Momentum

The world’s next largest retail market

Marcos Gouvêa de Souza (mgsouza@gsmd.com.br), CEO, GS&MD

– Gouvêa de Souza

Chinese GDP reached in 2010 US$ 6.1 trillion, 10.3% more than in
2009, and accounted for aproximately 45% of the US GDP.
However, considering the Purchase Power Parity (PPP) criteria, it
is already the world’s second largest economy and, keeping the
current growth rate, it will not take long to become the number
one and, in the process, will also be the world’s largest retail
market. It is only a matter of time.

In a market scenario in which the emerging countries, specially

China, India and Brazil, have been presenting much higher growth
rates than the most mature economies, expanding their domestic
markets and, as a consequence, their retail markets, monitoring
the segment’s growth in these countries become a constant
concern to the world’s largest retailers.

But it was in another Ebeltoft Group meeting, this time in

Shanghai, that we could touch the reality of this incredible
market. Ebeltoft Group is an alliance of retail consulting firms, of
which GS&MD – Gouvêa de Souza is part of, and that gathers
representatives of 16 countries.

Although what we could experience in Shanghai, with its 22

million people, can’t be simply expanded to the whole 1.3 billion
Chinese people, it is for sure an excellent sample of what has
been happening and will continue to happen in this country. And
whoever is involved with retail and spending can’t afford not
knowing and following what goes on there.

Today there are in China 160 cities over one million people,
number that will rise to 221 in 2025. Just as a comparison, it is
interesting to remind that in Europe there are only 35 cities as
large as this.

And here things start to be different when compared to Brazil, as

in China any analysis or forecast always considers the next ten or
20 years, considering the present and the near future only as
steps to reach the long term and that one needs to consider this
approach to think about the future. A mindset we should adopt.

The large transformation the Chinese market has been living, the
same way as in Brazil, is the rise and expansion of the Middle
Affluent Class (MAC), with forecasts of rising from 152 million to
190 million households in 2020. Even with today’s restrictions to
refrain the demographic growth, that include close control of the
number of children per family, it has been created an impressive
spending population, with broader and better access to income
and urbanization, shaping an amazing market for the next years.
A country that will become the world’s largest retail market.

Of this scenario the world’s largest conglomerates have been

aware, concentrating resources and expansion in the country.
Zara has already 34 stores in the country. H&M has 27; Sephora,
40; Uniqlo, 64; and Mango more than 100, with 120 more to come
this year alone.

Walmart runs around 200 supercenters, Carrefour more than 580

stores (hypermarkets and discount stores, private-owned and
franchised); Metro is present with cash & carry shops; Auchan has
hypermarkets and Tesco has been building hypermarkets and
shopping centers. Usually, the expansion has been organic, with
some acquisitions stimulated by the Chinese government.
To attract and make consumers loyal, hypermarkets have been
offering exclusive shuttles, with pre-defined routes and schedule
to ease customers’ lives, as they’re more used to travel by bike or
motorbike, what would hinder larger sales.

There are no other market in the world where so many global

retailers compete directly. Side by side there are chains as Gap,
Kihel’s and Timberland, as well as private-owned or franchised
exclusive stores of companies as Nike, Puma, Adidas, Reebok,
Asics and Kappa, competing with impressive local players, just
like apparel chain Meters & Bonwer, with more than 4,000 stores
in China alone, 40% of them franchised.

In the food segment, the world’s largest global brands, as

McDonald’s, Subway, KFC, Pizza Hut, Carl’s Jr, Friday’s, Starbucks
and Costa Café, have been having people standing in lines in the
busiest times and have accelerated the adoption of new
behaviors, specially in the young and urban population.

There are in China more than 2,500 shopping centers planned

with over 10,000 sq.m. of Gross Leasable Area (GLA). New malls
usually are of mixed use, with retail stores, offices, houses and
services. A visit to this market impresses for the virtuous
combination of modernity, reconstruction, urbanization,
innovation, design and deep changes in attitudes and behaviors.

In the largest stores in Shanghai there are a lot of megascreens

and neon lights projecting images and promotions, with Western
music, creating a new cultural reference mixed to the traditional
local culture of street vendors shouting the virtues of the goods
they sell.

It all put together in traffic- and people-jammed streets close to

modern and futuristic shopping centers with astounding lighting
and design effects, creating the set for an amazing range of
luxury brands. As happens with Plaza 66 mall, in downtown
Shanghai, that gathers in a single place brands as Chopard,
Boucheron, Hublot, D&G, pRada, Kenzo, Zegna, Dunhill,
Balenciaga, Tag Heuer, Dior, Piaget, Tiffany, Bulgari, Chanel,
Giorgio Armani, Hermes, Cartier, Louis Vuitton, Boss, Cavalli,
Todd’s, Diesel, Lagerfeld, Diane von FUstenberg, Bang & OLufsen
and Vertu, just to name some.

But is important to remind that, in any case, in this shopping

center exclusive monobrand stores are present, with other
retailers waiting for vacancies or expansions. A dream for
shoppings as Iguatemi and CIdade Jardim, in São Paulo.

In the next weeks, we’ll continue detailing the present and the
future of the world’s next largest retail market.