TNS Retail Forward forecasts China will sustain double-digit nominal retail sales growth in the next five years despite short-term pressures.

This will push the size of the retail market in China to more than $1.4 trillion by 2012, surpassing Japan to become the second-largest retail market in the world behind the United States.

The forecast is outlined in the company’s latest study, China’s Retail Landscape. This report, published in the Global Retailing Program of the Retail Forward Intelligence SystemT, also assesses China’s retail landscape, profiles the country’s leading retailers and delivers shopper insights about the Chinese shopper.

“While China’s short-term retail outlook is vulnerable because of pressures ranging from inflation to heightened government regulation, the continued entry of new retail banners is evidence that China remains one of the best retail opportunities in the world, with strong growth forecast across retail categories,” comments Frank Badillo, senior economist and manager of the company’s Global Retailing Program.

Contributing to a tougher operating environment and some consolidation in the near term are: inflation and speculative pressures, growing government emphasis on product safety and environmental regulation, and heightened Chinese nationalism.

Regardless, a continued influx of new retail banners, with particular interest among upscale apparel retailers, suggests there remains opportunity for entry into China. The continuing opportunity in China also is evident in the stepped-up expansion plans by a broad spectrum of retailers.

China’s leading domestic retailers remain focused on aggressive expansion, but they are also showing the effects of competitive pressures. Some of these pressures are most evident at retail conglomerate Bailian Group and consumer electronics retailer Gome.

Foreign retailers in China continue to plan for aggressive expansion but more often have fallen behind plan. “Carrefour’s small-format focus has helped give it an advantage over Wal-Mart’s big-format focus,” according to Badillo. “While Taiwan-based RT-Mart, a partner of Auchan, has quietly built up a sizeable presence in China, Tesco is only now gearing up its expansion. Kingfisher is reorganizing and Best Buy is ramping up slowly,” he adds.

TNS Retail & Shopper Insights research indicates that China’s new retail formats are drawing strong interest from Chinese shoppers, but there remains room for inroads against local neighborhood markets-which remain popular among Chinese shoppers.

“The continued popularity of local neighborhood markets in China suggests that local independent retailers and longstanding shopping habits remain strong,” states Badillo. “At the same time, our research illustrates that high shopping frequency at hypermarkets, convenience stores and traditional department stores shows strong interest among Chinese shoppers for the new modern retail formats that are fast entering the marketplace,” he adds.

“Despite inflation pressures weighing on near-term growth, China presents one of the best retail opportunities in the world,” Badillo confirms. “The country’s strong growth opportunity significantly outweighs the challenges presented by a developing market facing speculative risks,” he concludes.

Tags: china, retail growth

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