China Retail Market Overview

Report
China Retail Property Market
April 2013
1
Macro-Economics
Is China’s Economy in Decline?
Real GDP Growth (%, y-o-y)
15
China
10
Asia
Pacific
5
0
World
Western Europe
United States
-5
Source: IHS Global Insight
CBRE | Page 3
2013-Q1
2012-Q1
2011-Q1
2010-Q1
2009-Q1
2008-Q1
2007-Q1
2006-Q1
2005-Q1
2004-Q1
2003-Q1
2002-Q1
-10
Significant Growth in Disposable Income
30,000
25,000
RMB per capita
20,000
15,000
10,000
5,000
Source: China Statistics Bureau, China Twelfth Five-year Plan
CBRE | Page 4
2015F
2014F
2013F
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
0
CBRE | Page 5
Source: China Statistics Bureau, EIU
2015F
2014F
2013F
2012F
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
Annual Retail Sales (RMB billion)
Fuelling Domestic Consumption
30,000
25,000
20,000
15,000
10,000
5,000
0
Consumption / GDP
80.0%
70.8%
70.0%
61.0%
60.0%
59.9%
59.1%
58.1%
55.7%
50.0%
40.0%
33.0%
30.0%
20.0%
10.0%
CBRE | Page 6
China
Germany
France
Japan
UK
Italy
US
0.0%
2
Retail Market Development
Significant Brand Penetration
China has only been a truly open market for a decade, and yet a significant retailer
presence exists already.
CBRE’s 2012 “How Global is the Business of Retail?” report highlights that China
ranks 5th out of all international markets in terms of the presence of international
brands, with Beijing and Shanghai both figuring close to the top ten most attractive
global cities for retailers.
2012
Rank
Country
Region
% International
Retailers Present
2012
Rank
1
United Kingdom
Europe
56.7%
1
London
55.5%
2
UAE
Middle East
53.1%
2
Dubai
53.8%
3
United States
Americas
50.3%
3
New York
43.9%
4
Spain
Europe
47.5%
4=
Moscow
43.2%
5
China
Asia
47.2%
4=
Paris
43.2%
6=
France
Europe
46.9%
6
Hong Kong
40.5%
6=
Germany
Europe
46.9%
7
Madrid
39.9%
8
Russia
Europe
44.5%
8
Kuwait City
39.5%
9
Italy
Europe
42.9%
9
Barcelona
39.2%
10
Saudi Arabia
Middle East
41.1%
10
Singapore
38.9%
11
Hong Kong
Asia
40.8%
11=
Los Angeles
38.5%
12
Kuwait
Middle East
40.2%
11=
Shanghai
38.5%
13
Singapore
Asia
39.9%
13
Beijing
38.2%
14
Turkey
Europe
39.0%
14
Istanbul
37.2%
15
Belgium
Europe
37.4%
15
Milan
36.9%
Source: CBRE Research
CBRE | Page 8
City
% International
Retailers Present in City
Significant Brand Penetration
Source: CBRE Research
CBRE | Page 9
Increasing Pace of Development
1992
2004
The Entry of Foreign Invested Department Stores
& Burgeoning Luxury Sector
2000
Oriental Plaza,
First Shopping Mall
1992
1996
1987
Beijing
Beijing
Shenzhen
Beijing
Full Opening of China Market
For Foreign Investors
2005
Shanghai
2010
Beijing & Shanghai
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
1989
Shenzhen
CBRE | Page 10
1995
Metro, Shanghai
Carrefour, Beijing
1999
Grand Gateway,
First Shopping Center
Shanghai
2008
2007
Shanghai Beijing
2012
Shanghai
Beijing
The Chinese Shopper
CBRE | Page 11
The Chinese Shopper

Young, fashionable and spending a significant proportion of their
monthly income on retail merchandise.
CBRE | Page 12
The Chinese Shopper


Young, fashionable and spending a significant proportion of their
monthly income on retail merchandise.
Becoming more discerning, looking for new products and experiences
as a means of differentiating themselves from friends and family.
CBRE | Page 13
The Chinese Shopper



Young, fashionable and spending a significant proportion of their
monthly income on retail merchandise.
Becoming more discerning, looking for new products and experiences
as a means of differentiating themselves from friends and family.
Interested in brands that have a strong international reputation and
have adapted to local tastes and sizing
CBRE | Page 14
The Chinese Shopper




Young, fashionable and spending a significant proportion of their
monthly income on retail merchandise.
Becoming more discerning, looking for new products and experiences
as a means of differentiating themselves from friends and family.
Interested in brands that have a strong international reputation and
have adapted to local tastes and sizing
Pays attention to value for money and quality of merchandise – real
or perceived
CBRE | Page 15
The Chinese Shopper





Young, fashionable and spending a significant proportion of their
monthly income on retail merchandise.
Becoming more discerning, looking for new products and experiences
as a means of differentiating themselves from friends and family.
Interested in brands that have a strong international reputation and
have adapted to local tastes and sizing
Pays attention to value for money and quality of merchandise – real
or perceived
Is tech savvy – uses social networking and media to discuss the
latest trends in fashion, brands and retail destinations
CBRE | Page 16
The Chinese Shopper






Young, fashionable and spending a significant proportion of their
monthly income on retail merchandise.
Becoming more discerning, looking for new products and experiences
as a means of differentiating themselves from friends and family.
Interested in brands that have a strong international reputation and
have adapted to local tastes and sizing
Pays attention to value for money and quality of merchandise – real
or perceived
Is tech savvy – uses social networking and media to discuss the
latest trends in fashion, brands and retail destinations
Is increasingly influenced by multi-channel brand marketing
CBRE | Page 17
The Chinese Shopper







Young, fashionable and spending a significant proportion of their
monthly income on retail merchandise.
Becoming more discerning, looking for new products and experiences
as a means of differentiating themselves from friends and family.
Interested in brands that have a strong international reputation and
have adapted to local tastes and sizing
Pays attention to value for money and quality of merchandise – real
or perceived
Is tech savvy – uses social networking and media to discuss the
latest trends in fashion, brands and retail destinations
Is increasingly influenced by multi-channel brand marketing
Is as comfortable on High Streets as they are in Department stores
and Shopping Centres
CBRE | Page 18
How Retailers Are Responding
CBRE | Page 19
How Retailers Are Responding

Opening large, well located stores that are executed to international
standards in order to generate impact with consumers and earn
credibility with Landlords.
CBRE | Page 20
How Retailers Are Responding


Opening large, well located stores that are executed to international
standards in order to generate impact with consumers and earn
credibility with Landlords.
Developing product ranges, merchandising, supply chain and
marketing in line with European standards.
CBRE | Page 21
How Retailers Are Responding



Opening large, well located stores that are executed to international
standards in order to generate impact with consumers and earn
credibility with Landlords.
Developing product ranges, merchandising, supply chain and
marketing in line with European standards.
Increasing emphasis on ‘Brand experience’ in terms of shop-fit, retail
environment and product sophistication.
CBRE | Page 22
How Retailers Are Responding




Opening large, well located stores that are executed to international
standards in order to generate impact with consumers and earn
credibility with Landlords.
Developing product ranges, merchandising, supply chain and
marketing in line with European standards.
Increasing emphasis on ‘Brand experience’ in terms of shop-fit, retail
environment and product sophistication.
Further adapting to the Chinese market. More than just a
fundamental difference in sizing and generic consumption demands
compared with Europe.
CBRE | Page 23
How Retailers Are Responding





Opening large, well located stores that are executed to international
standards in order to generate impact with consumers and earn
credibility with Landlords.
Developing product ranges, merchandising, supply chain and
marketing in line with European standards.
Increasing emphasis on ‘Brand experience’ in terms of shop-fit, retail
environment and product sophistication.
Further adapting to the Chinese market. More than just a
fundamental difference in sizing and generic consumption demands
compared with Europe.
Adapting to regional differences in climate, spending power, and
taste throughout China
CBRE | Page 24
3
Understanding Retail Destinations
Retailer Presence in Chinese Cities
% of global retailers present in each city
40%
35%
113
120
113
105
30%
90
25%
75
20%
60
15%
45
46
Source: CBRE Research
CBRE | Page 26
Ningbo
Wuhan
Qingdao
Xi'an
Chongqing
Suzhou
Tianjin
Dalian
Shenyang
Guangzhou
Chengdu
0
Nanjing
0%
Shenzhen
15
Hangzhou
5%
Beijing
30
Shanghai
10%
Beijing – CBD

Home of the international business community

Retail offer dominated by luxury shopping malls

The Place enjoyed early success.

But has struggled to sustain early footfall numbers and will
face stiff competition
CBRE | Page 27
Beijing – Wangfujing

Beijing’s most traditional retailing area.

Pedestrianised street anchored by Beijing APM and Oriental Plaza.


Footfall levels surpass 600,000 people per day and more than 1,200,000
during public holidays.
Mixture of domestic and foreign tourists and white collar office workers.
CBRE | Page 28
Beijing – Sanlitun

Only recently emerged as a mainstream retail destination.

Traditionally renowned for bars, restaurants and night time activity.

Flagship stores and innovative design has led to a significant draw
from throughout Beijing.
CBRE | Page 29
Shanghai – West Nanjing Road



The most established business district in Puxi
The focus of luxury retailing in Shanghai with brands
accommodated within Plaza 66, CITIC Square andr Westgate Mall.
However, Gap, Uniqlo, H&M, Sephora and American Eagle
Outfitters have all opened stores recently
CBRE | Page 30
Shanghai – East Nanjing Road



Fully pedestrianised shopping street with high footfall levels.
State-owned department stores and local retailers dominate although
international brands have started to gain a foothold.
Foreign retailers with the most notable presence include Apple, Zara,
Mango, Uniqlo, Forever 21 and WE.
CBRE | Page 31
Shanghai – Huai Hai Road



A tree lined boulevard split into two sections.
The eastern section is characterised by shopping malls and retail
podiums attached to office towers.
The western section of Huai-Hai Road is characterised by mass
market retailers and resembles more of a European High Street.
CBRE | Page 32
Global Prime Retail Rents
5,000
4,500
4,000
USD psf p.a.
3,500
3,000
2,500
2,000
1,500
1,000
500
Data as of Q4 2012
CBRE | Page 33
Shanghai
Milan
Beijing
Moscow
Melbourne
Zurich
Tokyo
Sydney
Paris
London
New York
Hong Kong
0
The Growth of Second Tier Cities
2nd
TIER
CITIES
CBRE | Page 34
Population Migration
City Population
900000
800000
700000
600000
10 million or more
5 to 10 million
1 to 5 million
500 000 to 1 million
Fewer than 500 000
500000
400000
300000
200000
100000
0
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025
CBRE | Page 35
The Emergence of Mega Cities
China Major Cities (Population in million)
1953
2010
2020
Forecast
Chongqing
10.00
28.39
32.90
Shanghai
6.20
18.88
23.00
Beijing
2.80
16.95
18.00
Chengdu
5.20
12.71
15.00
Tianjin
2.70
11.76
Urban Population as a % of Total Population of Province
75% and over
50% - 74%
Heilongjia
ng
30% - 49%
Under 29%
Jilin
Xinjiang
Gansu
13.50
Inner Mongolia
Hebei
Shenzhen
0.19
8.77
13.50
Guangzhou
1.50
10.18
12.00
Qingdao
4.30
7.62
12.00
Ningxia
Shanxi
Tibet
Sichuan
Chongqing
Xi’an
2.90
8.38
Tianjin
Shandon
g
Qinghai
Shaanxi
Liaoning
Beijing
Henan
Hubei
10.30
Jiangsu
Anhui
Shanghai
Zhejiang
Jiangxi
Hunan
Nanjing
1.50
7.59
10.00
Wuhan
1.04
8.97
9.55
Hangzhou
3.17
7.97
8.50
Dalian
2.90
6.13
8.00
Guizhou
Yunnan
Fujian
Guangxi Guangdong
HKSAR
Macau
SAR
Hainan
Taiwan
Source: National Statistics Bureau of China, forecast figures for
2020
Noted: the figures listed above are permanent population (live in the
city for more than 6 months)
CBRE | Page 36
Disposable Income in Major Chinese Cities
45,000
16.0%
40,000
14.0%
35,000
12.0%
30,000
10.0%
25,000
8.0%
20,000
6.0%
15,000
4.0%
10,000
Source: China Statistics Bureau
Note: Figures for Dalian and Shenyang are on estimation.
CBRE | Page 37
Wuhan
Xian
Chongqing
Chengdu
Ningbo
Nanjing
Hangzhou
Shenyang*
Tianjin
Qingdao
Dalian*
Shenzhen
0.0%
Guangzhou
0
Shanghai
2.0%
Beijing
5,000
Y-o-Y Growth Rate (%)
Annual Disposable Income (RMB per capita)
2012 Disposable Income and Growth Rate
Retail Sales in Major Chinese Cities
4.0%
1,000
2.0%
0
0.0%
Source: China Statistics Bureau
Note: Figures for Dalian and Shenyang are on estimation.
CBRE | Page 38
Wuhan
2,000
Xian
6.0%
Chongqing
3,000
Chengdu
8.0%
Ningbo
4,000
Nanjing
10.0%
Hangzhou
5,000
Shenyang*
12.0%
Tianjin
6,000
Qingdao
14.0%
Dalian*
7,000
Shenzhen
16.0%
Guangzhou
8,000
Shanghai
18.0%
Beijing
9,000
Y-o-Y Growth Rate (%)
Annual Retail Sales (RMB 100 million)
2012 Retail Sales and Growth Rate
Major Infrastructure Development
Harbin
Changchun
Shenyang
Anshan
Dalian
Tianjin
Qingdao
Xi’an
Wuhan
Metro systems/light rail
Inner city urban regeneration/
Satellite cities
New airports/airport extension
Major revamp of port facilities
CBRE | Page 39
Chengd
u
Chongqing
Kunmin
g
Nanjing
Suzho
u
Ningbo
Changsha
Fuzhou
Retail Rental Trends
Rental Index
2012.4
2012.3
2012.2
2012.1
2011.4
2011.3
2011.2
2011.1
2010.4
2010.3
2010.2
2010.1
2009.4
2009.3
2009.2
2009.1
2008.4
2008.3
2008.2
2008.1
2007.4
2007.3
2007.2
2007.1
2006.4
2006.3
2006.2
2006.1
2005.4
2005.3
2005.2
2005.1
2004.4
2004.3
2004.2
2004.1
2003.4
2003.3
2003.2
2003.1
Index: Q1 2003 = 100
Source: CBRE Research
CBRE | Page 40
Tier-2
Shenzhen
Guangzhou
Shanghai
Beijing
250
200
150
100
50
0
Good Quality Retail Accommodation
CBRE | Page 41
The Focus of Future Supply
sm
Tier-1 cities
9,000,000
Tier-2 cities
8,000,000
7,000,000
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
0
2016 F
2015 F
2014 F
2013 F
2012
2011
2010
2009
2008
2007
2006
2005
CBRE | Page 42
2004
2003
Source: CBRE Research
4
Doing Business in China
Doing Business in China
Lessons to be learnt from retailers that are successful in the market today:
CBRE | Page 44
Doing Business in China
Lessons to be learnt from retailers that are successful in the market today:

Enter the market organically and retain full control of your brand development. A
local partner is no longer legally required and does not provide significant
knowledge or contact advantages.
CBRE | Page 45
Doing Business in China
Lessons to be learnt from retailers that are successful in the market today:


Enter the market organically and retain full control of your brand development. A
local partner is no longer legally required and does not provide significant
knowledge or contact advantages.
Research the market in totality. Shanghai and Beijing are important beach-heads
but the real opportunity for most retailers lies in the second and third tier cities
CBRE | Page 46
Doing Business in China
Lessons to be learnt from retailers that are successful in the market today:



Enter the market organically and retain full control of your brand development. A
local partner is no longer legally required and does not provide significant
knowledge or contact advantages.
Research the market in totality. Shanghai and Beijing are important beach-heads
but the real opportunity for most retailers lies in the second and third tier cities
Government relationships are key to ensuring the smooth day-to-day running of
your business as well as unlocking off-market real estate opportunities.
CBRE | Page 47
Doing Business in China
Lessons to be learnt from retailers that are successful in the market today:




Enter the market organically and retain full control of your brand development. A
local partner is no longer legally required and does not provide significant
knowledge or contact advantages.
Research the market in totality. Shanghai and Beijing are important beach-heads
but the real opportunity for most retailers lies in the second and third tier cities
Government relationships are key to ensuring the smooth day-to-day running of
your business as well as unlocking off-market real estate opportunities.
The acquisition of flagship stores in prime locations is important in establishing
credibility with landlords and generating instant excitement amongst consumers
CBRE | Page 48
Doing Business in China
Lessons to be learnt from retailers that are successful in the market today:





Enter the market organically and retain full control of your brand development. A
local partner is no longer legally required and does not provide significant
knowledge or contact advantages.
Research the market in totality. Shanghai and Beijing are important beach-heads
but the real opportunity for most retailers lies in the second and third tier cities
Government relationships are key to ensuring the smooth day-to-day running of
your business as well as unlocking off-market real estate opportunities.
The acquisition of flagship stores in prime locations is important in establishing
credibility with landlords and generating instant excitement amongst consumers
Agree the real estate strategy – the reporting and decision making process.
CBRE | Page 49
Doing Business in China
Lessons to be learnt from retailers that are successful in the market today:






Enter the market organically and retain full control of your brand development. A
local partner is no longer legally required and does not provide significant
knowledge or contact advantages.
Research the market in totality. Shanghai and Beijing are important beach-heads
but the real opportunity for most retailers lies in the second and third tier cities
Government relationships are key to ensuring the smooth day-to-day running of
your business as well as unlocking off-market real estate opportunities.
The acquisition of flagship stores in prime locations is important in establishing
credibility with landlords and generating instant excitement amongst consumers
Agree the real estate strategy – the reporting and decision making process.
Pricing is a driver of success, and now not only in the mass market sector. Pricing
the product correctly and balancing margin with volume can dictate success.
CBRE | Page 50
Doing Business in China
Lessons to be learnt from retailers that are successful in the market today:







Enter the market organically and retain full control of your brand development. A
local partner is no longer legally required and does not provide significant
knowledge or contact advantages.
Research the market in totality. Shanghai and Beijing are important beach-heads
but the real opportunity for most retailers lies in the second and third tier cities
Government relationships are key to ensuring the smooth day-to-day running of
your business as well as unlocking off-market real estate opportunities.
The acquisition of flagship stores in prime locations is important in establishing
credibility with landlords and generating instant excitement amongst consumers
Agree the real estate strategy – the reporting and decision making process.
Pricing is a driver of success, and now not only in the mass market sector. Pricing
the product correctly and balancing margin with volume can dictate success.
Invest in on-going multi-channel marketing
CBRE | Page 51
Doing Business in China
Lessons to be learnt from retailers that are successful in the market today:








Enter the market organically and retain full control of your brand development. A
local partner is no longer legally required and does not provide significant
knowledge or contact advantages.
Research the market in totality. Shanghai and Beijing are important beach-heads
but the real opportunity for most retailers lies in the second and third tier cities
Government relationships are key to ensuring the smooth day-to-day running of
your business as well as unlocking off-market real estate opportunities.
The acquisition of flagship stores in prime locations is important in establishing
credibility with landlords and generating instant excitement amongst consumers
Agree the real estate strategy – the reporting and decision making process.
Pricing is a driver of success, and now not only in the mass market sector. Pricing
the product correctly and balancing margin with volume can dictate success.
Invest in on-going multi-channel marketing
Rents are comparable with some large European cities, and sales densities are still
increasing so financial return may not be short term.
CBRE | Page 52
5
CBRE in China
CBRE in China
CBRE first established a corporate office in China
in 1988. Since then we have developed full
service offices in 13 different cities and a
representative presence in a further 9.
N
Shenyang
Beijing
Dalian
Tianjin
Qingdao
W
Wuhan
Chengdu
Chongqing
E
Hangzhou
Shanghai
C
Changsha
Guangzhou
S
Taipei
Shenzhen
Hong Kong
(Hong Kong & Kowloon)

Retail Real Estate Research

Location Outlet Strategy and Market
Mapping

Store Acquisition

Retail Portfolio Review and Disposition

Franchise Partner Sourcing
CBRE | Page 54
With retail consultants and agents in each of our 15 offices
we have the local knowledge and national coverage required
to advise international retailers on their market entry into
China and subsequent expansion throughout the country.
Amongst those brands that have retained CBRE’s services
are:

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