Market Monitor - Consumer durables - China

Обзор рынка

  • Китай
  • Потребительские товары

01 апр 2015

The Chinese retail market remains highly fragmented due to the large population and differences in consumer behaviour and purchasing power across the country.

Market performance snapshots

China

  • Growth rates remain high
  • Decreasing profit margins for household appliances retailers
  • Payments take between 45 and 90 days

China’s retail industry has seen substantial growth rates in recent years, due to rising disposable incomes and booming urbanization. In 2014, domestic consumption surpassed investment to become the strongest driving force of the Chinese economy, accounting for 51.2% of GDP growth.

However, the Chinese retail market remains highly fragmented, with many small and independent retailers in the market, due to the large population and differences in consumer behaviour and purchasing power across the country. According to Euromonitor International, the top 20 retailers only account for approximately 12% of the market share (compared to about 40% in the US). Domestic operators still dominate the market, making up an estimated 75% of the total stock by number of shopping centres.

Sales of household appliances sharply increased between 2009 and 2013, mainly driven by public subsidy programmes (such as “Old for New Policy”, “Home Appliances to the Countryside” and “Energy Saving”). This growth was expected to slow down after the subsidy programmes ended in 2013, as many Chinese families had upgraded their appliances and demand for replacement was expected to be low in coming years. However, in 2014 the market performed better than expected as household appliance manufacturers started to launch innovative products at relative low prices. But this action and fierce market competition in the Chinese home appliances industry has also affected retailers’ profit margins. The growth of internet shopping is also fuelling competition and eroding profit margins. China’s traditional brick-and-mortar household appliance retailers are increasingly feeling the pressure from online retail competition. Forrester Research estimates that online retail will grow at a compound annual rate of 19.9% every year until 2019 – significantly faster than retail sales overall. In response, an increasing number of offline retailers are adding online sales channels.

According to the Ministry of Industry and Information Technology, turnover in the furniture industry increased 10.9% year-onyear in 2014. This was lower than in previous years, due to government measures to curb the overheated real estate market. Despite the slowdown in residential furniture, the recent construction boom in many major Chinese cities has resulted in a significant growth in office space – and a consequent demand for office furniture as companies upgrade both their offices and their office furnishings. This has provided a boost to the middle and upper-end office furniture markets. Customized furniture has become another growth driver, although it only accounts for 10% of the overall furniture market. Since customized furniture normally charges relative high prices, it brings much more profit per unit to a company than ordinary furniture.

On average, payments in the consumer durables retail industry take 45 to 90 days and we do not expect any significant increase in payment delays in the foreseeable future. Even when payment delays occur, this is often seen as a bargaining ploy rather than because of cash or liquidity issues.

The consumer durables retail sector’s default/insolvency rate is relatively low compared to other Chinese industries, and we do not expect this to change. However, as e-commerce continues its rapid development in China, we need to monitor those businesses with small-scale sales and equity but large investment in their online platforms. This could lead to significant funding pressure and, in the worst cases, to insolvency if no timely and effective action is taken.

The vast size of China’s consumer base, the undeveloped nature of organised retail, relatively low penetration of services, and growing demand for premium products are key factors behind the growth of the industry in the coming years. A key opportunity is the growing middle-class segment´s demand. Another growth opportunity lies in still less developed towns and cities or rural areas, where the impact of income growth and urbanisation is likely to create increasing demand for consumer durables.

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