Chinaís Retail Surprise

By Frank Mulligan - Recruit China

The retail market in China continues to grab my attention because of the very high rate of growth and sheer volume of positions in it.

I can still remember the days when there was not so much as one single large-scale supermarket, or hypermarket, in China. Not one. Hard to believe when you look at the development since, but itís absolutely true, and not that long ago.

Now hypermarkets are so common Walmart is projecting to have somewhere in the region of 2000 stores in China eventually. Modern retail is growing at about 50% per year and has a huge upside potential. It currently only serves about 100 million people, in a country of about 1,300 million people. The rest are served by small, expensive corner shops and wet markets. No, these people cannot afford modern retailing, but they will, and soon.

Late last year Walmart took over the assets of a Taiwanese retail player called TrustMart. This acquisition will put them ahead of Carrefour, who have been taking the Chinese retail market by storm over the last 10 years.

The chain stores have been here for a long time, of course, and I can still remember the opening of the first Carrefourís back in 1995 in Beijing. Since then many of the worldís retailers including Metro and Auchan have joined Walmarts and Carrefour and built out multiple stores across China. However, after WTO accession in 2001 things really ramped up and by 2005, only four years later there were triple the number of stores and quadruple the total store area. Meanwhile, local PRC retail players number their stores in the hundreds.

Other companies like BandQ and Lotus havenít exactly been slouches either and each has strong ambitions for the China market. So itís all about consumer choice now, and lower prices.

But chain stores supermarkets are old news, now comes the specialist stores.

For example, the German fashion retailer CandA plans to open four stores in Shanghai to cash in on booming consumer spending in the city. The boardings on the final locations are already sporting the CandA logo so it looks like we can expect them to be open at latest in the summer.

CandA is one among many. Other famous brands such as Zara and HandM are also planning to follow the same path. The logic of these opening is the 336 billion yuan (US$43.4 billion) retail sales in Shanghai for last year. The growth was the largest since 1998 but it increased 13% last year.

The dynamics of the retail market are such that it has become a race to open new stores before competitors do. Those who cannot manage the opening of new stores are often resorting to buying their way in.

New players include Tescos(UK) and BestBuy(USA). Tescos just opened its first store while Bestbuy have also just opened a store in Shanghai after a soft launch. The plan is to have another one or two stores over the next year or so.

And its not just stores, itís also new ideas. Recently Chinaís first Drive-In McDonalds opened in Beijing. Now all we need is a drive-in movie theater.

Retail Hiring
On the hiring side things are not so bright for retail companies.

Itís not about consumer choice but about choices for candidates and higher prices for their services. This minimises the options for companies and puts huge pressures on them because of the tiny net margins (2-3%) that retail players have to work with.

Salaries in retail have not gone up as fast as they have in other industries, largely because much of the work in the stores can be done with a little spit and polish, and a lot of common sense. But now that high-end branded retail companies have arrived, retail staff have more choices. More places to use their skills. Salaries are drifting up.

Another big issue is that as the retail chains develop the spit and polish approach tends not to work anymore. You need another layer of people with high skills to take advantage of the economies of scale that come from having hundreds of stores. People with knowledge of logistics, ERPs, branding and management, for example. People who can think, and take actions outside the normal comfort zone, and who can handle teams of young people who have been promoted too fast because ëthere was no one elseí.

The recent purchase by Walmarts is likely to be followed by a response from the other retail players. This consolidation will create bigger chains and those bigger chains will create these higher skills positions. Itís happened already in industrial companies and built many new careers for expatriates who thought they might have to go home.

Soon however, the focus will have to change from store expansion to efficiency improvements. Then all the new hires will really have to prove their worth.

So if you are in HR in retail and you think you have trouble finding people, think again. The problems have only just begun.

Email frank.mulligan@recruit-china.com
Frank Mulliganís blog - english.talent-software.com