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Home > Industry Event > Retail & luxury

China is in the course of economic rebalancing, moving towards a consumption-driven
Economy. This presents huge opportunities for retailers and luxury goods producers, with foreign and local firms alikecontinuing to expand into the market. As China’s retail sector evolves, market playersare searching for ways to better adapt to a changing landscape. However, competition is
Increasingly fierce and some unresolved problems remain.China is now the world’s second largest retail market. Total retail sales of consumergoods doubled to 20.7 trillion yuan in 2012 from 10.8 trillion yuan in 2008. Furthermore,China is expected to surpass the United States to become the world’s largest consumermarket within five years

The country’s retail market is evolving as quickly as it grows. With higher incomes and
increasing affluence, consumers are demanding better quality and unique products and
services. Also, new technologies are revolutionising the way retailers are running their
businesses. Key aspects of this transformative phase include:

--Aggressive store expansion is replaced by improving store productivity.
--Retailers launch their own private labels or proprietary brands.
--Mobile-commerce is increasingly popular, as is mobile payment.
--Digital marketing is ever more prevalent
--Improving customer relationship management
--The concept of the omni-channel emerges
--Tier 3 and tier 4 cities become the development focus
--M&A continues to be an attractive avenue fuelling growth

Meanwhile, Luxury goods sales in China were projected to reach Euros 15 billion in 2012.
Taking theGreater China area as a whole, including Hong Kong, Macau and Taiwan, the total size
of the luxury market was expected to reach Euros 27.3 billion, surpassing Japan and
becoming the world’s second largest luxury goods market in 2012. The rapid increase
of household disposable incomes, fast-growing individual wealth, a more affluent middle
class, ongoing urbanisation, and rising demand for luxury goods in smaller cities – along
with a surge in the number of credit card users – all contributed to driving China’s luxury
market.However, the growth of luxury sales has started to decelerate since 4Q11. Bain &
Company expected 2012 to show 7% yoy luxury consumption growth in China, down
from 30% yoy in 2011 and 27% yoy in 2010. The slowdown was partly attributable to
weak economic growth, as well as the increasing preference of Chinese consumers
to shop for luxury goods abroad. Moreover, the move by China’s new leaders to curb
government spending on luxury items as gifts might also have had a negative impact
on luxury sales. As shown in Exhibit 8, many global luxury brands have slowed their
expansion in China over recent years.Recently, some luxury retailers have shifted their focus from aggressive store openingsto improving store productivity; others have started to make inroads into lower-tier cities.In fact, luxury brands no longer see tier 1 cities as a springboard to raise their profile, buthave started to push their sales nationwide.

However there still are lots of challenges facing the retail and luxury industry:

--Significant increase in operating costs
--Unstructured development of retail properties and lack ofcentralised city planning
--Logistics bottlenecks are here to stay
--Integrating online and offline businesses remains a challenge

Facing the headwinds of an increasingly competitive retail landscape, together with the
growing affluence and sophistication of Chinese consumers, the real retail winners are
those which constantly innovate and improve business practices. To succeed in China’s
rapidly evolving retail market, enterprises need to keep abreast of the latest developments
in the market.

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