As discussed in the recently published strategy briefing — Shifting Market Frontiers: Identifying Asia Pacific’s Secondary Cities for Retail Investment, Chinese secondary cities (cities with total disposable income of USD10 billion – USD50 billion in 2016) present the greatest potential for retail market investment in the developing Asia-Pacific region. Opportunity-hungry companies and investors are always on the look-out for prospective investments into new and untapped markets that are benefiting from rising incomes and improving standards of living. Factoring in the increasing importance of smaller cities in supporting national growth, but also in leveraging portfolio diversification, this article seeks to unveil five secondary cities in China that are evolving into promising locations for retailing outside of its leading economic hubs.
Population and Household Disposable Income Growth in Real Terms: 2011-2016
Source: Euromonitor International from national statistics/UN
Xi’an, located in China’s northwest has witnessed a boom in its retail market over the last few years. The city, home to nearly seven million people in 2016, has seen a flurry of foreign retailers enter the market on the backdrop of rising incomes and improving standards of living; this includes mid-market fashion retailers such as H&M and Zara as well as luxury brands such as Givenchy, Prada and Sergio Rossi. According to the global real estate analysts Savils, by 2019, the city is expected to house 3 million sq m of retail space, with developers increasing their focus toward non-prime locations.
Households in Wuxi are among the most affluent in the country with average household disposable income in the city reaching USD23,800— a figure far exceeding tier one cities such as Shenzhen (USD21,300) or Tianjin (USD19,200) in 2016. The city has attracted prominent retailers such as New Look, IKEA as well as high end brands including Kate Spade and Versace. The latter has been, in part, attributed to the relatively high proportion of wealthy households, with 2.3% of households having disposable incomes greater than USD100,000 in 2016, a figure not far off leading cities such as Guangzhou (2.5%) or Beijing (2.7%).
Zhengzhou, located in Henan province with a population of 5.7 million in 2016, is a key inland destination for retailers. The city has welcomed a range of international brands such as Apple, Michael Kors and Gucci over the past few years and retailing developments are continuing to pop up. Just in March 2017, one of the major US mall investors Taubman Centers Inc. opened up CityOn.Zhengzhou—its second project in the country (the first was in Xi’an)— a 94,000 sq m mall capable of housing 200 retailers.
Changsha is one prospective city thanks to its relatively low retail penetration and high economic potential, as according to the report China 20 - Retail Cities by Savils, which seeks to identify the top 20 cities in the country for retailing. The city contains an affluent base of households with a quarter having total disposable incomes of USD25,000 or more in 2016 – compare this to other secondary cities such as Chongqing and Nanning, where the shares stood at 6.9% and 9.1%, respectively, in the same year. The city is currently home to renowned brand names such as DKNY, Michael Kors and GAP.
Ningbo, located in Zhejiang Province, is another city with retailing potential and it is one of the largest manufacturing spots for apparel in China. With a population of 3.8 million, it is the smallest city of the five mentioned in this article; nonetheless, Ningbo has attracted a wide range of luxury brand names in recent years including Louis Vuitton, Cartier and New Balance. The city benefits form an affluent population, with disposable income per household in 2016 exceeding that of major cities including Tianjin, Shenzhen and Wuhan.
Still room for growth in store-based retailing
Store based retailing has cascaded down over the last few years as a growing number of consumers have opted to shop online in an attempt to find greater variety, better value for money and save time. Nevertheless, it is not all doom-and-gloom for store based retailing. According to Euromonitor International’s forecasts for retailing in China over the period 2016-2021, opportunities in warehouse clubs, pet care and toys and games industries are some of the expected leading areas of growth over the near term.
Growth of Select Retailing Industries and Segments in China: 2016-2021
Source: Euromonitor International from trade sources/national statistics
Click here to access the strategy briefing — Shifting Market Frontiers: Identifying Asia-Pacific’s Secondary Cities for Retail Investment for a more in-depth analysis.