Global brands pause as store sales growth slows on China

Global brands have scaled back their expansion plans on the mainland due to slowing growth in retail sales.

While total retail sales volumes stayed strong in the first quarter, sales on a per capita basis have declined over the period. "For example customers may have spent 50,000 yuan (HK$62,000) to buy a bag previously. But now, they are only willing to spend 30,000 yuan," Lam said.

Knight Frank said its research showed that six high-end global brands - including watch and jewellery retailers - planned to open a total of 50 stores on the mainland in the next three to five years.

Steve Chen, head of retail services at consultancy DTZ in China, said: "We met some global luxury brand operators recently and they told us that they would slow their expansion in third- and fourth-tier cities, unless they find prime locations. They are now cautious about expansion."

Fast-fashion retailers and food-and-beverage operators had also turned cautious about expansion in second- and third-tier cities since the first quarter, Lam said.

According to Knight Frank's research, five fast-fashion retailers plan to open 520 shops on the mainland in the next two to three years, while five food-and-beverage operators will open 2,500 outlets in the next three to five years.

"But since the first quarter retailers have turned cautious on expansion due to the weakening global economy. They have also had difficulties finding shops in prime locations for expansion, and have approached developers who are strong in developing shopping malls such as Hang Lung Properties, China Resources Land and Cofco," said Lam.

China Resources Land and COFCO respectively developed The MixC and Joy City, two successful shopping mall chains on the mainland.

"They have better management and marketing, which gave confidence to the retailers. The retailers would follow them to expand in the second- and third-tier cities," said Lam, adding that he expected retailers to remain cautious about expansion in the second and third quarters.

"But they may resume their plans once retail sales rebound and I don't think retail rents in first-tier locations will fall."

Steve Chen of DTZ said he expected luxury brands to continue to expand in the first-tier cities, but their expansion in the third- and fourth-tier cities has slowed.

That was because "so many international brands have entered the market and they are facing stronger competition", Chen added.