China Retail

Notes from Shaanxi

I've spent most of the week in Shaanxi province looking at retail development opportunities. My first stop was Hanzhong, a small working city in a pretty green basin surrounded by mountains. Small, meaning only about 4 million people. I asked the taxi driver waiting under the hot sun how many flights were coming in today. "Only you," he said.

Hanzhong is definitely out in the sticks. A couple flights in and out a week, and if you're in a hurry, there's a winding four hour bus ride north to Xian.

What I saw there really surprised me. I was expecting a lot of dust, thick pollution, and a scream of motorbikes and peasants. What I saw instead was a comfortable easy going city powered by a strong aviation industry, clear blue skies, and fast retail expansion. Within 500 meters of the city center there were a half dozen or more malls and department stores (current or under construction), a busy pedestrian street, and a dozen or more mobile phone retailers selling the latest Motorola or Nokia handsets. I didn't see any other foreign brands except for sport shoes, the ubiquitous KFC (which was busy), and an empty Starbucks knockoff.

If you wanted to settle down in Hanzhong you could pick up a newly fitted out apartment for less than RMB3000psm, but a pair of Adidas would still cost you RMB650.

It was obvious Hanzhong was on the to-do list of some major developers. Four new malls were sprouting up within shouting distance of each other, strata titled of course to ensure quick returns for the developer but long term chaos for the retailers. Good luck there guys.

My next stop was Xian, historically known as one of the ancient capitals of China for over thirteen dynasties, dating back to 1122BC. Everything in Xian was moving fast, and the pollution was worse than I've seen in Beijing. This was a city overflowing with Chinese tourists and way too many places to spend that slippery tourist money. There were even dueling multi story KFCs right across the street from each other. Along the main strip, you found malls on each corner, along the corridor, and even underground. One hi-end Plaza 66 style mall even parked their customer's BMWs, Mercedes, and Audis out front in a row, luring you in with ostentatiousness. This was all within a 1km radius.

At night it was another form of consumerism. There was an intoxicating giddiness in the air at local clubs, where the under thirty crowd were definitely out to party. This was the kind of partying where people were almost gushing "We're in the money!" No worrying about inflation or the price of oil here. Bartender, open another bottle of Chivas and green tea!

So what does this mean to someone wanting to get in on the action? If you are a foreign retailer entering Xian, you need to ask yourself, isn't it too late already? You could start focusing on defining local sub-markets, building brand loyalty, and really start thinking about getting into the smaller cities now. You also need to tell yourself, HQ, and anyone involved in the decision making process, that Western China is developing faster than you can even plan your China entry or expansion.

July 27, 2008

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