Chinese retailers to focus on domestic development

PUBLISHED : Wednesday, 26 October, 2011, 12:00am
UPDATED : Wednesday, 26 October, 2011, 12:00am


Global expansion is unlikely to become a trend for Chinese retailers as they will have their hands full developing their own domestic market, according to International Council of Shopping Centres president and chief executive Michael Kercheval.

'We do see Chinese retailers moving out on a one-off basis. But that is for internal business reasons - like diversifying investment or enabling revenue transfers - not to initiate a global plan,' Kercheval said.

While some Chinese retailers had opened stores in Milan or New York, he said, such a move was usually aimed at enhancing their brands with international cachet to generate better sales at home.

'When I ask about international expansion plans, a lot of Chinese retailers ask why they should leave a culture, an economic system and a market they understand, and take on higher risk, when the need and the risk-adjusted return is neither higher nor even there right now?''

China has ranked as the world's second-largest economy after the United States since 2010. It has also been the world's fastest-growing major economy, with consistent growth rates of around 10 per cent over the past 30 years. At its present rate of growth, analysts see China replacing the US as the world's top economy in about a decade.

Unlike Japan, which is a small island nation that had to expand its reach all over the world for oil, raw materials and export markets, China could be insular and continue to grow for decades, Kercheval said.

In this regard it could follow the development of retailers in the US, which focused for decades on building up a huge domestic market.

Though Chinese retailers may not be ready to go global on their own, Kercheval said, some, allied with international mall players, could conceivably expand from there and take on key global markets.

On the other hand, China is considered a key area for growth by international retailers, many of which have been stepping up expansion plans in the hope of capturing a bigger share of its growing middle-class consumer spending.

'We would define middle class not by income level, but by discretionary spending. You could be at a low income level but after paying for food, housing, education and health care, still have money left over,' Kercheval said. 'Middle class is really a catch-all phrase for a group of consumers that has discretionary income and didn't have it before.'

The vast retail market on the mainland has prompted the International Council of Shopping Centres - which has 55,000 members in more than 80 countries including shopping centre owners, developers, investors, lenders and retailers - for the first time ever to hold its Retail Real Estate World Summit in September next year in Shanghai.

And the Global Retail Real Estate Convention of Asia will be held by the association from November 2 to 4 this year, also in Shanghai, aiming to draw several hundred mall developers, architects, brand owners, bankers and other professionals.