The Retail Industry in China - Assignment Example

?Retail Industry Introduction Retail is part of an integrated system known as the supply chain, which involves the sale of goods and services to the consumers from individuals or businesses. A person who does this is known as a retailer. Retailers purchase goods in bulk either from manufactures or wholesalers and then split them and sell them in small quantities to the consumers. Retailing is achieved through either markets or stores, door-to-door or delivery of goods at the doorsteps of the consumers. Retailing has advanced with technology and now we have what we call online retailing as well. There are different types of retail outlets. They are classified according to the products they sell and by marketing strategies. There are the types that do not fall in the two and are classified as others. Retailers of products are food products retailers, hard goods retailers and soft goods retailers. Retailers classified by marketing strategies are the most. They include, department stores, discount store, warehouse stores, variety stores, demographic retailers, Mom-And-Pop retailers, specialty stores, boutiques, general store, hypermarkets, supermarkets, malls, Category specialist, e-tailers, and vending machines. Automated retail stores and big box stores fall in the others category (Pradhan & Pradhan, 2009). Retail Industry in China China’s retail industry is now ranked as the second largest in the world after the USA. The chain stores and Chain supermarkets serving the daily needs of the people appeared in china in around a decade ago and they rapidly grew to the extent of being the second largest retail market worldwide. However, there is no dominant player in the retail industry despite its rapid growth, unlike the USA that has dominant players like Wal-Mart and others. Its rapid growth can be owed to the government of China in 1992. The government launched a series of policies to promote fast, orderly and healthy growth of the industry. One of the policies was permitting foreign investment in retailing. The government of China, by 1997, had approved about twenty-four foreign-invested stores. Hundreds of foreign-invested retailing, however, had been established before then after seeking approval from the provincial and municipal authorities (Zhen, 2007). The retailing sector of China is highly fragmented accommodating both medium sized and small retailers. This is different with the United States that have a dominating presence of big retailers. This is because of the barriers local market access. China does however brag of a wide range of retail formats. Department stores are one of the earliest formats of retail outlets. They were very popular before but they are now facing competition and fighting to stay ahead. Examples of department stores in China are Parkson, Beijing Cuiwei, Golden Eagle, and Shenzhen Suibao. Another retail outlet format is the hypermarkets whose development are owed to the international retailers. Wal-Mart, Mart Shanghai, Trust-Mart, Tesco, and Carrefour are examples of hypermarkets. Supermarkets are another retail outlet that is facing competition. Domestic players dominate this highly fragmented market. Examples of supermarkets in china are Baijia Supermarket and A-Best Supermarket. Convenience stores are not fully developed retailers but are already facing competition from especially from domestic chains. Quick of LianHua is an example of convenience store in China. Specialty stores are retail outlets dominated by domestic players with foreign investment being very limited. Examples are GOME and Suning. Discount stores are still evolving and the first one was introduced in 2003 by Carrefour. Franchising retailing constitutes for around three percent of the total retail market of china with a huge potential for growth in the future. Examples are Pizza Hut, MacDonald’s, KFC, and 7-eleven. Direct selling is another retailing format of china. Its potential for future growth is large. Examples of direct selling retailers are AMWAY, Avon, and Mary Kay. Online retail is the last of china’s retail outlets. It has a tremendous growth between 2009 and 2010 with most transactions being consumer-to-consumer. The population using the internet is growing so and the numbers of online retail sale are expected to grow. Examples of online retail outlets are Taobao, eBay, and Alibaba (Zhen, 2007). The Chinese retail industry has a very bright future of growth ahead. However, it does face a number of challenges. Fragmentation is a challenge in China’s retail industry. Consolidation should be a top priority for China if they want to enjoy the economies of scale or be efficient. The Chinese retail market is however very fragmented. Competition is very fierce, especially in the hypermarket and supermarket retail segment (Zhen, 2007). Another challenge that Chinese retail industry is facing is the high and the rising cost of leased land. Most retailers operate from leased land since buying land is expensive. For example, Gome owns only eight percent of the floor area the rest is leased. The problem is that leasing floor is getting more expensive in China and the cost of leasing land is rising. Reluctance of China retailers to outsource non-core functions like IT and their not focusing on core constituents in customer orientation and retailing has costed them a lot (Zhen, 2007). Branding is one of the strategies that retailers use to attract consumers into buying their goods. Still, Chinese retailers and consumers make branding a daunting exercise. Although brand awareness is on the rise in China, the same cannot be said about brand loyalty among the consumers. China is working on developing brands with domestic retailers but the problem comes from cultivating brand loyalty. This has hence posed as a problem in the Chinese retail industry (Zhen, 2007). The last challenge in the Chinese retail industry is the treatment of the foreign retailers. Many foreign retailers have made their way in the Chinese retail industry. Nevertheless, they still face many restrictions and lack of clarity in the rules. This can be proven with the fact that foreign retailing takes up only five percent of China’s retail market. The foreign retailers have played a major role in the development and modernization of the retail industry in China. This means that China retail industry would develop even more if they allow more foreign-invested retailing by reducing restriction and being clear with them on the rules pertaining retailing (Zhen, 2007). Retail Industry in USA The USA retail industry is ranked the largest in the world. It is the home of more than thirty percent of the retail companies in the world. The retail industry is the dominant industry US including one million stores and accounting for four trillion dollar revenue per year. It is also working to expand their retail operations across the world, which it almost achieves. This industry is the largest employer in the United States. Retail companies are either privately held or government operated. US retailers place a great importance on location of retail stores especially if it is going to be a brick and mortar store. The success or failure of a retail will depend on the location of the store. Seasonality is another general issue that a US retailer must contend with (Plunkett, 2008). There are a number of retail categories in the US. Convenience stores are the most popular retail group. They account for around 350 billion dollar revenue annually. They sell a variety of things from food, candy, groceries, magazines, cigarettes, to fuel. They are mostly located in high traffic areas. Examples of convenience stores in the US are On the Run, Circle K and Sunoco Aplus. Vending machines are another type of retail outlets that are popular and still growing. They earn revenue of around six billion dollars and are also located in high traffic areas. The most popular types of vending machines are soda, beer, snacks, ice-creams, and more. Examples of vending machines are Fresh Healthy Vending and 24Seven Vending. Another retail type is the coffee shop industry. They shops do not just sell coffee as their name might suggest, they also sell tea, cappuccino, espresso, pastries, sandwiches and other edibles. They mainly serve the young and the educated. This industry has around twenty thousand stores all over the country and its worth around ten billion dollars. Examples are Arabica Coffeehouse, PJ’s Coffee of New Orleans, and Bearclaw Coffee. Beer and liquor stores are also another retail outlet in the US. The products sold in these stores are wine, beer, and liquor. However, the sale of these differs from state to state, depending on which state allows what. This store earns revenue of around forty billion dollars annually with around thirty thousand stores countrywide. Examples are The Connoisseur, Winestyles and Vinter Cellar. Drug stores earn America annual revenue of around 220 billion dollars annually. They sell both front store and prescription drugs. The state regulates the pharmacist. Good Neighbor Pharmacy and Medicap Pharmacy are examples of drugstores. Finally yet importantly is the apparel retail. It accounts for around three hundred million dollars annual revenue with the sale of women's clothing being the most profitable. Apparel retail is unique because the major factor of competition in it is more on the fashion and design than on the price. Examples of these retails are Clothes Mentor and Hut no. 8 (Plunkett, 2008). Even the biggest retail industry faces its own challenges. The top two challenges facing retailers are growth and innovation. Retailers in the in the US should be that it is dealing with moderate growth and more informed and budget-conscious consumers. Consumers are internet literate so they search for products they want online. They look for products with the quality they want and with affordable prices. Making such consumers willing to spend more becomes a challenge. The retailers are hence forced to come up with more innovative services and product offers. Online shopping has threatened brick and mortar shopping. Consumers find internet shopping more attractive and convenient. This has hence pushed retailers into coming up with brick and mortar stores that are more creative to attract customers (Plunkett, 2008). Since the USA retail market is going global, it is faced with the challenge of which products to sell where. It is much easier to sell products in the home country than outside. They are required to know the local rules and regulations and monitor compliance with the USA Foreign Corrupt Practices Act. They should know the type of products that would sell in the particular countries (Plunkett, 2008). Upcoming technologies have also proven to be a challenge it the US retail industry. As much as technology is good, it is expensive. The adoption of the new technology has become a problem because they are afraid the cost of installing the technology will be more than the profit they will make after adoption of the technology. They are also faced with another challenge of paying consultants and researchers to advise them on the best technology to adopt (Plunkett, 2008). Analyzing data has also become a problem. Retailers have information about consumers but many are they have a hard time getting what it means. They hence have to buy software and hire analysts to get sense out of the data they have. They hence find it damaging to their pockets. The last challenge that they have to deal with is the economy. The rate of unemployment and poverty is causing fewer and fewer consumers purchase products (Plunkett, 2008). Conclusion The retail industry is the biggest industry in the world with the United States and China taking the lead. The industry faces almost the same challenges with slight differences in different countries depending on culture. For example, China faces a challenge of fragmentation and USA faces no such challenge because its retail industry is consolidated. The classification of retail outlets in both China and the US is quite the same but vending machines are more common in the US than in China. The level of growth of China is faster than that of the US. The retail industry is very necessary for consumers. Consumers cannot survive without it. Despite of challenges and uncertainties the industry is facing, it will still have consumers to purchase their products and services. Lastly, Technology is advancing in the retail industry, hence making it more advanced. Soon people will stop lining up at the cashiers to pay or have to carry products to their homes (Pradhan & Pradhan, 2009). References Plunkett, J. W., & Plunkett Research, Ltd. (2008). Plunkett's retail industry almanac 2009: The only comprehensive guide to the retail industry. Houston, Tex: Plunkett Research Ltd. Pradhan, S., & Pradhan, S. (2009). Retailing management: Text and cases. New Delhi, India: Tata Mcgraw-Hill Education Pvt. Ltd. Zhen, Y. (2007). Globalization and the Chinese retailing revolution: Competing in the world's largest emerging market. Oxford: Chandos Pub. Read More