Savills China Retail Chart Book 2012
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Savills China Retail Chart Book 2012 1 Introduction The retail market is one the hardest in the real estate sector to analyse; every province and city has slightly different characteristics, every retailer has a different strategy, every consumer a different taste. Developments come in all shapes, sizes and colours, and each retail unit is valued slightly differently to another depending on degree of visibility, or distance from the nearest Metro station or competing retailer. This reports attempts to highlight some of the overriding characteristics and trends but does not presume to delve any deeper into the specifics of individual markets. It is necessary to approach every market as having its own unique opportunities and difficulties. James Macdonald Head of China Research 2 Macro and Demographic Domestic demand 4 Chinese consumption vs global 5 Retail sales 6 Incomes and expenditure 7 Expenditure breakdown 8 Gini and Engel 9 Inflation and interest rates 10 Service sector 11 Age pyramids 12 Urbanisation 13 Tourism 14 Market drivers 15 Consumer confidence 16 3 Macro – Potential for growth in domestic demand Domestic savings as a % of total GDP, Consumption as a percentage of GDP, 1960–2009 1970–2009 Euro area Brazil China India Japan Russia UK US World Euro area Brazil China India Japan Russia UK US World 60% 80% 75% 50% 70% 65% 40% 60% 30% 55% 50% 20% 45% 40% 10% 35% 0% 30% 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 China has one of the highest domestic savings rates in the world, higher than both its developed and developing world peers. Despite the government’s efforts to reverse this trend, savings rates have continued to rise in recent years reaching 53% of GDP by 2009. Savings rates are believed to have remained stubbornly high in part because of the nation’s inadequate social security framework. Individuals typically save as much as they can to prepare themselves for large unexpected expenditures, including unemployment, healthcare costs, or some other catastrophe. Despite being the second largest economy in the world, consumption only accounted for 35% of GDP in 2009, having fallen from 47% in 2000, as fixed investment and capital expenditure have taken priority. Source: IMF, Savills China Research 4 Source: IMF, Savills China Research Macro – Chinese consumption’s global importance Household consumption index, China’s contribution to global household 1990–2010 consumption, 1970–2009 1990 = 100 Euro World Brazil China India Japan Russia UK US 6% 550 500 5% 450 400 4% 350 3% 300 250 2% 200 150 1% 100 50 0% 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 Despite many people talking about high savings rates in China and the lack of consumer mentality, household consumption has increased dramatically over the last 20 years. It has not, however, exceeded GDP growth, which explains why its contribution to the economy has been shrinking. From 1990 to 2010 household consumption grew 4.8 fold (inflation adjusted) from RMB871 billion to RMB14.0 trillion. While accounting for a decreasing amount of global consumption between 1970 and the early 1990s, China’s contribution to global consumption levels has skyrocketed in recent years and now represents more than 5.6% of global household consumption in 2010. Source: UN, Savills China Research 5 Source: UN, Savills China Research Macro – Retail sales continue to grow at pace Retail sales, Retail sales per capita by tier city, Jan 1994–Dec 2011 2001–2009 RMB billion Retail sales (LHS) YoY growth (RHS) RMB per annum 1 2 3 4 5 1,800 45% 35,000 1,600 40% 30,000 1,400 35% 25,000 1,200 30% 1,000 25% 20,000 800 20% 15,000 600 15% 10,000 400 10% 5,000 200 5% 0 0% 0 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 2001 2002 2003 2004 2005 2006 2007 2008 2009 While China was known as the world’s factory at the start of the new millennia, this perception has quickly changed. China has emerged as the world’s largest auto market, retailers register record sales growth in the country and Chinese tourists swamp luxury goods stores in Paris, London and New York. Retail sales have grown between 10% and 20% since 2004 and during the global financial crisis (GFC), China was one of the fastest growing markets in the world. Retail sales growth has quickly trickled down to smaller cities. Retailers established in key mainland markets have looked to expand footprints in new territories, while businesses looking to save costs have relocated to lower tier cities, generating new jobs and pushing up income levels. Source: NBS, Savills China Research 6 Source: NBS, Savills China Research Macro – Income and expenditure Disposable income, expenditure and Urban household income distribution, savings rates,1992–2010 2005–2010 <RMB20,000 RMB20,000-40,000 RMB40,000-60,000 RMB Disposable income (LHS) Expenditure (LHS) Savings rate (RHS) 20,000 50% RMB60,000-80,000 RMB80,000-100,000 >RMB100,000 100% 2% 3% 4% 2% 3% 7% 9% 18,000 45% 6% 4% 12% 90% 7% 6% 10% 8% 16,000 40% 17% 9% 80% 13% 20% 15% 14,000 35% 70% 24% 17% 12,000 30% 60% 26% 27% 10,000 25% 50% 45% 28% 45% 8,000 20% 40% 42% 6,000 15% 30% 36% 32% 4,000 10% 20% 27% 29% 2,000 5% 22% 10% 16% 11% 8% 6% 0 0% 0% 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 05 06 07 08 09 10 Disposable incomes have risen at a steady, and by western standards phenomenal, rate over the last 20 years. Consumption expenditure, however, has not been able to keep up, resulting in less of the total disposable income being spent. In just six short years the proportion of urban households in China making more than RMB100,000 per annum has increased from 2.1% to 12.2%, while the percentage of households making less than RMB20,000 has fallen from 28.6% to 6.2%. Such figures may be overstated as they do not take into account high inflation rates. Nonetheless, there have been significant gains in bringing about China’s middle class. Source: NBS, Savills China Research 7 Source: NBS, Savills China Research Macro – Consumer expenditure breakdown Urban consumer expenditure breakdown, Rural consumer expenditure breakdown, 1992–2010 1992–2010 100% 0.8% 100% 1.8% 2.1% 3.2% 2.2% 2.3% 2.1% Miscellaneous 8.4% 7.4% 8.2% 7.1% 5.7% 6.0% 6.7% 15.9% 13.9% 3.5% 3.3% 3.6% 3.7% 90% 15.1% 14.8% 90% 4.7% 3.2% 4.5% Household Facility, 16.0% 17.8% 19.1% 10.2% Article & Service Residence 6.0% 8.0% 11.5% 9.8% 9.9% 9.4% 80% 6.6% 7.8% 80% Miscellaneous 10.0% 11.3% 8.8% 9.4% 1.9% 2.6% 11.1% 9.5% 8.4% 13.3% 3.7% 3.2% Recreation, Edu & 11.5% 14.4% 12.1% 3.8% 2.6% 13.9% 70% Cultural Service 70% 2.5% 5.2% 5.6% 5.2% 4.3% 6.3% 8.8% 3.1% Residence 10.2% 10.5% 5.9% 8.0% 6.9% 5.2% 5.5% Transport, Post & 60% 14.1% 9.3% 11.7% 13.6% 14.7% 60% 6.0% 4.7% 6.2% 6.5% 7.4% Telecommunication 13.5% Recreation, Edu & 4.4% 4.1% 5.7% 4.6% 50% 11.1% 6.5% 7.4% 7.0% 6.5% Cultural Service 50% 5.5% 5.3% 6.0% Medicine & Medical 6.0% Service 10.1% 9.6% Transport, Post & 10.4% 10.7% 40% 40% Telecommunication Household Facility,Article & 30% Medicine & Medical 30% 57.5% 58.6% 52.9% Service 53.4% Service 50.1% 47.7% 47.2% 44.5% 43.1% Clothing 20% 41.1% 20% 38.2% 37.7% 36.3% 35.7% Clothing 10% 10% Food Food 0% 0% 92 95 98 01 04 07 10 92 95 98 01 04 07 10 As incomes have risen and consumption on consumer and luxury products has increased, the percentage of expenditure going to food has decreased rapidly (despite the cultural significance of food and rapid inflation of food stuffs). In urban areas food consumption as a percentage of the total has fallen from 52.9% in 1992 to 35.7% in 2010. Transportation and communication has been the biggest gainer, rising from 2.5% to 14.7% in the same period thanks largely to the growing automobile industry and the explosion in mobile and internet usage. Source: NBS, Savills China Research 8 Source: NBS, Savills China Research Macro – Gini and Engel Gini coefficient, Grey income estimates, 2000–2009 2008 Sweden RMB NBS data (LHS) Wang's data (LHS) Difference (RHS) Norway 200,000 250% Finland Germany Egypt Mongolia 160,000 200% Canada Switzerland Greece Spain 120,000 150% Italy Indonesia India Vietnam 80,000 100% United States Thailand Russia China (PRC) 40,000 50% Turkey Philippines Argentina Mexico 0 0% Brazil Bottom 10-20% 20-40% 40-60% 60-80% 80-90% Top 10% South Africa 10% 0 10 20 30 40 50 60 70 80 Income inequality and unreported income are two barriers associated with gauging the size of China’s retail market.