With consumer markets in Europe and the United States still suffering from the effects of the financial crisis of 2008, China had been the main beacon of hope for retailers looking for a boost to lacklustre sales elsewhere.
In stark contrast to the prevailing gloom in the West, macroeconomic indicators have mostly painted a positive picture in China, and retailers have responded with ambitious roll-out programmes.
However, recently retail sales in China have shown signs of slowing and in the hypermarket sector, for example, retailer Home Depot intends to close its big-box stores in China and Tesco is cutting four of its underperforming stores.
The malaise has even spread to the luxury sector, with Hugo Boss recently reporting a slowdown in sales and Burberry announcing 10 weeks of flat sales in the third quarter of this year.
However, other retailers like Hermes and Prada are still recording strong growth.
So the question is whether the problems are inherent to individual companies in a specific trade or whether there is widespread cooling throughout the retail market?
Knight Frank recently issued a paper looking at some of the recent developer and retailer activity, and highlights some key issues facing the industry.
Building shopping centres that are aligned to end users' needs remains a challenging issue, the study finds, and finding enough good-quality space continues to frustrate many retailers' expansion plans.
The study also examines the rise of internet shopping in China and how clicks and e-retailing are increasingly merging with more traditional bricks-and-mortar operations. This Concrete Analysis provides a summary of the findings.
On the developer side, we analysed the amount of new retail supply that came onto the market between the second quarter of 2011 and the same period this year in 11 major cities.
A total of 50 shopping centres providing more than 50,000 square metres of retail space opened in these cities in this period, including 27 of over 100,000 square metres each.
Most of the development occurred in the second-tier cities, particularly Tianjin, Shenyang and Chengdu. Many domestic developers are still building large shopping centres. However, many of the centres in these cities are remote from major transport hubs and we are concerned that many are oversized.
Many international retailers announced ambitious expansion plans for China earlier this year and luxury retailers are continuing to expand, adding new second- tier cities to their network.
However, the most aggressive growth rates are found in the mass market sector, with retailers aiming to take advantage of the expanding middle class. Two trade categories, in particular, are notable for their bold roll-out programmes - fashion (particularly fast-fashion brands); and F&B (especially coffee chains and fast-food operators).
Some of the plans are over-optimistic in their growth targets and we are of the view that some may be unachievable. Supply of retail floor area is not in question, but there may not be enough well-planned and well-located shopping centres to allow these retailers to achieve their goals.
It is clear online shopping platforms in China are proving popular and represent a growing influence on consumer behaviour. The transaction value of online shopping as a proportion of total retail sales in China rose from just 0.6 per cent in 2007 to 4.4 per cent in 2011 and is projected to reach 5.4 per cent this year.
A consumer shopping survey covering international markets found that Chinese consumers were shopping online around two to three times as much as their European counterparts.
Many products are researched online and then followed up by a purchase in-store. Rather than two business silos, online and in-store operations are increasingly merging.
The key issue is what this means for a retailer's real estate portfolio. As yet, the two streams have operated separately. However, the impact of online shopping may start to influence the extent of a retailer's expansion and their typical unit size needs.
New formats of retailing may emerge. One of China's biggest online retailers, Yihaodian, recently said it planned to open 1,000 virtual supermarkets, which contain no real products but allow shoppers to see pictures of items available to buy using their smartphones.
The other key issue is how the growth of online shopping impacts landlords. On the one hand, online purchases deprive landlords of rent and could be seen as a threat. On the other hand, browsing for products online can help drive in-store sales.
And how are online sales captured in turnover figures? Lease agreements will need to adapt to prevent mistrust developing between landlords and tenants.
Despite concerns about overbuilding of retail centres and the uncertainties associated with the growth of online sales, prime retail rents are still performing well.
In the first half of this year, average prime rents in second-tier cities rose 10 per cent to 865 yuan (HK$1,060) per square metre from last year, while first-tier cities saw 8 per cent growth in the same period.
The average vacancy rate for prime shopping centres in first-tier cities is 8.4 per cent compared to 10.5 per cent for their second-tier counterparts. Vacancy levels have remained fairly steady, although they have edged up in cities with significant new supply such as Shenyang, Chengdu and Guangzhou.
Paul Hart is an executive director at international property consultant Knight Frank