Retailing in China
Yolanda Wang
IBM Global Business Services
24 June 2011
IBM Confidential
© 2011 IBM Corporation
© 2011 IBM Corporation
Understanding the Rise of China: Martin Jacques
“China is not like the West and China will not become the West”
November 2010, London
http://www.ted.com/talks/martin_jacques_understanding_the_rise_of_china.html
© 2011 IBM Corporation
Geography and People
4th largest country by land mass
49.7% urban dwellers
56 ethnic groups
Average household = 3.10
100
: 105.2
© 2011 IBM Corporation
Economy
2010 GDP: US$ 5.88 trillion / 10.3% growth
% Labor Force
27.2%
39.5%
33.2%
GDP Per Capita: US$ 4,283
– Urban per capita = 3x rural per capita
– Average in more than 10 cities or 100m people > US$ 10,000
– Total household wealth is estimated at US$16.5 trillion
© 2011 IBM Corporation
Retail Industry Characteristics
China has surpassed Japan to become the second largest market for luxury
goods and is expected to become the largest – taking a 23% share of the
worldwide market by 2014.
China’s Retail market is predicted to become the largest consumer market by
2020
o Food retailing remains the dominant
segment
o Specialty apparel, outdoor / sportswear,
and footwear are enjoying fastest growth
Foreign retailers outperform domestic players
o Profit margin of ~ 3.6% compared to ~ 1.2% for local rivals
o Average sales/store and sales growth rate
Organic and inorganic growth, optimization, online
© 2011 IBM Corporation
The retail market structure remains highly fragmented
47% of top 100 revenue
Top 10
Top 50
88% of top 100 revenue
Retailers
Top 100
11% of total retail sales
Retailers
Source: IBM Analysis of 2010 CCFA Top 100 Chain Retailers
© 2011 IBM Corporation
The largest retailers are headquartered in Tier 1 and Tier 2 coastal cities
Beijing Retailers
2
10
Gome Home Appliance
Group
WuMart Group
Sales
CNY(b)
154.90
37.50
Dalian Retailers
4
Dashang Group
Shanghai & Nanjing
Retailers
1
Guangzhou &
Shenzhen Retailers
5
9
China Resources Vanguard
Walmart China
Source: IBM Analysis of 2010 CCFA Top 100 Chain Retailers
Sales
CNY(b)
3
68.00
6
7
Suning Home Appliance
(Nanjing)
Brilliance Group (SH
Bailian)
RT Mart
Carrefour
Sales
CNY(b)
86.20
Sales
CNY(b)
156.20
103.70
50.20
42.00
40.00
© 2011 IBM Corporation
China’s growth and economic agenda
2020
2010
2000
1980
• GDP $310B
• GDP per Capita $300
Reform & Open
9
• GDP $1T
• GDP per Capita $856
Entering WTO
World’s Factory
• GDP $5.3T
• GDP per Capita $4000
• GDP $11.5T
• GDP per Capita
$8200
Sustain Growth &
Harmonious Society
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The 12th Five-Year Plan
Accelerate the transformation of the economic
development pattern
1
2
3
4
5
1
0
Boost domestic demand, transform income allocation pattern
Modernize traditional industries & cultivate emerging industries
Urbanization and balance development among different regions
Build an environmental-friendly, green society
Improve public services and social welfare systems
© 2011 IBM Corporation
Changing consumer mindset and behaviors
National pride and cultural renaissance
Proud of their cultural heritage and fast growing international
importance
From products and services to solutions and experience
As needs move from functional to emotional, design finds a more
important role as consumers seek originality & creativity
Trading up & Trading down
Consumer display extreme price sensitivity for some products while
willing to pay a premium for others
Health and Wellbeing
More Chinese start to pay attention to their health
Digital World
China now is the home to the world’s largest internet user base
Source: TNS Chinese Consumer Trends 2010
© 2011 IBM Corporation
The Chinese Consumer Embraces Technology
By the end of 2010:
– 800m mobile phone users (China because the world’s largest
cell phone market)
– 457m internet users
– 370m television households
Internet shopping totaled 332b CNY
Online Retail Sales
350
2.5%
CNY Billion
300
2.0%
250
200
1.5%
Online Sales (CNY
billion)
150
1.0%
% Total Retail
100
0.5%
50
0
0.0%
2008
2009
2010
© 2011 IBM Corporation
Instrumented consumers are those willing to use 2 or more technologies
shop and make purchases
100%
Instrumented
47%
80%
One Technology
36%
56%
62%
No Technology
60%
40%
44%
49%
42%
20%
20%
14%
2009
Global
2010
Global
36%
2%
0%
2009
China
2010
China
Source: Institute for Business Value Retail 2011 Point of View - China n = 2200, Global n = 30,624;
Retail 2010 Point of View: China n = 3,011, Global n = 32,078
© 2011 IBM Corporation
The number of instrumented consumers has increased substantially
in the 40+ age groups globally
Generation 60+
64%
27%
55%
Generation 40 - 49
59%
Generation 30-39
55%
Generation 20 - 29
Generation 15 - 19
54%
53%
Generation 50 - 59
35%
63%
63%
62%
54%
Percentage by age group
2009 % Instrumented
Source: Institute for Business Value Retail 2011 Point of View - China n = 2200, Global n = 30,624;
Retail 2010 Point of View: China n = 3,011, Global n = 32,078
© 2011 IBM Corporation
Use of mobile technologies has shown the greatest year to year growth
25%
24%
41%
28%
Mobile technologies has increased
92% globally and is still more widely
accepted in the growth markets
Willingness to use TVs to make purchases
is growing as a preferred technology like
mobile
75%
39%
92%
Websites have increased 9 %
41%
Kiosks are popular across all countries
Global
China
Source: Institute for Business Value Retail 2011 Point of View - China n = 2200, Global n = 30,624;
Retail 2010 Point of View: China n = 3,011, Global n = 32,078
© 2011 IBM Corporation
How are consumers using technology?
Web
Kiosk
Mobile
1. Compare prices
1. Review product features
1. Identify store location
2. Access and print ecoupons
2. Read product
information or
instructions
2. Check and compare
prices
3. Access personal account
information
4. Schedule product
deliveries
5. Write or read reviews
6. Access live customer help
7. Meet with in-store
employees
8. View your social network
friends’ preferences
3. Purchase products
4. Purchase ancillary
products
5. Email product
information to yourself
or friends
6. Post products to your
social network account
3. Check store inventory
4. Receive promotions
5. Receive text to identify
in-store location
6. Get product information
in the store via SMS
7. To pay for products in
the store
Source: IBM Institute for Business Value Analysis, Retail 2010; population who selected website technology, n=2819, kiosk
technology, n=1282, mobile technology , n=862
© 2011 IBM Corporation
Consumers are influenced by a range of media
Top 5 Influences
Product Awareness
Retailer Store
Friends / Family
Shopping Portal
Online Streaming
TV/Radio/Billboard
Retailer Website
Social Media
Search Engine
Emails
Product Research
Friends / Family
Retailer Store
Shopping Portal
Search Engine
TV/Radio/Billboard
Retailer Website
Social Media
Online Streaming
Magazines
Mobile Apps
Retailer-Controlled (paid)
Mobile Apps
Emails
Consumer-Controlled (earned)
Source: IBM Institute for Business Value Retail 2011 Point of View - China n = 2200, Global n = 30,624;
© 2011 IBM Corporation
Smarter Consumer Profile > Influencers
Only 17% of Chinese consumers are influenced by the retailer/manufacturer
Who do you trust to provide honest feedback on product information
and product reviews?
Trust Ranking
Product experts
30% 9%
17%
Retail/Manufacturer
Customer Reviews
42%
Family/Friends
Source: IBM Institute for Business Value Retail 2011 Point of View - China n = 2200, Global n = 30,624;
© 2011 IBM Corporation
Youth Culture
One Family One Child Policy
– Implemented in 1976
– Estimated by 2015 500M under the age of 30
– 1-2-4 4-2-1
In 2010, over 6.5m university graduates
entered the workforce … and fearing the future
– Urban unemployment for college graduates is on
the rise
– Pay gap between skilled and unskilled urban
labor is closing
Yet they are spending more and saving less
than older generations
– Confident and believe the downturn will pass
– Otimizing their budgets by seeking out valueadded products and services
© 2011 IBM Corporation
Attitude Toward Income
• 46% of consumers are optimistic about
the future of their income
o 33% believe their income will stay the same
o 13% believe their income will increase by
20% in the next 5 years
• Optimism was not limited to the higher
income brackets
Attitude Toward Shopping
Buying more online
20%
Spending more on
15%
travel/entertainment
Purchasing items
14%
to reward yourself
Kiosks
are popular
Searching
out saleacross all countries
13%
items
Trading up/down in
11%
some categories
Waiting longer to
purchase
Spending only on
needs
Eating out more
Source: Institute for Business Value Retail 2011 Point of View - China n = 2200, Global n = 30,624;
10%
8%
7%
© 2011 IBM Corporation
China’s Super Rich Population Approaches 1 Million
One person in every 1400 in China has at least ¥ 10 million / € 1.1
million
– 875,000 millionares (9.7% yty increase)
– 60,000 super rich (9.0% increase)
The new wources of wealth
–
–
–
–
Private business
Property speculators
Stock market
Executives
China’s wealthy population
tends to be younger than their
western counterparts
© 2011 IBM Corporation
As income levels rise, Brand and Quality have become exceedingly
important to the Chinese consumer
In a Confucian society which emphasizes societal conformity and upward
mobility, brands play an important role
Definition of and motivation for luxury purchases varies
Global brands are not necessarily global
brands in China
– New offerings specifically for emerging
markets
– Holiday Inn: embraced as a Chinese brand
– Brands are taking back control
Loyalty is low
Source: Hurun Report 2010
© 2011 IBM Corporation
A consumer’s attitude is shaped by cumulative experience and directs future
behavior
Antagonists
Apathetics
Advocates
An Advocate is defined by three criteria
Likelihood to Recommend
A willingness to recommend one’s
primary retailer to friends and family
AND
Purchase Intent
A willingness to increase one’s purchases
if one’s primary retailer expanded its
assortment and offered products currently
found only at other stores
AND
Staying Rate
A willingness to stay with one’s primary
retailer, even if other retailers begin
offering competitive products or services
© 2011 IBM Corporation
China’s consumers are less loyal to any given retail entity than their
global peers
Source: Institute for Business Value Retail 2011 Point of View - China n = 2200, Global n = 30,624;
Retail 2010 Point of View: China n = 3,011, Global n = 32,078
© 2011 IBM Corporation
The greatest opportunity for improvement is around personalization
Aware
Research
Purchase
Take
Possession
Consumer’s
Consumer’s Moment
Moment
© 2011 IBM Corporation
October 2008
April 2010
March 9, 2009
May 2010
© 2011 IBM Corporation
等你来
July 2010
November 2010
May 2011
© 2011 IBM Corporation
Thank You
Yolanda Wang
IBM Retail Center of
Competence
[email protected]
© 2011 IBM Corporation