Shanghai and Beijing have without question become over saturated when it comes to the retail market. Yet, multi-national chain stores still have their eyes firmly set upon developing the Chinese market, with their focus now intensifying on second and third-tier cities.
So says a report released at the World Retail Congress in London this earlier week. One could not be blamed for feeling encouraged at such news, but retailers are those first hit when the economy slows. If one is looking for concerns over the slowing growth in China’s GDP then look no further than the foreign supermarket industry in the Chinese hinterlands.
Marks and Spencers (M&S) is the much lauded, slightly upmarket, British retail chain that with much fanfare opened their first outlet in China on Shanghai’s premier shopping street, Nanjing Lu, on 2nd October 2008. Now there are five stores; three in Shanghai, one in Ningbo (Zhejiang) and one in Changzhou (Jiangsu). Another store in Shanghai will ring the cash registers in early 2013 and if rumors are to be believed Wuhan and our very own Nanjing may be next to see M&S opening their doors in the coming years.
While some of these stores are undeniably almost devoid of customers for much of the time, the staff and electricity bill still have to be paid. It is a gamble that could well pay off; many Chinese consumers put Marks and Spencers in the same category as H&M and Zara, whose bold attack has paid great dividends.
Yet all that glitters is not necessarily gold, particularly when one leaves the bright lights of China’s first-tier cities. Getting used to doing things a little differently is likely to be a major challenge for any large incoming retails to a place such as Nanjing. In 2008, the UK supermarket chain Tesco announced that it would open a store in Nanjing’s Wanda Plaza in the Hexi New City area. They even named the date; 18th December 2009. The store failed to materialize. More recently, just last month, the retail behemoth announced a downsizing in the closure of four stores in China; in Bengbu (Anhui), Tieling (Liaoning), Taizhou and Changshu (Jiangsu).
“It is not an easy decision, but we believe it will help us better cope with changes in the Chinese market,” said a statement from the company. Tesco had intended to open 16 new outlets in China between March 2012 and February 2013. To date, only two have set off the fireworks.
Other cracks are appearing; Wal-Mart Stores Inc, the world’s largest retail store operator, may not be putting up the shutters but is planning to slow down its expansion in China, cutting the new space it will open this year by about 30 percent.
The question of course is just how long are these retail giants prepared to wait? CapitaMalls, from Singapore, first came to China in 1995 and failed to make a profit in the first six years. Perhaps the question would be better termed, just how deep are their pockets?
