Multi-Region, Department Store Operations Drive Growth of China's Top Retailers

China's retail industry continued to flourish steadily in 2010, with the strongest growth in sales revenue for companies which have a multi-regional and nation-wide operations, according to Deloitte China’s latest report "China Powers of Retailing 2011" released this week.


In terms of sub-sector, department stores achieved the fastest growth. Accelerating operating costs, global economic uncertainty, upgrade in consumption pattern along with other factors will prompt more Chinese retail companies to adopt multi-format retailing and internationalization, in order to meet the diversified needs of consumers and to deal with fierce competition.


"Despite global economic uncertainties, China's retail industry has achieved steady to fast growth, outstripping other countries in the Organization for Economic Cooperation and Development," says Eric Tang, Consumer Business & Transportation Co-Leader of Deloitte China. "In 2010, sales from social retail consumption reached 154.554 trillion yuan, up 14.8% in real costs."


David Lung, Consumer Business & Transportation Co-Leader of Deloitte China, further analyzed the market and development of China’s retail industry, taking into consideration the scale and sales growth of the top 100 chain retailers in China, their growth in the number of branches, major operating models and key regions of operation.


"With reference from the market share of the top 100 retailers, we discover that scale expansion and market penetration are the key development strategies for retailers. This indicates that exploring new markets and taking advantage of the resulting scale changes are retailers' strategic priorities, which are also reflected in the average sales turnover of companies with cross-region operations," he says.


Average sales turnover of the top 100 retailers in major regions indicates that regional operations are heading to the extremes. The nation-wide operation model in different regions continues to enjoy absolute advantages, taking up 65.73% (equivalent to 27.32 billion yuan) of the total turnover of the top 100 retailers and achieving the highest growth rate of 37.6% in 2010.


Companies with operation in a single province achieved the second highest growth rate of 13%. Cross-region companies only recorded a growth rate of 5.6% while companies with single region operations experienced a negative growth rate.


Growth rate in the number of branches among the top 100 retailers was 9.74% in 2010 – the lowest in the last three years. However, the growth in sales reached 22.43%, achieving a far higher rate than the 13.5% of 2009. This indicates that retailers have turned to more defined and efficient models, which emphasizes on the sales capability of an individual store, more refined industry division, and unique operation characteristics.


Among the industries, department stores achieved the highest sales growth of over 50%, followed by multiple-format industries (33.9%) and electrical appliances (33.8%). Their growth was driven by the rise in consumption and the upgrade in consumption pattern.


Sales turnover for electrical appliances was boosted by the rural home appliances subsidy program and the home appliances trade-in policy.


"Like other industries, the retail sector is also facing the problems of rising operating costs. On one hand, continuous increase in property prices has given rise to higher rental costs; on the other hand, inflation has jacked up import prices and labor costs. Retailers also need to tackle other challenges from talent recruitment and development, logistic efficiency improvement, shortening of the supply chain, the increase in outsourcing services and innovation in business models," says Lung.


The report expects China’s consumption expenditure continue to achieve a strong growth and that the rapid emergence of the middle-class will be the key consumption population. At the same time, sustainability will become a major element and extend to all applicable products and services as consumers’ education level and civic awareness improve.


"To achieve business expansion, retail companies can consider exploring the consumer market in other emerging countries," says Tang.




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