets are mature and often in the midst of price wars, retailers have
larger profit margins in developing markets. These markets will likely become
a major focus of M&A activities in China's retail industry in the near future.
6.3 Supply Chain Management
6.3.1 Expanding retail networks
A growing number of companies are attempting to enlarge their retail
network to increase market penetration. Retailers have begun to increase
focus on third tier markets in order to tap into the significant growth potential
in these areas. To match this expansion of retail networks, retailers need to
China Powers of Retail 2010
53
increase their investment in logistics infrastructure to establish a logistical
network appropriate to the expanded scale of their operations. In the overall
framework of logistics infrastructure, distribution centers are essential to a
logistics network and important to the integration of information management
systems and product quality control. Thus, effective management of
distribution centers is a core competency for retailers. Leading retailers use
personalized methods to establish distribution centers in markets second-tier
and below to increase their own network coverage. However, transportation-
wise, tier-3 cities are farther away from primary cities, and moreover, these
markets are spread out across the country, so the distance between the two
terminals of the supply chain is increased, leading to increasing logistical costs.
Chain retailers might not be able to use their own transportation systems to
distribute products because of the high logistical costs associated. However,
they may be able to centralize distribution and make use of direct supply
structures. Direct supplying (i.e. suppliers deliver to retail stores
independently or via their distributors) is frequently utilized for goods
purchased in local markets, for goods supplied by suppliers in local markets to
other retailers/channels, and for goods supplied by a supplier with its own
sales network, for instance, by specialty stores. For other products,
centralized distribution is used whereby suppliers deliver to retailers'
distribution centers, which gather products and make deliveries to stores.
6.3.2 Efficiency and cost-cutting through consolidation and information management
In addition, because retailers manage products through product
categorization, they may achieve consolidation, more efficient use of
resources, and reduced logistical costs through collaboration with other
retailers of similar products. Retailers are particularly likely to use these
consolidated logistics in rural markets. For instance, through cooperation
between different home appliances retailers, different products are batched
together into full truck loads for shipment to reduce logistical costs. Other
retailers cooperate with local dealers and stores in rural areas to reduce these
types of costs.
China Powers of Retail 2010
54
Looking at supply chain optimization, retailers and suppliers employ
information alignment to improve information transparency and availability
throughout the supply chain, reducing the probability that incorrect or
distorted information will produce a bullwhip effect (refers to the tendency of
the variability of demand to increase as it passes through the strata of a
supply chain towards end users and suppliers). As a result, overall operating
costs and inventory levels will be reduced, making the overall supply chain
more efficient. Information alignment also ensures that customers receive
their products in time. In addition to information sharing, leading retailers
work to move one step ahead of the market, and partner with strategic
suppliers to research and analyze customer demands, as well as to develop
corresponding supply strategies and plans.
Moreover, leading retailers are devoted to shortening their supply chain to
improve its responsiveness, and also to reduce intermediates and thereby
decrease supply-side costs. In 2009, many retailers of agricultural products
achieved this goal by purchasing their goods directly from producers.
6.3.3 Collaboration directly with suppliers and manufacturers
Leading retailers continued to improve their relationships with suppliers in
2009. Cooperation with suppliers and manufacturers was strengthened to
generate more mutually beneficial business arrangements.
In the home appliances sector, many leading retailers designated specific
market segments or geographical areas as test regions within their own retail
network to conduct high-end product trials. This helped suppliers to enhance
customers' familiarity with high-end products and to promote product sales.
Suppliers offered these products exclusively for specific chain retailers, which
use well-known brand names to increase customer visits and sales.
China Powers of Retail 2010
55
In another example, supermarket chains cooperated with farmers and
farmers' cooperatives for a mutually beneficial outcome. In 2009, the Ministry
of Commerce facilitated collaboration between these two parties to reduce
the intermediate steps in the product procurement process, and hence
decrease costs. This in turn improved the freshness, quality, and profit
margins of produce for retailers, and helped suppliers see tangible benefits.
Customers had lower end costs. As a result, farmers, retailers, and consumers
all benefited from the collaboration. Leading supermarket chains also
improved their partnerships with suppliers of certain commodities, including
the aforementioned farmers, to help these suppliers obtain formal financing
from banks.
On the marketing side, manufacturers have increasingly cooperated with
retailers to increase the effectiveness of sales promotions and attract more
customers. For example, in the department store sector, retailers usually take
advantage of common cultural occasions such as anniversaries or Mother's
Day to conduct promotional activities, and use coupons to attract customers.
The scale of coupon promotions can be further enlarged with the participation
of brand name manufacturers. Similarly, home appliances retailers also use
holidays as the basis for promotions, in conjunction with large price
reductions or discounts from manufacturers. Supermarkets, in comparison,
organize products of the same brand together in a designated area for
product exhibition, where the manufacturer can conduct promotional events.
For home building retailers, companies invite manufacturers with products of
the same category to specific product exhibitions and sales fairs, during which
special product packages are offered. Such activities help establish the
reputation and scale of retailers and offer a wider variety of options for
consumers.
Finally, in terms of the value chain, retailers can build win-win partnerships
with real estate developers through inter-industry cooperation. Retailers and
investors (developers) invest in commercial real estate together, creating
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growth opportunities for local retailers. Using business development in
residential areas as an example, chain retailers may develop business
objectives and plans according to the shopping patterns of local consumers
prior to launching a commercial real estate development project. This prior
knowledge makes them more likely to succeed in their investment. Moreover,
the partnership can help to more accurately position and more
comprehensively plan commercial facilities; for instance, planning the design,
location and choice of stores and businesses within an integrated, multi-
purpose residential park including shopping, recreational activities, fitness,
entertainment, residential services, etc. Such a partnership model can help
retailers become more competitive, increasing customer satisfaction and
loyalty.
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7. Contact Information
For more information, please contact:
Eric Tang China Consumer Business & Transportation Industry Leader Tel: +86 755 8246 3255 ext. 8085 E-mail: [email protected] Norman Sze Managing Partner Consulting China Tel:+86 21 6141 2388 E-mail:[email protected]
Jerry Li Partner Strategy & Operation Tel:+86 21 6141 2230 E-mail:[email protected]
Peter Dai Senior Manager Strategy & Operation Tel:+86 6141 8888 E-mail:[email protected] For further information, visit our website at www.deloitte.com/cn Special thanks and appreciation to the contributors to this report for their advice, assistance and participation. The contributors to the report are: TIAN Qingyun
Shawn XIAO
Marcia MAO
Vicky HUANG