China’s retail stores are shrinking, here’s why

25/04/2018

Consumers are opting for speed, convenience, and no longer want to carry their groceries home – especially in service-oriented coastal cities

 

Retailers in China are ahead of the curve. From Jack Ma’s New Retail movement to full O2O integration, the retail landscape integrates brick-and-mortar stores, warehouses, logistics platforms, and consumer mobile platforms to deliver goods to customers in record time. In conjunction with this seamless model, grocery retailers are offering discounted and free delivery from stores in thirty minutes or less.

These new retail strides mean that Chinese consumers are growing comfortable with a new level of convenience. In fact, they expect it so much so that major big-box retailers are trimming down their footprint to make the in-store experience more accessible to consumers on foot.

The latest retailer to make headlines for the ‘small retail’ movement was Walmart. Much to the surprise of Western consumers, who know the Arkansas, USA brand as the mother of the big-box store, Walmart opened up its first convenience store in Shenzhen, China at the beginning of the month.

Super Species, Alibaba’s Hema and other new brands like 7Fresh from JD.com and Huixuan from Walmart are all competing for China’s new retail consumers. Ultimately, they are vying to be nationwide replacements for traditional food markets for urban consumers’ daily food shopping needs. The reality is that in China, many people have small refrigerators and must make frequent efforts to obtain fresh produce.

 

Hypermarkets and supermarkets are seeing slow growth while convenience stores continue to rise in popularity

 

A 2017 FBIC Group retail report states that hypermarkets and supermarkets are seeing slowing sales growth. So why has the large format store fallen on hard times? The e-commerce boom, as well as the success of smaller-scale convenience stores, community stores, and specialty stores, play their part in the changing landscape.

The National Bureau of Statistics of the PRC reported that total sales for hypermarkets and supermarkets totaled 496.3 billion yuan and 311.8 billion yuan in 2015. These numbers were just slightly higher than 2014, and the growth of the hypermarket and supermarket sector as a whole has decreased as of late. According to a report by China Chain Store and Franchise Association and PricewaterhouseCoopers, sales growth of the supermarket sector was slower than that of apparel and electronics stores.

In contrast, the convenience store, or CVS, has been the fastest-growing retail format in China in recent years. Total sales revenue for the CVS sector reached 60.0 billion yuan in 2015, up 13.2% YoY. According to the Ministry of Commerce (MOFCOM), the YoY growth of key retailers in the CVS and shopping mall sector reached 7.7% and 7.4% respectively in 2016, faster than the average growth of key retailers in other retail formats of 4%.

Generally speaking, the development of CVS along coastal areas is more mature and concentrated than in inland areas. At the same time, the development of CVS in the southern region is more mature than in the northern region. Guangdong and Shanghai have the highest concentration of CVS.

 

Chinese consumers have grown accustomed to convenience and delivery, with many stores offering such services in 30 minutes or less

 

Consumers increasingly want the convenience, personalization, and fast service offered by small format stores. Due to this Carrefour, Metro, China Resources Vanguard and Better Life Group have all tried their hand at this format. Carrefour opened “Easy Carrefour” in November 2014 in Shanghai. The small format version offers a sleek design, free wifi, fresh produce and imported products along with a layout that encourages shoppers to lounge. As of January 2017, there were 26 Easy Carrefour stores in China.

Metro launched its convenience store Hemaijia in November 2014, also in Shanghai, with the intent to open locations close to community centers such as schools and hospitals. China Resources Vanguard had over 1,500 small-sized stores by the end of 2015.

Walmart, the latest retailer to hop on-trend, opened its first small-format store in the Bao’an District of Shenzhen, China. It’s about a tenth the size of a regular Walmart. According to Retail Dive, the company will open five more Supermarkets in Shenzhen, Guangzhou, and Dongguan by the end of 2018.

The new Walmart store is an integrated online-offline experience – 90% of its inventory is available online via JD.com. The soft-open of the store set a record on the JD.com platform, with more than 1,000 orders received online. The fastest delivery on opening day was less than 10 minutes from online order to the customer’s door.

 

 

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