What is the outline of China’s retail sector right now?

Currently, China’s retail sector is fragmented. Small independent stores dominate the retail landscape, with the top 100 retailers accounting for only 11 percent of total retail sales. For a long time, companies only set up stores in the downtown areas of first- and second-tier cities of Mainland China. However, with rising rent costs and increasingly fierce competition, large retailers are gradually losing their price advantage. Meanwhile, in the wake of China’s rapid urbanization, former small and medium-sized cities have gradually developed into large cities, providing tremendous opportunities. This combination of concentration of populations and the gradually improving infrastructure are attracting the attention of international retail giants. Some retailers are therefore shifting their business focus from first- and second-tier cities to third- and fourth-tier cities in China. In fact, 58 percent of newly opened stores across China are found in tier-two and tier-three cities.

Companies need to keep the varied needs of rapidly expanding smaller cities in mind. Rather than a cookie-cutter approach, companies should design city-specific solutions, including product portfolios, marketing approaches and operating models tailored to the unique demographics and culture of these cities and the needs of increasingly sophisticated consumers.