China Retail
So what's really happening in Changsha?
Changsha, in Hunan Province, is the kind of place that doesn't get much attention until something big happens in the news - like the anti-Carrefour mob that gathered in neighboring Zhuzhou recently, to protest the French and their handling of the Olympic torch events. If you aren't up to date on this, Jin Jing, a young wheelchair-bound athlete tried to protect the Olympic torch while being pelted with debris thrown by French protestors. This triggered a rash of nationalism against the French, and a top French envoy arrived a few days later to deliver a personal letter of apology from President Sarkozy to Jin Jing.
Beyond this burst of attention, Changsha is usually in the top 20 list for 2nd tier cities in terms of economic development, consumer spending, and real estate development. One of our group's clients, a major sportswear brand, has 33 retail outlets there. Their competitors have even more. There are also 26 KFCs and 132 ICBC bank branches. So with 6 million residents, Changsha isn't really a sleepy cow town.
When investors complain that they aren't hitting their IRR anymore in Shanghai and Beijing, they have a couple of options. One, reduce their IRR expectations, or two, take the Wanda/Capitaland litmus test. What's this test all about? Pretty simple. If there's already a Wanda or CapitaLand mall in a city you've never heard of or been to, then you should probably get out there and take a look. You might be surprised, even if you can't order a cappuccino.
Some Changsha news that's come across my desk recently:
April 29, 2008
China Retail
Papa John's competing with Yum for the pizza market
Papa John's, the Louisville, KY pizza chain with over 3200 stores in 28 countries around the world, recently announced plans to open 500 stores in China over the next 5 years. This will make China it's most important international market. They currently have 100 stores throughout China now and are closing their gap with Yum Brands, who have 350 Pizza Huts and over 2000 KFCs now in China.
It's interesting to note the way Papa John's are positioning themselves clearly mid-level. They've chosen a lot of 2nd floor street locations a block away from the major action. They are often in clusters with local and Taiwanese franchises. This makes them easy to find and family style. Just look for the Baodao eyeglass store, and chances are Papa John's is upstairs. I rarely see them on an expensive ground floor corner spot like Pizza Hut, who've gone decidedly upscale. When you eat at a Pizza Hut in China you feel like you are on a date and going to get prime rib. When you eat a Papa John's, you're definitely at the strip mall.
In China, we don't have strip malls - yet, but usually the first floor of most buildings along the street are smaller retailers, giving the same effect. For non-New Yorker's it might seem a bit intense. Here's what's on the street outside my window in Beijing now: the cigarette and liquor shop, a half dozen restaurants, a pharmacy, two massage parlors, a hair salon, a DVD shop, a pipe store, a sink and toilet store, a convenience store, an eyeglass store, a pink light place (that's where three women in nighties sit on a couch watching TV and knitting until a customer walks in), a few boutiques, a shoe store, a couple of real estate brokers, a kitchen supplies store, a fruit shop, a locksmith, and that's just looking to the east.
April 21, 2008
China Retail
Ningbo Wal-Mart and other observations
I'm back in Ningbo today surveying properties for an investment partner that is developing mid-sized neighborhood retail and hypermarkets. We're finalizing their location selection, and my team is here for a week doing micro analysis studies. The last time I was in Ningbo the paint was still drying on the new Wanda Plaza a little south of the city center. It's a huge complex, with Wal-Mart as an anchor, so I spent a few hours walking around, shopping, eating, talking to people, and being a 2nd tier kind of consumer. I think I can now define the difference between 1st tier and 2nd tier retail in a way most people haven't thought of. You can call it "2nd tier retail" when outside the bathrooms of a fancy new restaurant chain, there is one communal roll of toilet paper dangling from a plastic hook before you get to the squatty potty which doesn't flush properly. The communal roll of tp - for those 1st tier kind of people - is so you can grab a wad in front of everyone before you enter the stall which of course will not have paper, or a hook to hang your bag, purse, whatever, but will have an ashtray and a hi-tech infrared flush sensor built into the wall.
April 14, 2008
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