Hypermarkets

A major player in China’s hypermarket format is the French retailer, Carrefour. Carrefour now has over 100 hypermarkets in China and opened 33 stores alone in 2006. Wal-mart’s acquisition of a 35% stake in major hypermarket chain trust-mart at the beginning of 2007 will add to its own 84 retail stores in China and provide the retailer with a significant addition to its already growing market presence in more than 20 provinces and districts. Eyeing 2nd, 3rd and 4th tier markets, Carrefour and Wal-mart will continue to expand with largely organic growth as they move into cities with less established competition. Overall, 11 major foreign retailers opened over 100 stores in 2006, largely focusing on the large singular supermarket format. Germany’s Metro, Thailand-based Lotus and South Korean-based E-Mart are also expanding their presence in China and operate hypermarkets in Shanghai and other locations.

Shopping Malls

The concept of large-scale shopping malls in China is relatively new but the pace of mall construction is surprisingly rapid. Today, multi-storied malls can be found throughout almost all areas of Shanghai. One of China’s largest malls in terms of retail space is the Super Brand Mall located in Lujiazui (Pudong), which boasts 1.6M square feet. Other popular malls within the city are Raffles City in People’s Square, the luxurious Plaza 66 on West Nanjing Road, Cloud Nine mall at the Zhongshan subway stop, and Jujiahui’s Grand Gateway mall, which shares the area with over five other malls and department stores. Recently, malls in Shanghai have not been overly successful due to management’s focus on securing high-end retailers to impress mall visitors. As a result, malls in Shanghai have lacked a combination of affordable entertainment, service, and purchase options to get Chinese customers to spend and return. In 2006 only 16% of shopping center revenue was derived from non-retail activity. To address this issue, Shanghai’s mall management has sought outside consultants to help improve mall layout and planning. Additionally, an interesting difference between malls in Shanghai and those in the U.S. is the accompaniment of a hypermarket, which helps attract customer traffic. Malls in shanghai have begun to focus on non-retailing services such as fitness, kids education, games, parking, food services, accommodation and office space in an effort to create a more comprehensive experience for Shanghai shoppers and entice a variety of consumers. The focus of Shopping centers in the near future will be on diversification and analysis of the mall’s layout and distribution.

Outlets

Discount outlets have only rather recently been introduced to Shanghai. Switzerland-based Foxtown Factory Stores has opened its first China outlet in the suburbs of Shanghai in 2006 with brands that are almost exclusively foreign. Another Shanghai suburban discount outlet is situated in Qingpu, a district west of the city center. Similar to the discount outlet format in the U.S., these shopping centers offer brand name products at reduced prices. Their inventory mainly consists of unsold shipments from flagship stores and main street shops, not products shipped directly from the factory. Lack of central location and transportation to and from outlets has left most Discount outlets un-congested and unsuccessful, while knowledge of such places is limited due to the abundance of established retailing alternatives. However, the evolving habits of Chinese consumers and lack of retail space makes this an interesting retail format to follow for the future.

Department Stores

Several department stores operate in Shanghai’s city center. The Bailian Group owns and operates Shanghai Number 1 Department Store, which has a flagship store located in People’s Square and is currently planning the biggest transformation in its history due to more intense competition. Malaysia based Parkson operates over 40 Parkson branded department stores situated in 28 cities in China, with annual sales in excess of $1 billion. In 2009, Saks luxury department store plans to take advantage of China's luxury market by opening a licensed store in Shanghai. Harrods, the most famous single department store in the United Kingdom, and Galeries Lafayette, the largest department store in France, have reached letters of intent on cooperation with Shanghai Brilliance in hopes of opening future stores in Shanghai's two well- known business streets, Nanjing Road and Huaihai Road.

Luxury Goods Market

The luxury goods market in China is currently the third largest luxury goods market in the world behind Japan and the United States, and is expected to become the second largest market for luxury goods by 2015 as China’s affluent middle class booms in size and 2nd and 3rd tier cities adopt the consumer traits of larger cities. Analysts from Merrill Lynch predict that by 2009, China will account for 20% of the world’s luxury goods market. An attraction to and trust of foreign luxury brands have enabled many companies to establish a foothold in the Chinese market, yet success remains intrinsically linked to understanding the Chinese market and its consumers.

In contrast to the United States, consumers of luxury goods in China are typically younger, with the 25-35 age bracket in China more significant than its equivalent in more developed countries. Chinese women are particularly prevalent consumers of luxury goods, and tend to focus on less expensive personal accessories than large recreational expenditures.

Many challenges remain for retailers in the luxury market. China’s vast geographical divide means it cannot for retail purposes be treated as a single market. Counterfeit products flood the Chinese market and manufacturers of counterfeit goods are becoming increasingly sophisticated. In addition, brand loyalty is low among Chinese consumers, and specific recognition of foreign brands is only gradually increasing. The importance of a long-term strategy for developing brand recognition is thus even more essential in the Chinese market, and brands new to the Chinese market are given a golden opportunity to redefine their brand in the eyes of the Chinese consumer.

However success in the Chinese market is only partly determined by a prominent retail presence – perception, product quality, and advertising play critical roles in the promotion of a product. Regulations It is well known that the Chinese government strongly supports the notion of homegrown businesses dominating all market sectors. Past and present restrictions in many sectors were intended to protect and nurture domestic enterprises so that they could compete with foreign competitors in due time. Joint ventures in the past were a means to extract business knowledge and technology from leading foreign enterprises while simultaneously restraining foreign competitor growth. As required by its entrance into the WTO, however, the Chinese government can no longer restrict foreign enterprises from establishing Wholly Owned Foreign Enterprises (WOFEs) in many market sectors. But while the option to pursue a WOFE is no longer an obstacle, there still remain an assortment of Chinese laws that pose as potential hurdles.

Import taxes and value-add tax in China can be substantial. Some retailers price their goods 20% to 40% higher than in other markets to cover China's high taxes as well as other risks peculiar to the Chinese market. Hong Kong still lures shoppers because the luxury goods there cost at least 10% to 20% less due to the city’s lack of duties, taxes and special surcharges that exist on the mainland as well as its reputation of being a renowned luxury goods market.