China Retail 101

Investing in China’s Retail Industry, PriceWaterhouse Coopers, New York, April 2006, pdf, 12 pages

PWC’s report on investing in the retail industry in China is, as you would expect from a free 12-page report, a bit of a 50,000 foot overview of the industry, and as an introduction to the business for someone who knows little about retail in the PRC I suppose it’s adequate. It focuses on the regulatory and structural nature of retail, both of which are critical.

But an overemphasis on scale as a determinant of success over other factors suggests a very narrow analytical framework. Yes, retail in China is still in its early stages of modernization, but there is more to success than the number of stores or square feet you are managing. There are a range of factors that could produce success that the report all but ignores.

For example:

• Chinese retailers are not merchandisers, they are real estate companies. Simply introducing strong merchandising skills, from product selection and price balance to display and promotion, can give a store a leg up on its competition. Simply having relationships with suppliers is not enough.

• While the country is moving in the direction of massive chains designed to serve broad swaths of the population, there are also emerging niche opportunities to service different parts of the market.

• The experience of buying stuff in China still, well, sucks, and is largely undifferentiated from place to place. Simply having more bigger stores that feel like, say, Jingkelong, is not going to prove an advantage in the long term. Chinese are looking for a better experience than they have been getting for the last several decades.

So use the PWC report as a starting point, but move quickly to more in-depth analysis.