The market study covers the present scenario and growth prospects of the retail market in China for 2017-2021. The report lists food and beverages; apparel and footwear; home improvement; consumer electronics and appliances; and beauty and personal care as the five major product categories for the market, of which the food and beverages segment accounted for more than 60% of the market share in 2016.
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Technavio consumer and retail analysts highlight the following three market drivers that are contributing to the growth of the retail market in China:
- International tourism
- Favorable government policies
Premiumization has been one of the reasons for the growth of the retail market in China and refers to a market strategy adopted by retailers to try to get customers to buy more expensive products by presenting a proposition with a higher value by cross selling and upselling of the product.
“One of the factors that has encouraged premiumization is the increasing consciousness about health and food safety among consumers. This has led to higher purchases of premium organic food products,” says Poonam Saini, a lead analyst at Technavio for retail goods and services research.
With the growing population of upper-middle and upper-class consumers, there has been an increase in the demand for premium products in all the retail segments. Vendors like Costa Coffee and IKEA are selling their products with differential pricing strategy with respect to similar products available in the unorganized segment.
As per the Chinese government, the total number of inbound foreign travelers has been on the rise since FY2014. Since then, China's international tourism has registered steady growth. Hong Kong, Macau, and Taiwan accounted for the highest number of inbound tourists to China. Out of the total inbound tourists, around 83% were from Asian countries. Revenue generated from international tourism amounted to USD 113.7 billion, with a growth rate of 7.8%, in 2016. This growth in the number of tourists has led to higher growth for specialty stores, supermarkets, and hypermarkets.
Favorable government policies
Since logistics has always been a weak link in the Chinese distribution network, the government has designated key cities/towns in specific regions at the state and district levels for the establishment of distribution centers. These will enable the growth of distribution networks across the country and streamline logistics operations, in turn helping retailers to supply their goods to different parts of the country. In addition, the government allows 26% foreign direct investment (FDI) in retail, which has aided in the growth of the retail market in China.
“Many multinational companies such as B&Q, Carrefour, IKEA, and Walmart have entered the retail market in China over the last decade. The intervention of foreign retailers has not only enhanced the presence of organized retail but also led to the overall growth of the retail sector in the country,” says Poonam.
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