Chengdu's Retail Sector Bucks World Trend

Chengdu’s retail sector keeps growing strong, as its residents continue to spend with flourish in the face of the economic downturn

Issue: Mar 2009

Chunxi-Road
The bustling Chunxi Road, one of the main shopping street in Chengdu. Photo Credit: littleboat5

In many parts of the world, retail sales have plummeted due to the global financial crisis. With the deepening of the economic crisis, consumers are restricting their spending to essential products. Moreover, the situation is worsened by layoffs in companies and the fear of a deepening recession.

However, the situation is different in Chengdu. Despite the continuous news on the ferocity of the crisis, Chengdu residents continue to spend, and in its recent seven-day Spring Festival holiday which ended on 1 February 2009, retail sales for the festival exceeded RMB5 billion. The brisk consumer market is also demonstrated by the number of bankcard payment transactions, which, according to Sichuan branch of China UnionPay, amounted to RMB3.43 billion, up 43% from last year.

In the past, Chengdu's retail sales have also shown similar phenomenal growth. Over the last 18 years, the city has only recorded a single year when growth fell below 10 per cent. In the last three years growth averaged 17 per cent. It recorded the highest rate in ten years in 2008 when year-on-year growth rose to 19.5 per cent, taking the city's retail sales volume to RMB162.2 billion.

Healthy Growth in All Areas

chengdu3
Chunxi Road at night
Photo Credit: Ara Jane Olufson

Chengdu's purchasing power has shown an upward trend with healthy economic growth and increasing incomes. In 2007, Chengdu's GDP reached RMB332.4 billion with a year-on-year growth rate of 15.3 per cent, the highest growth rate since 1994. On an average, the economic growth for the last seven years was close to 13.6 per cent.

The annual disposable income per capita of urban residents reached RMB 12,530 in September 2008, an increase of 15.7 per cent year-on-year. In 2007, per capita consumption in Chengdu was the equivalent of 80 per cent of disposable income, approximately 10 percentage points higher than in Shanghai, Beijing and Shenzhen.

While per capita urban disposable income is lower than in all of China's first-tier cities, Chengdu ranks ninth in the country's retail sales, and is only second in western China to Chongqing which has a population of more than 30 million people. It is therefore no surprise that retailers who want to have a presence in China’s four main economic regions tend to choose Chengdu for their main base in western China.

A Strong Retail Market

As the commerce and trade centre of Sichuan province and the starting point of the ancient Southern Silk Road, Chengdu is one of the busiest shopping destinations in Southwest China.

Chengdu has three primary retail areas (Chunxi Road, Yanshikou and Luomashi), eight secondary retail areas (Huizhan, Yangxi, Jinshaguanghua, Shuangnan, Hongpailou, Chengnan, Chengdong and Jianshe Road) and two new commercial centres awaiting establishment in east and south Chengdu in the next few years. The majority of retailers are located within the Second Ring Road.

Chengdu's retail market comprises a variety of formats including shopping malls, department stores, hypermarkets, supermarkets, warehouse retail stores, convenience stores and specialty shops. In total, there are approximately 30 medium to large department stores and malls – 80 per cent of which are located in or around the Chunxi Road retail area.

Shopping Malls Gain Popularity Among Retailers

carrefour
Carrefour is fast expanding in China

Shopping mall developments continue their upward trend in Chengdu with the opening of Capital Retail Plaza, SM Plaza, Brilliance Tianfu Shopping Centre and Wanda Plaza in recent years. Shopping malls are expected to become an increasingly favoured retail format for both local residents and international retailers.

Foreign big-box retailers including Wal-Mart, Carrefour, Metro, IKEA, Auchan and Lotus have opened stores in Chengdu. Competition between big-box retailers is intense. French retail giant Carrefour opened its 15th branch at the end of 2006 and continues to strengthen its expansion in Chengdu. In 1Q08, Carrefour signed a leasing contract to set up a store in a residential project in Wenjiang District. It will then be the first hypermarket in the Chengdu suburban area. U.S. based Wal-Mart opened its third store in Dadi Xinguanghua Plaza in 2007.

Most existing foreign big-box retailers plan to open more than two chain stores in the city in the next two years. Rather than building stand-alone stores, big-box retailers are looking to lease space as anchor tenants in shopping mall developments.

Retail Price on the Rise

In recent years, Chengdu's primary retail market has witnessed a significant increase in rents. The average rental of primary retail areas has almost doubled in 2008 compared with 2004.

Chunxi Road sees the highest rentals, ranging from RMB35 to RMB66 per sq m per day in 4Q08, followed by Yanshikou with rentals ranging from RMB16.5 to RMB20 per sq m per day. The lower rentals offered in Luomashi, between RMB3.5 and RMB6.5 per sq m per day, are mainly due to an increase in vacant space in prime retail stores in the area.

Compared to first-tier cities in China, Chengdu has very few grade A retail malls. Retail developments for strata-titled sales are generally managed below par. Average retail sale prices vary significantly from RMB30,000 to RMB300,000 per sq m in primary retail areas due to location and size. Though the retail price is high, quality retail developments remain attractive for retailer investors due to the optimistic investment yield at 7 to 10 per cent.

General Outlook

The merging of the Chunxi Road and Yanshikou retail districts into one larger retail area is expected to lend the area greater economies of scale and widen its catchment enabling landlords to charge higher rents for prime retail space.

Until recently there have been relatively few shopping mall developments in Chengdu with department stores and street shops still accounting for the majority of retail stock. As the Chengdu market continues to mature, it is expected that more shopping malls will attempt to emulate the success of existing malls such as Brilliance Tianfu Shopping Centre and Wanda Plaza. In suburban retail centres, hypermarkets are expected to continue as the pivotal anchor tenants, supporting projects with high footfall.

Article is contributed by CapitaLand's Research Team

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