“Irresistible” China to be world’s biggest retail market in three years despite slowdown, e-commerce will be key

Is China finished as the market everyone needs to be in? Nothing of the sort. We’ve heard a lot of Western luxury brands blaming China for their growth slowdown lately. And we’ve also heard more accessible retailers saying their Chinese growth isn’t what it was.

But mainland China is still on track to become world’s biggest retail market by 2018, and despite its slowdown in recent years, it remains “irresistible to global chains”, according to a new report from PricewaterhouseCooper (PwC).

Although China has fallen from 15.6% growth in 2009, it is still expected to average annual retail volume growth of 8.7% in the next two years and that’s a figure many retailers in Europe and North America would love to achieve. The result? China will become the world’s biggest retail market overall by 2018, PwC’s report on Asia-Pacific’s retail sector predicts.

So what’s the downside? With China’s growth slowing, retailers are having to rethink their strategies – and that means most brick-&-mortar players increasingly moving towards fast-moving e-commerce channels.

In 2013, China overtook the US as the world’s largest e-commerce market. Mobile payments accounted for 8% of total online transactions in 2013, up from just 1.5% two years earlier. And that figure could rise to anywhere from 20-30% in 2016.

The report also says that last year’s ‘Occupy Central’ political protests and China’s slowing economy had an impact on Hong Kong’s retail sector (see story below). After averaging 9.3% growth in sales volume in the past five years, the territory’s retail sales achieved a flat volume growth in 2014 (down 0.2% in value) and may suffer negative growth in 2016.

A potential interest rate rise later this year is expected to dampen private consumption and drive down retail sales. The strong US dollar – and strong HK dollar due to the peg – could make other tourism destinations, such as Japan and Europe, more attractive relative to Hong Kong. However, a downturn in the property market will improve housing affordability, and potentially help to reduce the high cost of rents for businesses, which will give a slight boost to retailers’ profits.

Overall, Asia-Pacific’s retail sales volume is forecast to grow 4.6% this year, with an upward trend expected for the industry until 2018, when the market is estimated to be worth $10.3trn (US). That is twice the $5trn in sales projected for North America.

Asia-Pacific remains the top destination for most global retail chains with much of the growth driven by China and India, despite the slowing economy in the former and lack of reforms in the latter.

“Asia has the potential to drive innovation in areas such as e-commerce and in developing new products,” said Michael Cheng, PwC’s retail and consumer leader for Asia-Pacific and Hong Kong/China.

“Japan, South Korea and Taiwan are home to some of the world’s leading electronics companies. And China and India’s consumers are some of the world’s most active users of mobile technology and social media.

“While shopping via social media platforms is still a new trend, it won’t be long before consumers jump on the e-commerce bandwagon.”

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