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China Retail Property Market

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  1. China Retail Property Market • April 2013

  2. Macro-Economics • 1

  3. Is China’s Economy in Decline? Source: IHS Global Insight

  4. Significant Growth in Disposable Income Source: China Statistics Bureau, China Twelfth Five-year Plan

  5. Fuelling Domestic Consumption Source: China Statistics Bureau, EIU

  6. Consumption / GDP

  7. Retail Market Development • 2

  8. Significant Brand Penetration China has only been a truly open market for a decade, and yet a significant retailer presence exists already. CBRE’s 2012 “How Global is the Business of Retail?” report highlights that China ranks 5th out of all international markets in terms of the presence of international brands, with Beijing and Shanghai both figuring close to the top ten most attractive global cities for retailers. Source: CBRE Research

  9. Significant Brand Penetration Source: CBRE Research

  10. Increasing Pace of Development 1992 The Entry of Foreign Invested Department Stores & Burgeoning Luxury Sector 2004 Full Opening of China Market For Foreign Investors 2000 Oriental Plaza, First Shopping Mall Beijing 1992 Beijing 1996 Shenzhen 1987 Beijing 2010 Beijing & Shanghai 2005 Shanghai 1986 1987 1988 1989 1990 1991 1992 1993 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1994 1995 1996 1997 1998 1999 2000 2001 1989 Shenzhen 2012 Shanghai Beijing 2008 Beijing 2007 Shanghai 1995 Metro, Shanghai Carrefour, Beijing 1999 Grand Gateway, First Shopping Center Shanghai

  11. The Chinese Shopper

  12. The Chinese Shopper • Young, fashionable and spending a significant proportion of their monthly income on retail merchandise.

  13. The Chinese Shopper • Young, fashionable and spending a significant proportion of their monthly income on retail merchandise. • Becoming more discerning, looking for new products and experiences as a means of differentiating themselves from friends and family.

  14. The Chinese Shopper • Young, fashionable and spending a significant proportion of their monthly income on retail merchandise. • Becoming more discerning, looking for new products and experiences as a means of differentiating themselves from friends and family. • Interested in brands that have a strong international reputation and have adapted to local tastes and sizing

  15. The Chinese Shopper • Young, fashionable and spending a significant proportion of their monthly income on retail merchandise. • Becoming more discerning, looking for new products and experiences as a means of differentiating themselves from friends and family. • Interested in brands that have a strong international reputation and have adapted to local tastes and sizing • Pays attention to value for money and quality of merchandise – real or perceived

  16. The Chinese Shopper • Young, fashionable and spending a significant proportion of their monthly income on retail merchandise. • Becoming more discerning, looking for new products and experiences as a means of differentiating themselves from friends and family. • Interested in brands that have a strong international reputation and have adapted to local tastes and sizing • Pays attention to value for money and quality of merchandise – real or perceived • Is tech savvy – uses social networking and media to discuss the latest trends in fashion, brands and retail destinations

  17. The Chinese Shopper • Young, fashionable and spending a significant proportion of their monthly income on retail merchandise. • Becoming more discerning, looking for new products and experiences as a means of differentiating themselves from friends and family. • Interested in brands that have a strong international reputation and have adapted to local tastes and sizing • Pays attention to value for money and quality of merchandise – real or perceived • Is tech savvy – uses social networking and media to discuss the latest trends in fashion, brands and retail destinations • Is increasingly influenced by multi-channel brand marketing

  18. The Chinese Shopper • Young, fashionable and spending a significant proportion of their monthly income on retail merchandise. • Becoming more discerning, looking for new products and experiences as a means of differentiating themselves from friends and family. • Interested in brands that have a strong international reputation and have adapted to local tastes and sizing • Pays attention to value for money and quality of merchandise – real or perceived • Is tech savvy – uses social networking and media to discuss the latest trends in fashion, brands and retail destinations • Is increasingly influenced by multi-channel brand marketing • Is as comfortable on High Streets as they are in Department stores and Shopping Centres

  19. How Retailers Are Responding

  20. How Retailers Are Responding • Opening large, well located stores that are executed to international standards in order to generate impact with consumers and earn credibility with Landlords.

  21. How Retailers Are Responding • Opening large, well located stores that are executed to international standards in order to generate impact with consumers and earn credibility with Landlords. • Developing product ranges, merchandising, supply chain and marketing in line with European standards.

  22. How Retailers Are Responding • Opening large, well located stores that are executed to international standards in order to generate impact with consumers and earn credibility with Landlords. • Developing product ranges, merchandising, supply chain and marketing in line with European standards. • Increasing emphasis on ‘Brand experience’ in terms of shop-fit, retail environment and product sophistication.

  23. How Retailers Are Responding • Opening large, well located stores that are executed to international standards in order to generate impact with consumers and earn credibility with Landlords. • Developing product ranges, merchandising, supply chain and marketing in line with European standards. • Increasing emphasis on ‘Brand experience’ in terms of shop-fit, retail environment and product sophistication. • Further adapting to the Chinese market. More than just a fundamental difference in sizing and generic consumption demands compared with Europe.

  24. How Retailers Are Responding • Opening large, well located stores that are executed to international standards in order to generate impact with consumers and earn credibility with Landlords. • Developing product ranges, merchandising, supply chain and marketing in line with European standards. • Increasing emphasis on ‘Brand experience’ in terms of shop-fit, retail environment and product sophistication. • Further adapting to the Chinese market. More than just a fundamental difference in sizing and generic consumption demands compared with Europe. • Adapting to regional differences in climate, spending power, and taste throughout China

  25. Understanding Retail Destinations • 3

  26. Retailer Presence in Chinese Cities % of global retailers present in each city 113 113 46

  27. Beijing – CBD • Home of the international business community • Retail offer dominated by luxury shopping malls • The Place enjoyed early success. • But has struggled to sustain early footfall numbers and will face stiff competition

  28. Beijing – Wangfujing • Beijing’s most traditional retailing area. • Pedestrianised street anchored by Beijing APM and Oriental Plaza. • Footfall levels surpass 600,000 people per day and more than 1,200,000 during public holidays. • Mixture of domestic and foreign tourists and white collar office workers.

  29. Beijing – Sanlitun • Only recently emerged as a mainstream retail destination. • Traditionally renowned for bars, restaurants and night time activity. • Flagship stores and innovative design has led to a significant draw from throughout Beijing.

  30. Shanghai – West Nanjing Road • The most established business district in Puxi • The focus of luxury retailing in Shanghai with brands accommodated within Plaza 66, CITIC Square andr Westgate Mall. • However, Gap, Uniqlo, H&M, Sephora and American Eagle Outfitters have all opened stores recently

  31. Shanghai – East Nanjing Road • Fully pedestrianised shopping street with high footfall levels. • State-owned department stores and local retailers dominate although international brands have started to gain a foothold. • Foreign retailers with the most notable presence include Apple, Zara, Mango, Uniqlo, Forever 21 and WE.

  32. Shanghai – HuaiHai Road • A tree lined boulevard split into two sections. • The eastern section is characterised by shopping malls and retail podiums attached to office towers. • The western section of Huai-Hai Road is characterised by mass market retailers and resembles more of a European High Street.

  33. Global Prime Retail Rents Data as of Q4 2012

  34. The Growth of Second Tier Cities 2nd TIER CITIES

  35. Population Migration

  36. 75% and over 50% - 74% 30% - 49% Under 29% The Emergence of Mega Cities China Major Cities (Population in million) Urban Population as a % of Total Population of Province Heilongjiang Jilin Liaoning Xinjiang Beijing Inner Mongolia Gansu Tianjin Hebei Shanxi Ningxia Shandong Qinghai Henan Shaanxi Jiangsu Tibet -Shanghai Anhui Sichuan Hubei Chongqing Zhejiang Jiangxi Hunan Guizhou Fujian Yunnan Guangdong Taiwan Guangxi HKSAR Macau SAR Hainan Source: National Statistics Bureau of China, forecast figures for 2020 Noted: the figures listed above are permanent population (live in the city for more than 6 months)

  37. Disposable Income in Major Chinese Cities 2012 Disposable Income and Growth Rate Annual Disposable Income (RMB per capita) Y-o-Y Growth Rate (%) Source: China Statistics Bureau Note: Figures for Dalian and Shenyang are on estimation.

  38. Retail Sales in Major Chinese Cities 2012 Retail Sales and Growth Rate Annual Retail Sales (RMB 100 million) Y-o-Y Growth Rate (%) Source: China Statistics Bureau Note: Figures for Dalian and Shenyang are on estimation.

  39. Major Infrastructure Development Harbin Changchun Shenyang Anshan Dalian Tianjin Qingdao Xi’an Nanjing Wuhan Suzhou Chengdu Ningbo Chongqing Changsha Fuzhou Kunming Metro systems/light rail Inner city urban regeneration/ Satellite cities New airports/airport extension Major revamp of port facilities

  40. Retail Rental Trends Rental Index Index: Q1 2003 = 100 Source: CBRE Research

  41. Good Quality Retail Accommodation

  42. The Focus of Future Supply sm Source: CBRE Research

  43. Doing Business in China • 4

  44. Doing Business in China Lessons to be learnt from retailers that are successful in the market today:

  45. Doing Business in China Lessons to be learnt from retailers that are successful in the market today: • Enter the market organically and retain full control of your brand development. A local partner is no longer legally required and does not provide significant knowledge or contact advantages.

  46. Doing Business in China Lessons to be learnt from retailers that are successful in the market today: • Enter the market organically and retain full control of your brand development. A local partner is no longer legally required and does not provide significant knowledge or contact advantages. • Research the market in totality. Shanghai and Beijing are important beach-heads but the real opportunity for most retailers lies in the second and third tier cities

  47. Doing Business in China Lessons to be learnt from retailers that are successful in the market today: • Enter the market organically and retain full control of your brand development. A local partner is no longer legally required and does not provide significant knowledge or contact advantages. • Research the market in totality. Shanghai and Beijing are important beach-heads but the real opportunity for most retailers lies in the second and third tier cities • Government relationships are key to ensuring the smooth day-to-day running of your business as well as unlocking off-market real estate opportunities.

  48. Doing Business in China Lessons to be learnt from retailers that are successful in the market today: • Enter the market organically and retain full control of your brand development. A local partner is no longer legally required and does not provide significant knowledge or contact advantages. • Research the market in totality. Shanghai and Beijing are important beach-heads but the real opportunity for most retailers lies in the second and third tier cities • Government relationships are key to ensuring the smooth day-to-day running of your business as well as unlocking off-market real estate opportunities. • The acquisition of flagship stores in prime locations is important in establishing credibility with landlords and generating instant excitement amongst consumers

  49. Doing Business in China Lessons to be learnt from retailers that are successful in the market today: • Enter the market organically and retain full control of your brand development. A local partner is no longer legally required and does not provide significant knowledge or contact advantages. • Research the market in totality. Shanghai and Beijing are important beach-heads but the real opportunity for most retailers lies in the second and third tier cities • Government relationships are key to ensuring the smooth day-to-day running of your business as well as unlocking off-market real estate opportunities. • The acquisition of flagship stores in prime locations is important in establishing credibility with landlords and generating instant excitement amongst consumers • Agree the real estate strategy – the reporting and decision making process.

  50. Doing Business in China Lessons to be learnt from retailers that are successful in the market today: • Enter the market organically and retain full control of your brand development. A local partner is no longer legally required and does not provide significant knowledge or contact advantages. • Research the market in totality. Shanghai and Beijing are important beach-heads but the real opportunity for most retailers lies in the second and third tier cities • Government relationships are key to ensuring the smooth day-to-day running of your business as well as unlocking off-market real estate opportunities. • The acquisition of flagship stores in prime locations is important in establishing credibility with landlords and generating instant excitement amongst consumers • Agree the real estate strategy – the reporting and decision making process. • Pricing is a driver of success, and now not only in the mass market sector. Pricing the product correctly and balancing margin with volume can dictate success.