Recently I returned from a trip to China where I visited Hong Kong, Shanghai and Beijing developing an advisory package for retailers looking at expansion opportunities in the increasingly competitive Chinese market.

Recently I returned from a trip to China where I visited Hong Kong, Shanghai and Beijing developing an advisory package for retailers looking at expansion opportunities in the increasingly competitive Chinese market.

Not only are there massive differences between retailing in China and the UK, but the differences between these main cities are also marked. So, while the potential gains are great, any retailer thinking about expanding in the Chinese market must do its research.

With a population of more than 1.3 billion, a rapidly growing middle class and the economic powerhouse of Shanghai growing by the size of Manhattan each year, China is an economy that can’t be ignored. While globally companies are struggling to find avenues for growth, China is showing rising consumption and Western brands that have made the leap are reporting huge sales increases.

It’s not just luxury goods that are appealing to the Chinese – any ‘quality’ Western brand appears to be doing well. For example, in Hong Kong there are UK household brands such as Marks & Spencer, Jack Wills, Mothercare and Clarks. But I find it surprising there aren’t more British brands represented.

With all this opportunity businesses might assume that it’s an easy market to break into but it can be costly, so given the fundamental differences it’s vital to understand it. For example, making money in Hong Kong as a non-luxury retailer is virtually impossible, with space at a premium and astronomical rents. But it’s the place to be seen so many retailers use it as a showcase.

Staff are remunerated by sales commissions, leading to ‘customer hunting’. Even the store formatting is different. What would be a department store confined to one space in the UK is open plan and split up throughout a shopping mall with customers paying at various cash points.

Shanghai is the nearest to a Western shopping city, with a mix of mainstream Western and Chinese brands. It is unofficially the counterfeit goods capital of China. While the Chinese government is trying to stamp it out, brands must safeguard their stock from counterfeit contamination, as Chinese consumers will not touch anything they consider ‘fake’ – only Western tourists buy it.

Retail in Beijing is different again from both Hong Kong and Shanghai – still international but with more of a Chinese flavour and a street market approach. Many stores are based around product category irrespective of price, so a gift shop I visited catered for all wallets from £2 to £200,000 and retailers also focus on geographical consolidation. Rents are lower, which allows bulkier items like cars to be sold alongside other luxury stores. As a result, location planning is crucial if opening in Beijing.

The opportunities for retailers in China are enormous but there are hurdles to establishing a presence. However, with careful planning and an appreciation of the steep learning curve, great gains can be made. As the Chinese population becomes wealthier and spreads, can retailers afford to ignore it?

  • Barry Knight head of retail, Grant Thornton UK