PWC - Etude Asia Outlook 030413 Basse Def

2013 Outlook for the
Retail and Consumer

Products Sector in Asia
www.pwc.com
P
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2013 Outlook for the Retail and Consumer Products Sector in Asia 1
Impacted by the global economic
conditions, growth in many Asian
markets has slowed down. However,
the region as a whole remains ahead of
North America and Europe. Retail
sales volume in Asia Pacifc is
forecasted to grow 6% in 2013 and will
maintain this upward momentum
through to 2016 with an estimated
market worth of US$11.8 trillion,
while that of North America and
Western Europe is US$4.4 trillion and
US$3.1 trillion respectively. Home to
China and India, Asia continues to be
the main driver of retail growth
globally and holds out the best
opportunity for growth and profts for
many international retail and
consumer companies.
The growing critical mass of
consumers in Asia warrants long-term
investments and tailored market
strategies. Indeed, by 2020, the
percentage of the population
considered as middle class is envisaged
to shift from North America and
Europe to the Asia Pacifc region. This
shift may happen even earlier, as
Chinas leadership has committed in
the recent 18th National Congress of
the Communist Party of China, to
double the countrys 2010 GDP and per
capita income of both urban and rural
households by 2020. The expanding
middle class consumers will be a
substantial force in driving demands
for a wide spectrum of products,
ranging from functional food, personal
care products to the latest smartphone
models. The same phenomenon is also
happening across many Asian
countries including India, Indonesia
and Vietnam.
As the largest market in Asia, China
remains crucial for many retail and
consumer companies. The Chinese
government has reiterated its emphasis
in boosting domestic consumption,
relative to fxed investments and
export, as the key economic driver of
growth. While the pace of growth may
have slowed, the retail industry is
forecasted to grow at 10.5% in 2013
and 10.4% through to 2016. At the
same time, India, with its huge young
population and growing income of the
middle class, will continue to attract
the attention of international and
regional players. This is particular so
with the recent relaxation of the limits
on foreign investments in Delhi to
allow 51% foreign equity in multi-
branded retail operation. Indias retail
growth is forecasted to bounce back
strongly from 1.9% last year to 6% in
2013.
However, Asias consumer markets are
not completely liberalised and remain
highly fragmented. Traditional
retailing still dominates and local
players are abound. Apart from the
challenges in navigating through
regulatory hurdles as well as adapting
to cultural differences and consumer
preferences, retail and consumer
companies also have to cope with the
infux of new competitors to the
market, whether online or offine. Over
the years, some international retail
and consumer companies might have
exited from certain markets in the
region, but there are also others
Foreword
Carrie Yu
China & Asia Pacifc
Retail and Consumer Leader
PwC
making a comeback, and still more
that have turned around successfully
through transforming the operating
models and product offerings. In an
evolving and dynamic market
environment, the strong survivors are
often those who stand frm on their
corporate mission, backed by solid
infrastructure fundamentals and
equipped with razor sharp focus to
constantly reinvent themselves to
create value to stakeholders.
Indeed, we have witnessed numerous
innovations and success stories of
many local and international
companies in the industry. In this
connection, I am personally inspired
by the interviews featured in this
report and hope our readers will fnd
the same inspiration. We are honoured
to have some of the regions most
successful companies in generously
sharing their core values and ethics,
business visions and consumer
insights. I am deeply grateful to Mr
Motoya Okada of Aeon, Mr John Lo of
Tencent, Mr A. Mahendran of Godrej
and Mr Nigel Luk of Cartier for sharing
their wisdom. I would also like to take
this opportunity to thank our
colleagues in the region and the
Economist Intelligence Unit for their
invaluable input and assistance.
Sincerely,
January 2013
This report was written in cooperation with the Economist Intelligence Units industry and management research division.
The economic and industry forecasts included are those of the Economist Intelligence Unit. Due to a change in methodology
some historical gures may be signicantly different to those published in last years report.
4 Executive summary
6 Introduction
Section 1: Retail
10 Food and general retail
11 Hypermarkets, supermarkets and convenience stores
12 Q&A with Motoya Okada of Aeon
13 Food, beverages and tobacco
14 Private label
15 Fashion and apparel
18 Online retailing
20 Q&A with John Lo of Tencent
Section 2: Consumer goods
23 Fast-moving consumer goods
25 Q&A with A. Mahendran of Godrej
28 Luxury brands
31 Q&A with Nigel Luk of Cartier
33 Durable consumer goods and electronics
37 At a glance: Indonesia, Malaysia, Singapore,
South Korea, Thailand and Vietnam
50 Conclusion
Table of contents
4 PwC
Executive Summary
The outlook for the global economy
remains uncertain, as consumers and
businesses alike wait for clear
directions on a range of economic
risks, from the US defcit to the euro
zone crisis. The European Union (EU)
is forecast to contract in 2012 and to
muster only marginal growth in 2013.
Growth in the US and China is also
slowing. Although governments in
both countries have introduced
stimulus measures, any upturn is
expected to be modest. Asias other
economies will slow as well, but will
look healthy by comparison with the
US and EU, with regional growth
(excluding Japan) averaging 5.7% in
2012 and 6.4% in 2013.
Asia will remain the main driver of
global retail sales growth, but
companies will be challenged by
slowing economies and high infation
and interest rates. Retail sales are still
expected to expand by a respectable
5.8% in 2012
#
and 6% in 2013,
although this is down substantially
from 9.6% volume growth in 2010.
Companies are responding by
reworking their product, production
and regional strategies.
All eyes will continue to focus on
Mainland China (China), by far Asias
largest retail market. For many, the
fastest growth will come in the less
developed third- and fourth-tier cities,
as disposable incomes there rise
rapidly. The proportion of Chinese
households earning over US$15,000
per year will increase from roughly
11% of the total in 2011 to 41% in
2016, by conservative estimates.
This report discusses the outlook for
six retail and consumer products
sub-sectors in Asia food and general
retail, fashion and apparel, online
retailing, fast-moving consumer goods
(FMCG), luxury brands, and durable
consumer goods and electronics. It
focuses, in particular, on China, Hong
Kong, India, Japan and Taiwan, and
looks at how the industry is faring in
2012 and is expected to grow through
2016, and the opportunities and
challenges in the years ahead.
The main fndings of the report are as
follows:
Major international retailers will
continue to expand in Asia, with
more tailored strategies being
introduced in China. By 2016 China
will overtake the US as the worlds
largest retail sales market, worth some
US$4.2 trillion. India, too, is now
attracting considerable interest, after
its government announced in
September 2012 that it would permit
foreign direct investment of up to 51%
in multi-brand retailing. Retailers,
particularly in China, are beginning to
target customers more carefully. For
example, CR Vanguard is launching a
new high-end chain of boutique
supermarkets, while Carrefour is
stepping up its strategy to cater for
consumers concerned about Chinas
frequent food safety problems by
focusing on organic food.
As Asias current environment of
high infation and rising prices
drives customers to seek value,
private food labels have new
opportunities to increase their
share. While the private label business
took decades to develop in Western
countries and came about only after
the retail sector matured, the concept
is rapidly catching on in Asia, where
large populations and growing
incomes mean that the region will
remain the worlds largest food market,
# This gure is expected to be revised downward based on new forecasts for India, which became
available just prior to publication of this report.
Executive Summary
worth US$4.2 trillion in 2012. Indias
big retailers have been very active in
introducing private label products,
which now account for 20-25% of
profts for most. In addition to catering
for the needs of value-conscious
consumers, private label goods can
also fll a void in markets such as India
where many categories of goods are
underdeveloped. To overcome
consumers concerns about the quality
and safety of private labels, retailers
are upgrading packaging and
promoting their international backing
where possible.
Asian demand for fashion and
apparel will continue to lead the
world, and international fast
fashion brands are expanding
aggressively to cash in on Asias
young demographic and rising
affuence. Asian demand for fashion
and apparel will continue to surpass
that in Western Europe and North
America and the gap will widen in the
coming years. This has attracted the
interest of many foreign brands,
particularly in the area of fast fashion,
which targets young, upwardly mobile
customers. Newcomers to the Asia
market in 2012 included Topshop of
the UK and US retailer Forever 21, who
join Spains Inditex, owner of the Zara
brand, Uniqlo of Japan and H&M of
Sweden, all of which have been rapidly
expanding in recent years, notably in
China.
Online retailing continues to grow
rapidly in Asia, prompting
traditional and foreign offine
retailers and even luxury brands to
embrace online sales in the region.
According to industry intelligence
provider eMarketer, from 2013
onwards Asia will lead the world in
global business-to-consumer (B2C)
e-commerce sales, with a 41.4% share
by 2016. Traditional retailers,
including both Asian retail companies
and foreign offine retailers such as
Americas Macys department stores,
are now expanding their own online
presence in Asia in partnership with
e-tailers. The online markets growth
in 2012-16 will be aided by increased
broadband and mobile-phone
penetration, the spread of smartphones
and tablet computers, and
improvements in payments and
logistics infrastructure.
Rising incomes will continue to
drive growth in the FMCG sector but
companies will have to contend with
several challenges, including
increasingly demanding, value-
conscious consumers and cut-throat
competition. Consumer spending is
being hit by high infation, rising
interest rates and price hikes by FMCG
companies in response to costlier
inputs and commodities. Tough
economic times are intensifying
existing challenges for foreign
companies. For example, in December
2011, Switzerlands Nestl and Frances
Danone revisited their China business
models in the face of ferce local
competition. In response to all these
challenges, FMCG companies are
planning their expansions more
judiciously, partnering with local
companies, and better targeting
customer groups. Many are putting
renewed emphasis on expansion in
rural areas and smaller cities. They are
also looking to acquisitions to buy
market share.
Asian consumers now account for
over half of global luxury sales, and
the boom is spurring the growth of
local luxury brands. According to the
World Luxury Association, China is set
to replace Japan as the most important
market for luxury in Asia. Global
brands will continue to increase their
presence and efforts to cater for
Chinese and other Asian travellers
abroad. But local, home-grown luxury
brands will also emerge, catering to
Asian consumers rediscovery of their
own long-standing traditions of local
craftsmanship. For example, Chow Tai
Fook Jewellery Group of Hong Kong is
already twice the size of iconic
American jeweller Tiffany & Co in
terms of revenue. As local brands seek
international capital and expertise,
and global luxury brands remain keen
to appeal to local tastes, partnerships
between global and local brands, such
as Richemonts controlling stake in
Hong Kong-based fashion label
Shanghai Tang, will become more
common.
Growth in demand for consumer
durables and electronics is slowing
but will remain strong. However,
Japanese manufacturers are losing
their decades-long dominance in
Asia in these sectors. Market demand
for electrical appliances and
housewares will increase 5.9% in Asia
in 2012, lower than an earlier forecast
of 6.6%. However, growth will recover
to 6.8% in 2013 and expand
consistently through the forecast
period to 2016. Strong growth is
encouraging competition and Japanese
manufacturers, hurt by the global
economic crisis, a strong yen and
natural disasters in Japan and
Thailand, are rapidly losing their
dominance. As they struggle,
companies such as South Koreas
Samsung, Chinas Haier and Taiwans
Hon Hai, have swooped in to capture
market share by expanding quickly and
offering lower prices, a wider range
and adequate technology in an
increasingly commoditised market.
6 PwC
Introduction
The outlook for the global economy
remains uncertain at best. The EU
economy is forecast to contract in 2012
and to manage only marginally
positive growth in 2013. Growth in the
US and China is also slowing. While
policymakers continue to work on
action plans, the circumstances are
such that they are likely to accomplish
little more than to prevent a deeper
economic downturn. Asias economies
will slow as well, but will still look
healthy by comparison, with regional
growth (excluding Japan) averaging
5.7% in 2012 and picking up to 6.4% in
2013.
Asia will remain the main growth
driver of retail sales globally. Although
retail sales have slowed from their
9.6% volume growth in 2010 they are
still expected to expand by a
respectable 5.8% in 2012. Next year
that should accelerate to 6%, with the
upturn lasting through the forecast
period to 2016, when the market will
be worth US$11.8 trillion.
All eyes are on prospects for China, by
far Asias largest retail market. While
the economy has been slowing, the
Chinese government has made clear
that it will intervene to stimulate
growth if necessary. Chinas GDP is
predicted to grow 7.8% in 2012 and at
around 8% through the rest of the
forecast period. Despite high infation
and prices, Chinas retail sales will
grow at a still impressive 10.9% in
2012, higher than an earlier forecast of
9.8%, on the back of companies
widening their reach, the
modernisation of the retail industry
and the infux of new consumers.
China will overtake the US as the
worlds largest retail sales market in
2016, when its retail sales are forecast
to be worth US$4.2 trillion. Growth
will remain high through the rest of
the forecast period. The fastest growth
will come in the less developed
third- and fourth-tier cities, as
disposable incomes there rise rapidly.
The proportion of Chinese households
earning over US$15,000 per year will
increase from roughly 11% of the total
in 2011 to 41% in 2016, by conservative
estimates
1
.
In Japan, Asias second-biggest market
after China in dollar terms, retail sales
will expand by a modest 1.6% in 2012
and contract slightly for two years
thereafter as Japans trade-dependent
economy continues to suffer against a
backdrop of weak external demand
and a strong currency. Domestic
demand is expected to remain weak,
given poor economic growth and an
uncertain employment market. Retail
Figure 1: Real GDP growth (% change)
Region 2009 2010 2011 2012 2013 2014 2015 2016
Asia and Australasia (incl Japan) 1.2 7.1 4.0 4.2 4.2 4.5 4.3 4.3
Economies in transition* -5.6 3.4 3.8 2.5 3.0 3.7 3.7 3.9
Latin America -1.9 6.0 4.3 3.1 3.9 4.2 4.0 4.1
Middle East and North Africa 1.7 5.2 3.4 3.4 3.9 4.7 4.9 5.3
North America -3.4 3.0 1.8 2.1 1.8 2.1 2.2 2.3
Western Europe -4.2 2.2 1.7 -0.2 0.5 1.3 1.4 1.4
World -2.3 4.2 2.7 2.2 2.4 2.9 2.9 3.0
Source: Economist Intelligence Unit
*Bulgaria, Czech Republic, Hungary, Poland, Romania, Russia, Slovakia and Ukraine
Figure 2: Global retail sales growth by volume (% pa)
Region 2009 2010 2011 2012 2013 2014 2015 2016
Asia and Australasia 5.3 9.6 5.2 5.8 6.0 6.9 6.7 6.8
Economies in transition -4.4 3.9 6.6 3.4 3.6 4.0 4.4 4.5
Latin America 0.1 3.1 5.2 4.9 4.6 5.4 4.7 5.3
Middle East and North Africa 1.6 3.6 2.7 1.0 3.4 3.7 4.0 4.1
North America -5.8 0.8 3.8 1.6 1.5 2.0 1.9 1.8
Western Europe -2.5 0.2 -1.0 -1.3 0.0 0.3 0.7 0.8
World -0.6 4.2 3.6 2.9 3.4 4.1 4.1 4.2
Figure 3: Global retail sales (in US$ trillion)
Region 2009 2010 2011 2012 2013 2014 2015 2016
Western Europe 2.89 2.85 3.05 2.91 2.94 2.97 3.00 3.14
North America 3.25 3.36 3.61 3.74 3.89 4.06 4.23 4.41
Latin America 1.02 1.17 1.29 1.37 1.49 1.63 1.75 1.89
Figures for 2012 onwards are forecasts. Prior years are actuals or estimates.
sales growth will remain negligible
through the forecast period, partly
because unemployment will remain
relatively high and wage growth
subdued at best. Nevertheless,
relatively high incomes and strong
demand for high-end goods will keep
Japans retail spending among Asias
highest
2
.
Indias economy has started to look
sluggish, and GDP growth will slow to
5.8% in 2012, while consumer price
infation remains a high 9.3%. Given
the uncertain economic outlook and
rising prices, retail sales growth will
slow substantially to 1.9% in 2012,
much lower than an earlier forecast of
5.3%, although demand growth for
more basic items like food and soaps
and cleansers will remain strong. India
is Asias third-largest retail market
after China and Japan, although it has
one of Asias lowest sales per head
ratios. Retail sales growth will bounce
back to 6% in 2013 as GDP growth
picks up and infation abates
somewhat, with growth hovering
between 5% and 6% for the remainder
of the forecast period, driven by
income growth, increasing
urbanisation, and a rising number of
attractive stores and foreign brands.
The increase in the number of wealthy
households from an estimated 494,000
with annual earnings over US$50,000
in 2012 to 2.4 million in 2016 will
drive demand for non-essential and
luxury goods
3
. Delhi has once again
announced a relaxation of the limits on
foreign investment in its retail sector,
saying it will allow 51% foreign equity
in multi-brand retail operations.
Foreign retailers have expressed keen
interest, but there is still strong
opposition to the move from some
quarters.
Introduction
8 PwC
Introduction
Figure 4: Asia retail sales growth by volume (% pa)
Territory 2009 2010 2011 2012 2013 2014 2015 2016
Australia 3.29 2.15 0.10 0.70 1.10 1.30 1.70 2.00
China 16.82 19.07 10.90 10.90 10.50 11.10 10.20 10.00
Hong Kong 0.01 15.61 18.50 2.70 1.50 3.40 4.50 4.50
India -0.37 8.95 3.10 1.90 6.00 5.60 5.90 6.10
Indonesia 3.47 4.78 5.20 4.60 5.50 6.70 6.60 6.50
Japan -0.93 3.30 -0.60 1.60 -0.10 -0.50 0.30 0.40
Malaysia 0.62 5.83 6.70 4.90 5.70 5.00 4.90 4.80
New Zealand 0.50 2.50 -0.40 -1.20 2.30 2.30 3.20 3.30
Philippines 3.98 5.56 1.80 2.90 4.90 5.00 5.20 5.20
Singapore -0.58 6.70 1.30 1.70 2.70 3.80 4.60 5.30
South Korea -0.31 4.55 1.90 1.00 2.10 2.20 2.80 2.90
Taiwan -1.42 9.10 5.00 0.20 1.80 2.60 3.00 2.70
Thailand -0.54 6.70 1.50 7.80 6.90 5.30 4.80 4.70
Vietnam 3.05 4.73 6.30 8.30 11.10 10.30 8.70 6.40
Figure 5: Retail sales in Asia (in US$ billion)
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
Taiwan
Japan
India
Hong Kong
China
2016 2015 2014 2013 2012 2011 2010 2009
In Hong Kong, retail sales volumes will
grow 2.7% in 2012 as economic
growth in the territory dips to 1.5% on
the back of a slowing global economy
and Chinas reduced growth rate.
Retail sales volume growth will slow to
1.5% in 2013 as unemployment rises.
Nevertheless, relatively strong
economic growth (which is expected to
return to 4.2% in 2014 based on a
recovery in global trade) and rising
local incomes will provide impetus to
retail sales in Hong Kong over the
medium term. Though visitor numbers
from mainland China have increased,
growth in sales of luxury products such
as jewellery, watches and clocks and
valuables has slowed, indicating that
while the uncertain global economic
outlook has not dissuaded tourists
from visiting Hong Kong, it has made
them more cautious about spending.
Given the relatively high cost of
infation, retailers proftability will
depend partly on their ability to pass
on rising costs to customers, hence
ensuring that they are able to develop
premium brands for which higher
prices can be charged
4
.
Taiwans retail sales will increase by
only 0.2% in 2012, as its export-
oriented economy slows on weakening
global demand. However, as growth in
the wider economy picks up, retail
volume growth is likely to recover to
1.8% in 2013 and to rise to between
2% and 3% for the remainder of the
forecast period. With a population of
just over 23 million, Taiwan is a
smaller market than most in East Asia.
However, at over US$10,000, annual
disposable income per head is
relatively high, and over 50% of
households have an annual income
over US$25,000 (this will rise to a
forecast 65% by 2016). Retail sales will
also be supported by more visitors
from China, as visa and travel
restrictions continue to be eased
5
.
The future of global retail lies frmly in Asia, but economic growth in the region is
slowing and infation and interest rates are high. Companies are responding by
reworking their product, production and regional strategies and looking for
acquisitions, while continuing with their organic expansion. China remains the main
focus for foreign companies across all categories. As international companies try to
make inroads into Asian markets, they will face stiff competition from well-
established local brands. Countries across Asia are quickly expanding access to
broadband and mobile phones. This is helping online retailing in Asia to expand
quickly and traditional retailers are exploring the online channel.
Section 1: Retail
10 PwC
Section 1: Retail
Food and
general retail
Key fndings
Major international retailers
continue to expand in Asia,
although sluggish home markets
mean that some are fnding
investment resources
constrained.
Recognising customer preferences
for online shopping, traditional
retailers are making the move
online. According to market
researcher Kantar Worldpanel, by
July 2012 the proportion of
Chinese households making
FMCG purchases online increased
from 16% a year earlier to 22% in
Chinas top tier cities.
Asias current environment of
high infation and rising prices
could trigger greater growth in
private label goods as consumers
seek value for money.
Figure 6: Retail sales of food in Asia and Australasia (in US$ billion)
Figure 7: Food, beverages and tobacco: Market demand growth (% real change pa)
Territory 2009 2010 2011 2012 2013 2014 2015 2016
China 3.9 1.9 2.6 2.2 2.9 2.8 2.5 2.2
Hong Kong -0.5 5.5 6.7 0.9 -0.2 1.2 1.5 1.3
India 6.5 3.3 1.0 4.7 2.7 3.4 4.7 3.9
Japan -0.6 2.8 0.2 1.4 1.0 1.1 0.9 0.7
Taiwan 0.0 3.0 2.2 0.3 0.9 1.6 2.0 1.7
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2016 2015 2014 2013 2012 2011 2010 2009
Section 1: Retail
As conditions remain grim in their
home countries, major international
retailers will continue to expand in
high-performing emerging markets.
India and China place 3rd and 5th
respectively in AT Kearneys 2012
Global Retail Development Index,
which ranks the attractiveness of
emerging countries to retailers. In a
November 2011 Economist Intelligence
Unit global survey of retail managers,
two-thirds of the respondents said they
were redirecting their focus to
emerging markets, and three-quarters
expected these markets to take up the
slack from the slowdown in developed
markets. China remains the emerging
market of choice, although its economy
and retail sales growth are slowing
6
.
According to PwCs 15th Annual Global
CEO Survey released in January 2012,
which surveyed 1,258 CEOs in 60
countries, 60% of CEOs of consumer
goods companies believe that
emerging markets will be the main
driver of growth compared with
developed economies.
International retailers are still
expanding quickly across Asia.
Japanese retailer Aeon, which has
some 14,000 outlets across 12 Asian
markets, is now expanding into
Vietnam, Malaysia and Chinas smaller
cities as part of its Asia Shift
expansion strategy
7
. Frances Carrefour
plans to open 30 new stores in China in
2012, up from 20-25 per year recently
8
and has other plans in addition to
China. India is now attracting
considerable interest after its
government announced in September
2012 it would permit foreign direct
investment of up to 51% in multi-brand
retailing. Despite several restrictive
conditions attached, Wal-Mart (US)
has already announced entry plans,
while others like Tesco (UK), Carrefour
and Metro (Germany) could soon
follow
9
.
However, retailers are struggling to
manage their large-scale expansions
into Asia, as dipping sales in their
home markets tighten available
investment resources. Some companies
are now reshaping their strategies as
they enter Asian economies amidst
slowing growth and ferce competition.
Wal-Mart, for example, says it will slow
down the launch of new stores in China
in 2012 to focus on operational
effciency. It was opening more than 40
stores annually between 2009 and
2011 and is among Chinas top
retailers, but it has been
underperforming rivals like Carrefour
in terms of average revenue per store
10
.
Meanwhile, Japanese-owned 7-Eleven,
which has over 100 stores in China, is
now experimenting with a franchise
store model, which will allow it to
expand rapidly while limiting
investments
11
.
Retailers are also targeting customers
more carefully. For example, Chinas
CR Vanguard, which has over 4,000
stores across China, is launching a new
high-end chain of boutique
supermarkets called V+. It will focus
on residential communities, targeting
middle class consumers in 1st and 2nd
tier cities, while CR Vanguards other
brands will target busy commercial
areas
12
. Meanwhile, to cater for
consumers concerned about Chinas
frequent food safety scandals,
Carrefour is stepping up its organic
business. In May 2012, it added 100
new organic products to its list of
lowest price goods
13
.
Retailers are also moving online,
recognising customer preferences for
online shopping. According to market
researcher Kantar Worldpanel, the
proportion of households in Chinas
top-tier cities making FMCG purchases
online increased to 22% as of July
2012 from 16% a year earlier. Shoppers
were drawn by lower prices, the
convenience of delivery and access to
more brands
14
. In August 2012,
Wal-Mart received government
approval to increase its ownership of
online supermarket Yihaodian from
around 17% to 51.3%. Yihaodian sells
about 180,000 products, and has a
nationwide B2C online grocery
service
15
. In addition to physical
expansion, 7-Eleven also plans to roll
out an online sales platform in China
in 2013.
Hypermarkets, supermarkets and
convenience stores
12 PwC
Section 1: Retail
What are your expectations for growth
in Asian markets?
At the moment, we earn around 80% of our
total retail revenue from the Japanese
market. We have a plan to secure
exponential growth in the Chinese and
ASEAN markets, with the aim to bring
earnings from these markets to the same
level as those in Japan by around 2020.
Well need around 13-15% annual growth
in Asian markets to meet this goal. At the
moment, we are still largely focused on
making the necessary up-front
investments.
What do you identify as Aeons
competitive edge that would allow it to
experience such high growth in Asia?
One of the biggest changes in Asia is the
rapid growth of the middle class. And the
middle class is the consumer group that we
have always servedfor 250 years, since
we started as a trader of Kimono fabrics in
the Edo Period. We have deep experience in
servicing this consumer group, as well as
growing alongside them, as they grow.
Q&A with Motoya Okada, President, Aeon
You have taken some initiatives to cater
for the needs of elderly consumers.
What has been your experience with
these initiatives?
The shopping centre that we opened early
this year in Chiba, Japan is designed
particularly to meet the needs of our senior
customers. Customers enjoy unique
shopping experiences including access to a
comprehensive range of medical clinics and
cultural programmes, as well as fnancial
services that cater for their lifestyle needs.
The market response has been very good.
The Japanese market is a test ground for
our effort to shift to a senior-oriented
market, one of our strategic growth areas.
From next spring, well be opening more
stores of this kind in Japan with new
formats and services to further meet the
interests of our senior customers.
How are you beneftting from group
synergies?
Our fnancial services, for instance, allow
us to identify individual (retail) customers.
By combining our credit card and retail
businesses, we have recently completed a
test in Japan to operate a high-level
customer relationship management system
that would allow us to personalise
promotion efforts. The card business also
helps in the running of loyalty
programmes. We seek to become the
number one player in the credit card
business for the new middle class in Asia.
So we believe these synergies will be highly
relevant to the success of our retail business
in Asian markets.
You have been very successful in Japan
with Topvalu, your private label. How do
you plan to take this success abroad?
Until recently, we have been bringing the
Topvalu products that we sell in Japan to
the Chinese market. But of course it makes
more sense to develop and sell products
according to local preferences. We are thus
advancing our localisation effort in China
and other Asian markets, and making
progress towards designing, producing and
selling locally. Localisation efforts by
region within respective countries also will
be important for products such as food as
peoples tastes tend to vary by region.
Can you share your lessons learnt from
last years crisis in Japan?
Its important to be able to gather
information and make decisions quickly,
Established in 1758, Aeon has
grown to become the largest retailer
in Japan in terms of operating
revenue. Aeon Group, which
comprises 200 companies, recently
established a new management
system based on separate
headquarters for Japan, China and
ASEAN and is looking to repeat the
success in other Asian markets.
and to take leadership at such times. But at
times of emergency, what is more crucial is
to have survival and fghting spiritnot
for yourself but for the beneft of others. For
instance, we had shopping centre managers
who made quick decisions to turn their
stores into temporary shelters. Only with a
strong sense of responsibility to serve the
public were they able to exercise such
leadership and avoid the worst-case
scenarios.
Was it the case of Aeons customer-
frst principle contributing to risk
management?
Yes, and our steadfast corporate mission to
beneft our customers is not bound by
Japans borders. After the recent riots in
China, all our Chinese employees worked
hard to restore the stores as they believed
opening the stores as early as possible
would beneft their customers. Not a single
employee thought about leaving. I was
extremely moved to see the scene in China,
which was exactly what I saw in Tohoku
after the disaster. I think the outcome
would be very different depending on the
organisation. You can physically repair
buildings but you cannot restore the stores
if your employees do not return.
Last but not least, what do you identify
as the ultimate value that Aeon is
bringing to Asia outside Japan?
Making products and services available
that can help to improve peoples quality of
life is important. The paramount issue,
however, is trustcustomers need to
believe you will never lie to them. In the
Japanese term, its about establishing
Noren (curtain-like cloths that are
traditionally hung over the entrance of
Japanese stores). This can be translated as
building a brand but Noren in fact carries
more meaningits the trust itself, built
between customers and the retailer.
Im talking about the old Japanese ethics of
commerce, the origins of Japans customer-
oriented serviceswhich include practices
which emerged during the Edo Period, such
as making small units available according
to customers needs, and fxing and listing
set prices (versus selling with variable
prices). I would say these are expressions of
democracy and justice. And there isnt a
customer anywhere in the world who does
not enjoy being treated fairly and with
goodwillthese are universally
appreciated values.
Section 1: Retail
Food, beverages and tobacco
Asias large populations and growing
incomes mean that the region will
remain the worlds largest food market,
worth US$4.24 trillion in 2012 and set
to grow to US$6.92 trillion by 2016. In
China, market demand for food,
beverages and tobacco will grow at
2.2% during 2012, given high infation
and rising food prices. Demand growth
will recover to 2.9% in 2013, and then
range between 2.2% and 2.8% for the
rest of the forecast period. Quality
control is a major problem for the
sector. Despite government efforts,
there is likely to be little progress in
addressing this complex problem
during the forecast period. More
sophisticated frst-tier markets will see
a rapid rise in consumption of
imported foreign food products in
2012-16, as consumers try new
cuisines and seek safer food
16
.
Japan is the worlds third-largest food
market after the US and China, with
retail food sales estimated at US$523
billion in 2011. However, the markets
maturity, defationary pressures in the
sector and strong competition will
keep sales growth weak. Demand in
the food, beverages and tobacco
category will grow at only 1.4% in
2012, given Japans troubled economy,
cautious buying sentiment and
concerns about food safety following
last years major earthquake and
nuclear crisis. Demand growth will
slow further in 2013, to 1.0%, and will
remain weak through the forecast
period. Japans ageing population will
boost the health food (or functional
food) segment in the medium term.
Japan is the worlds second-largest
market for functional food after the
US, and its range of functional foods is
probably the worlds largest and most
innovative
17
.
In India, the market demand for food,
beverages and tobacco will rise 4.7% in
2012. Although infation and prices
remain high they are easing from the
alarming heights seen in 2011.
Demand growth will remain positive
through the forecast period, ranging
between 2.7% and 4.7%. Rising
household incomes, increasing
urbanisation and changing lifestyles
will aid demand for packaged food,
which has been growing strongly. As
India has South Asias lowest spending
per head on packaged food, the sector
holds strong growth potential in
2012-16 as incomes increase
18
. Indias
wellness products market also offers
considerable potential. According to an
August 2012 report
19
, it grew 20% in
2011, to Rs590 billion (US$12.6
billion), but still represents under 4%
of overall consumer expenditure. The
report forecasts this market to grow at
a compound annual growth rate
(CAGR) of 18-20% over the next three
years, reaching Rs950 billion (US$18.7
billion) by 2014, driven by a number of
factors, including increasing health
awareness, interest in preventive care,
increased interest from male customers
and the growing aspirations of
consumers in smaller towns.
In Hong Kong, demand for food,
beverages and tobacco is forecast to
grow by a nominal 0.9% in 2012, lower
than an earlier forecast of 2.8%, partly
due to the high base effect created by
2011s strong growth of 6.7%, and
partly because of the high prices of
food imports, which dominate the
sector. Demand will contract by 0.2%
in 2013 and grow moderately during
the rest of the forecast period.
Imported food products with strong
quality credentials will see rapid
growth in sales in 2012-16, as
consumer fears regarding the quality
of food imports from mainland China
will increase the pressure on retailers
and restaurants to source more
products from other countries
20
.
In Taiwan, market demand for food,
beverages and tobacco will grow at
only 0.3% in 2012, as the islands
trade-dependent economy slows on
weakening global demand. Growth
will remain sluggish at 0.9% in 2013
and will pick up only moderately to
between 1.6% and 2.0% for the rest of
the forecast period.
14 PwC
Section 1: Retail
Private-label sales continue to chart
slow growth across Asia. According to
London-based L.E.K. Consulting,
private labels have a much lower share
of supermarket sales in Asia than in
developed countries, ranging from less
than 1% in Indonesia to between 1.5%
and 30% in Thailand, Malaysia, South
Korea, Singapore and Taiwan, and
approximately 6% in Hong Kong
21
.
Separate data from Euromonitor show
the share of private-label goods in
India at 11% and at 4% in China
22
. As
Asias current environment of high
infation and rising prices drives
customers to seek value, private labels
have new opportunities to increase
their share (they are cheaper than
other brands because less is spent on
marketing, distribution and
advertising; retailers push their own
brands with excellent in-store
placements and promotions). To
overcome Asian consumers suspicions
about the quality and safety of private
labels, retailers are upgrading their
packaging and promoting their
international backing where possible.
For example, the UKs Tesco sells its
Tesco private-label products at its 660
Tesco Lotus stores across Thailand and
in other Asian countries
23
, while
Frances Carrefour and the USs
Wal-Mart do the same at their stores
across Asia. Many of Asias local
players have also developed successful
own-brands in recent years, including
some of Chinas largest retailers.
Retailer Lianhua Supermarket
Holdings, which by end -2011 had
5,233 hypermarkets, supermarkets
and convenience stores in 19 provinces
in China, has also developed its own
private-label business
24
.
Private label
Indian retailers have been quick to
latch on to the private-label strategy,
even though the sector was opened to
modern retailers only a few years ago.
In developed countries, private labels
took decades to take off and were
introduced only after the retail sector
was well-developed. Big domestic
retailers including the Future Group,
Bharti Wal-Mart Retail (a joint venture
with Wal-Mart), Aditya Birla Retail,
Reliance Retail, Spencers Retail and
Dubai-based Landmark Groups Spar
Hypermarket, all developed their own
private-label brands about fve years
ago, as they began building their retail
networks. The Future Group, Indias
largest retailer, says that since India is
under-branded and under-penetrated
in many categories, it makes sense to
build own-brands while categories are
themselves developing
25
.
In-house brands now account for
12-15% of sales and over 20-25% of
profts for most Indian retailers
26
.
Retailers have focused on good
packaging, attractive pricing and
strategic in-store placement to attract
consumers. According to market
researcher Nielsen, Indian shoppers
spend over US$100 million on private-
label items per year and this is set to
rise to US$500 million by 2015
27
.
At the networks of big retailers, these
products now outsell several national
brands in some categories. According
to data from Nielsen for July-
September 2011, at the Future Groups
Big Bazaar and Bharti Retails Easy Day
outlets, these retailers own private-
label foor cleaners account for over
50% of all foor cleaner sales, while
their packaged wheat four, rice, tea,
spices and salty snacks take shares of
between 16% and 42%
28
. After an
initial blitz of own-label products,
Indias retailers are now consolidating
their portfolios and aiming to increase
market share. Aditya Birla Retails
More chain launched only 15 products
last year, down from 25 in 2009. It
discontinued several brands, and
instead used just one brand across all
products. It also removed high-
investment personal care products
from its portfolio
29
.
Asias players may even be able to
up-end some conventional wisdom
about the private-label business. For
example, while private labels usually
succeed better in products with low
differentiation, Indias Croma chain of
multi-brand electronics stores sells its
own brand of durables from
refrigerators to hair dryers. The
retailer expects to almost double its
revenues from its own brands to Rs2.5
billion (US$48.4 million) in FY13. The
brand also benefts from the excellent
reputation of its parent, the Tata
Group
30
.
Section 1: Retail
Key fndings
The gap in demand for fashion
and apparel between Asia and
the West will widen
substantially, with demand in
Asia growing 3.8% in 2013.
India will be the star performer,
growing by 9.4% in 2012, with
sales driven by the expanding
population of young people,
rising awareness of
international fashion and an
infux of foreign brands. China
will follow behind with 7.9%
growth.
Fast fashion brands are
expanding rapidly in Asia but
face stiff local competition.
Fashion and apparel
Asias fashion and apparel market
growth will continue to lead global
growth through 2012-16. In 2012,
nominal clothing market demand in
Asia and Australasia, at US$199.49
billion, will continue to surpass
demand in both Western Europe and
North America and that gap will widen
substantially during the forecast
period (see Fig 9). In 2012, demand in
Asia will rise 4.4%. That is lower than
an earlier forecast of 5.1%, partly
because of a higher base created by
2011s demand growth of 5.3% (higher
than earlier projections of 4.8%) and
partly a result of slower economic
growth in the region.
Demand in China is forecast to grow at
7.9% in 2012, lower than a previously
expected 8.4%, given the slowing
economy, high infation and high
prices. Still, consumer demand and
Figure 8: Clothing: Market demand growth (% real change pa)
Territory 2009 2010 2011 2012 2013 2014 2015 2016
China 10.5 8.5 7.8 7.9 7.5 8.8 8.4 8.1
Hong Kong -1.4 6.3 8.5 2.8 1.7 2.6 3.0 2.9
India 7.8 6.2 5.1 9.4 7.2 7.7 9.0 1.3
Japan -1.3 2.3 -0.2 1.0 0.6 0.9 0.7 0.7
Taiwan 0.4 3.6 3.0 1.1 1.8 2.6 3.1 3.0
clothing spend will rise throughout
2012-16, driven by growing personal
disposable income and higher interest
in fashion apparel. Online apparel
retailing will become an important
market segment during the forecast
period
31
.
In Hong Kong, demand in 2012 will
grow at 2.8%, on the higher base of
8.5% in 2011. Robust demand will
continue during the forecast period,
with sales rising steadily through to
2016. Despite very high rents, foreign
players will continue to enter the local
apparel retailing market, both to tap
increasing local demand and to
capitalise on the rising number
mainland-Chinese tourists shopping in
Hong Kong
32
.
16 PwC
Section 1: Retail
Figure 9: Clothing: Market demand (nominal US$ million)
0
50,000
100,000
150,000
200,000
250,000
300,000
Western
Europe
North
America
Asia and
Australasia
2016 2015 2014 2013 2012 2011 2010 2009
Figure 10: Clothing: Market demand (nominal US$ million)
Territory 2009 2010 2011 2012 2013 2014 2015 2016
China 35,370 41,173 48,893 56,444 64,333 74,563 85,480 98,038
Hong Kong 37,913 40,596 45,726 48,732 51,710 55,129 58,852 62,782
India 5,397 6,603 7,376 7,755 9,210 10,879 12,602 13,529
Japan 24,118 25,861 28,079 28,005 26,788 25,468 25,001 24,395
Taiwan 3,274 3,568 3,977 4,035 4,186 4,400 4,669 4,917
In India, demand for apparel in 2012 is
forecast to grow at 9.4%, against an
earlier estimate of 8.7%. Although high
infation, rising prices and a slowing
economy may persist in the short term,
clothing sales will nevertheless rise
rapidly during the forecast period,
from US$7.38 billion in 2011, to
US$13.52 billion in 2016, driven by a
growing population of young people,
rising awareness of international
fashion, and an infux of foreign
brands. Disposable income will treble
from US$1 billion in 2012 to US$3
billion in 2016. However, the market
will remain extremely competitive, on
proliferation of ready-to-wear apparel
shops and as more foreign companies
enter the Indian market
33
.
Taiwans clothing market is performing
moderately. Demand growth is forecast
at 1.1% in 2012, lower than an earlier
projection of 3.9%. The global
economic slowdown in 2012 is
expected to drag down the export-
dependent islands real GDP growth to
1.3% this year. However, demand will
improve during the rest of the forecast
period as GDP growth rebounds,
private consumption expands steadily
and the infow of Chinese tourists
grows
34
.
In Japan, clothing demand will grow
only 1.0% in 2012, lower than an
earlier forecast of 1.5%. Although
reconstruction spending will support
limited economic growth in 2012,
sluggish wage growth will depress
consumer sentiment in 2012 and
through the forecast period. During
2012-16, private consumption is
expected to rise by less than 1% a year
on average. However, clothing sales
will continue to be the most important
category of retail sales (excluding food
and beverages) in 2012-16, despite
negligible growth in yen terms
35
.
Section 1: Retail
Fast fashion expands
aggressively
Under pressure from poor performance
in Western markets and rising input
costs, numerous international fast
fashion brands are hoping to cash in on
Asias young demographic and rising
affuence. The fast fashion industry
relies on bulk production to bring
affordably-priced fashion to market in
quick cycles. Fast fashions cheap chic
approach plays well with Asias young,
upwardly mobile customers who have
fast-changing tastes and a hunger for
brands but an eye on affordability.
The worlds largest fast fashion retailer,
Spains Inditex, owner of the Zara
brand, and many of its competitors,
such as Uniqlo of Japan and H&M of
Sweden, have established themselves
in Asia and are expanding aggressively.
Inditex has 5,527 stores around the
world including 300 in China, where
its one of the most successful foreign
retailers. It expects to have 425 stores
across 50 Chinese cities by end-2012
36
.
Japans Fast Retailing, which owns
Uniqlo, already has 136 stores in
Greater China and 181 in the rest of
Asia. It now plans to add 1,000 new
stores in each of those markets over the
next 10 years, seeing great potential in
middle class consumers in China,
Taiwan, Hong Kong, the ASEAN
nations and India
37
. US fashion brand
Tommy Hilfger plans to open 500
stores in India over the next fve years
through a local joint venture; it already
has 58 franchise stores and over 60
shops-in-shops
38
. American retailer
Gap is targeting 20 new stores in Hong
Kong and mainland China by February
2013, raising its store count there to
45
39
. New companies are also joining
the rush. Topshop, owned by the
Arcadia group, the UKs largest
clothing retailer, has one store in Japan
and opened its frst China store in May
2012. US retailer Forever 21 also
opened its frst stores in Hong Kong
and Beijing in 2012
40
.
However, these companies will face
formidable competition from local
players, who have the advantage of
Asias long-standing strength in
textiles, an understanding of local
tastes, years of local experience,
established distribution networks and
an existing real estate bank. Hong
Kong, for example, has a strong set of
local apparel brands such as Giordano,
Baleno, Bossini, I.T and Esprit. These
companies will expand strongly on the
Chinese mainland and in Southeast
Asia in 2012-16, and in some cases also
in EU markets. Hong Kongs Li & Fung,
among the worlds biggest supply-chain
management companies, is moving
into apparel retailing and has bought
several Western clothing retailers,
marketers and brands to market to
Chinese customers
41
.
China, too, has strong home-grown
apparel brands. For example,
Metersbonwe has over 3,000
branches
42
and a presence in the
smallest of Chinese cities. According to
Euromonitor, it is Chinas third-largest
apparel brand behind Nike and local
sportswear brand Anta. Metersbonwe
now plans to expand into London,
Paris, New York and Milan
43
. Anta had
7,807 Anta stores in China as of June
2012 and says it will continue to
expand, though at a slower pace of
100 new stores in 2012
44
. Chinas
Trendy International Group has 300
directly owned stores and hundreds of
franchises for its four brands, including
its largest, Ochirly. JNBY, established
in 1994, runs more than 600
franchised stores across China
45
.
18 PwC
Section 1: Retail
Online retailing
Infrastructure growth will aid a swift
rise in Asian online retailing.
According to industry intelligence
provider eMarketer, in 2012 the
Asia-Pacifc region will account for
31.1% of B2C e-commerce sales
globally, second only to North
Americas 33.4% and higher than
Western Europes 26.2%. From 2013
onwards, Asia will lead the world in
such sales, with a 41.4% share by
2016, when Chinas slice of the pie will
rise to 23.4%, from 9.9% in 2012
48
.
In 2012, the internet penetration rate
in China is forecast to be 42.8 per 100
people
49
. According to Chinese
research frm Analysys International,
Key fndings
Asia will lead the world in business-to-consumer e-commerce sales from
2013 onwards, accounting for a 41.4% share of the business by 2016.
Recognising the strategic importance of online retailing as a new
distribution channel, traditional retailers are expanding their own online
presence in Asia.
Luxury companies are overcoming their fears that online sales will
compromise their high-end image. Luxury accessory maker Coach (US)
launched its frst offcial online store in China on Taobao Mall in December
2011.
Online retailing will grow rapidly in
Asia during 2012-16, aided by
increased broadband and mobile-
phone penetration, the spread of
smartphones and tablet computers,
and improvements in payments and
logistics infrastructure. Asian
countries are frantically increasing
access to the internet and mobile
phones. In 2011, China added 30
million fxed-broadband subscriptions,
half the total subscriptions added
worldwide, while Singapore and the
Republic of Korea had more mobile-
broadband subscriptions than
inhabitants
46
. As of December 2011,
26.2% of Asias population had
internet access, accounting for 44.8%
of the worlds internet users
47
.
Section 1: Retail
Indias internet penetration is forecast
to be a low 10.6 subscribers per 100
people in 2012, but its 129 million
users will represent the second-highest
online population in Asia
57
. Swift
growth in internet access, broadband
services and mobile internet access
could rapidly change Indias online
retail landscape. Meanwhile, online
retailers in India are adopting concepts
such as cash-on-delivery to overcome
obstacles such as low usage of credit
cards. Overall, online retail revenues
in India are projected to increase by
more than fve times in the next four
years, from an estimated US$1.6
billion in 2012 to US$8.8 billion in
2016, according to Forrester
Research
58
. M-commerce may grow
strongly since mobile-phone usage is
rising quicker than fxed internet
access, while innovative offerings like
mobile wallet payment services are
also increasing. India had 893.84
million mobile subscribers at end-
December 2011, including 292 million
in rural India, and a wireless
penetration of 74.15%. According to
the Internet and Mobile Association of
India, Indias overall e-commerce
market grew 47% to around Rs460
billion (US$9.2 billion) in 2011
59
. The
governments recent announcement
that it would further open the retail
sector to foreign investment did not
include e-commerce.
Taiwans high internet penetration of
80.4 subscribers per 100 people
60
and
high smartphone usage will aid growth
of its e-commerce market, which the
Institute for Information Industry
expects to grow by 20% in 2012, after
growing by an estimated 25% in
2011
61
. However, given Taiwans small
population, online sales growth will
likely slow down as the market
approaches saturation in the latter part
of the forecast period
62
. An obvious
growth market for Taiwans
e-commerce businesses is mainland
China, but many regulatory
restrictions on the integration of the
two markets remain in place.
Chinas B2C e-commerce transactions
grew 73% to RMB81.87 billion
(US$13 billion) in the frst quarter of
2012, and are expected to reach
RMB450 billion (US$72 billion) for all
of 2012
50
. US-based Boston Consulting
Group estimates that e-commerce sales
in China will account for 7.4% of total
retail sales by 2015
51
.
Hong Kongs current high internet
penetration of 78 subscribers per 100
people in 2012
52
, its densely packed
population (which makes delivery of
goods more effcient) and the quick
spread of smartphones make it a
promising prospect for online retail.
According to a survey from online
payments frm Paypal, Hong Kongs
online shopping value reached US$1.9
billion in 2011 and is expected to touch
US$2.5 billion by 2015
53
. Offine
retailers will still thrive since Hong
Kongs shoppers continue to enjoy
physical shopping and searching for
good deals.
Japan offers huge potential for online
and mobile shopping. In 2012 it is
forecast to have 82.8 internet
connections per 100 people
54
and a
dynamic mobile-telecommunications
sector. In 2011 roughly 20% of online
retailers sales were made on
smartphones and m-commerce will
continue to grow. While the largest
online retailers in Japan are general
shopping sites like Rakuten, a local
frm, and Amazon.jp, the local
subsidiary of US-based Amazon,
specialised online retailers are
increasing in number and growing
quickly. For example locondo.jp sells
shoes and handbags
55
. According to
Forrester Research, e-commerce sales
in Japan will grow from US$63.9
billion in 2012 to US$97.6 billion in
2016
56
.
20 PwC
Section 1: Retail
There is a lot of concern about the
economic slowdown in China. What are
your expectations for growth in the
coming year?
The macroeconomic environment in China
is challenging but we remain optimistic on
the growth of the e-commerce market.
Currently, online shopping sales account
for around 5% of total retail spending in
China, representing much room for growth
compared to other developed markets like
the United States. In fact, the US has been
experiencing a faster rate of growth for its
online retail sales than offine sales during
the past decade. According to iResearch,
the average growth rate of Chinas online
shopping market is expected to be around
30% in the next 3-5 years.
The China e-commerce market is
growing exponentially. What is the
biggest challenge for Tencent in keeping
up with this growth? How are you
dealing with this challenge?
Tencent has a diversifed business model
which is built upon our huge instant
messaging user base and traffc. We
generate revenue from four major
businesses, namely internet value-added
service (including Community and Open
Q&A with John Lo, CFO & Senior Vice President, Tencent
Platform, Online Games, etc.), Wireless
Value-added Services, Online Advertising
and e-Commerce transactions. The
user-paid revenue model and high
cash-generative nature of our internet
business enabled us to weather the
economic downturn in 2008/09 and
maintain steady growth in both operating
and fnancial performance. We aim to
further diversify our revenue base and
achieve long-term sustainable growth
through investment in our platforms, R&D
and new initiatives. We are now in the early
stage of developing our e-Commerce
business, which accounted for 8% of our
total revenue in Q2 of 2012.
Our primary goal for e-commerce is to
build a consumer-oriented platform which
delivers quality services and a
differentiated user experience to meet the
changing needs and growing demands of
our customers for rapid delivery,
competitive prices, better product choices
and better after-sales services. These are
also the challenges that e-commerce
companies have to address. We will
continue to leverage our multiple platform
advantages and deep understanding of our
users needs to customise a differentiated
online shopping experience for customers.
Tencents e-commerce site PaiPai has
numerous categories ranging from
sports to moms and babies to red
packets. Which areas are seeing the
fastest growth?
We are building a new e-commerce platform,
buy.qq.com, to host our B2C and small- and
medium-sized enterprise-to-consumer
(SME2C) marketplaces, lifestyle services (e.g.
hotel booking and ticketing) and offine-to-
online (O2O) services. Paipai will focus on the
consumer-to-consumer marketplace under
the umbrella of buy.qq.com. We see strong
growth in our overall e-commerce business
across all product categories like 3C products
(Computer\Communications\Consumer
Electronic), and believe B2C business models
can better address the increasing demands of
online shoppers. Hence, in addition to the
development of Paipai.com, we will focus on
expanding our principal business and B2C
open platforms in order to capture the
growing demands in this area.
What are Tencents expectations for
growth in the mobile commerce market
in China?
Mobile commerce is not only a natural
extension from the desktop, it actually
presents more potential in terms of
business models and monetisation. For
example, location-based services offer
Established in 1998, Tencent
provides a comprehensive range
of Internet and wireless value-
added services. Through its various
online platforms, including Instant
Messaging QQ, QQ.com, the QQ
Game Platform, social networking
service Qzone and wireless portal,
Tencent services the largest online
community in China and fulflls the
users needs for communication,
information, entertainment and
e-Commerce on the Internet.
users shopping information while mobile
payment facilitates the completion of the
payment procedure on site. We have
partnered with various offine merchants
and retailers to experiment with O2O
marketing opportunities. Recently, we have
also launched QQ Buy apps for iPhone
and Android phones to offer e-commerce
services on mobile devices. As 3G
infrastructure becomes more well-
established and smartphone penetration
increases further, we believe there is a huge
growth potential in mobile commerce.
Tencents internet platforms have
brought together the largest internet
community in China. What has been the
biggest factor in your success?
Tencent has built a strong social
infrastructure in China which offers a
diversifed range of products from QQ IM
(instant messaging) to QQ Mail (email),
social networks Qzone and Pengyou, social
media Tencent Microblog and smartphone-
based social communication platform
Weixin. We believe our success stems from
our focus on user experience. Leveraging
on our huge QQ IM user base (784 million
monthly active user accounts as of Q3 of
2012), we are able to create a strong
community effect for our users. All these
social communications services are closely
integrated with each other with one single
login ID. Users can share their own social
graph and synchronise comments and
photo uploads across these platforms. Users
can also enjoy unifed experience across PC
and mobile terminals.
What impact is online communication
(interactive communities such as
QQ.com, and social networking
services) having on consumer buying
decisions in China? Are consumer goods
companies prepared for this?
From a merchant perspective, social
networks are a good platform to access
potential customers and to enable precise
user targeting and CRM (customer
relationship management). At the same
time, users are highly engaged in social
networks and can share virally their
reviews on products and shopping
experiences with their friends. Nowadays,
both online and offine retailers are
increasingly using social networking
services (SNS) to build brand awareness
and user loyalty. Leveraging the success of
our SNS platforms, Tencent is also
partnering with brand advertisers and
merchant partners to broaden access to
target customers for brand building and
user loyalty campaigns.
Section 1: Retail
Traditional retailers move
online
Recognising the strategic importance
of online retailing as a new
distribution channel, traditional
retailers are expanding their own
online presence in Asia. Chinas largest
domestic appliance retailer and
leading multi-channel retailer, Suning,
derived around 4% of its 2011
revenues from Suning Yigou, its
e-commerce business
63
. Many
traditional retailers across Asia are
now partnering with e-tailers in
symbiotic relationships, increasing
sales without investing in a separate
online business. For example, Indias
naaptol.com was set up in 2008 as a
comparison website, but after 18
months without revenues, it tied up
with suppliers to advertise their
products. It now generates business
worth Rs20 million (US$376,000) a
day, earning commissions of 2-20% of
sales from sellers. Amazon has also
opened in India in its traditional
format as a portal through which to
buy goods from numerous retailers
called junglee.com
64
.
Foreign offine retailers are also
reconsidering their past disregard for
online Asian sales. In China, Wal-Mart
upped its stake in online grocery store
Yihaodian to a majority holding in
February 2012
65
. In May 2012, American
retail giant Macys announced an
alliance with local e-tailer VIP Stores,
owner of Jiapin.com and Omei.com,
both multi-brand luxury e-tailers. It is
planning a dedicated section on Omei.
com in 2013. Macys has been selling
online to mainland Chinese consumers
since June 2011, using fulflment
services from FiftyOne, a US company
that helps retailers serve clients in
foreign markets without investing in
infrastructure
66
. Others, such as
Banana Republic and Marks & Spencer,
will now begin to deliver to Hong Kong
(and some other Asian countries) from
their home markets.
Scores of Japanese and South Korean
retailers, whose brands are extremely
popular in China, already use Chinese-
owned portals to sell directly to
mainland consumers. 360Buy, among
Chinas three largest online retailers,
recently launched Minitiao.com, an
e-commerce website for Japanese and
South Korean goods including
cosmetics and apparel brands, as well
as toys and dry goods
67
.
Even luxury companies are overcoming
their fears that online sales will
compromise their high-end image.
They have been alerted by the Asian
success of online luxury stores,
including the US Gilt Groupe and
Brands4friends.jp in Japan, Hong
Kongs Glamour Sales (operating in
China and Japan), and excluzen.com
and 99labels.com in India, which offer
heavily-discounted luxury goods
68
.
Luxury accessory-maker Coach (US)
launched its frst offcial online store in
China on Taobao Mall in a one-month
trial in December 2011
69
, which
recorded 3.5 million visitors but only
limited sales. Coach is now reportedly
planning to launch its own Chinese
e-commerce platform by end-2012. In
March 2012, US-based luxury retailer
Neiman Marcus Group invested US$28
million for a stake in Glamour Sales, its
frst international foray, and hopes to
launch an online shopping website by
end-2012 to enter the Chinese luxury
market
70
.
22 PwC
Across Asia, economic growth is slowing, while food infation remains worryingly
high. These trends, coupled with high interest rates on consumer loans, mean that
consumers are allocating their budgets more carefully and looking for value across
categories. But underlying fundamentalsrising incomes and relatively strong
growthremain in place. Private consumption will continue to rise, feeding
demand for everything from shampoo to luxury watches. As companies of all
stripes continue their headlong expansions, modern retail infrastructure is
improving quickly in many countries.
For consumer goods companies, the good news is tempered by numerous
challenges, from cut-throat competition to the need to serve widely different
categories of customers to the daunting task of managing their enormous
expansions. In response, companies are planning their expansions more
judiciously, partnering with local players, better targeting customer groups, and
exploring online sales and private labels to provide value.
Section 2:
Consumer goods
In China, market demand for soaps and
cleansers will rise by 9.0% in 2013 and
growth will stay high through 2016.
During the forecast period, the fastest
growth in FMCG sales will occur in less
developed third-and fourth-tier cities,
as fast rising disposable incomes give
vast numbers of people money to spend
on consumer goods, rather than just on
necessities. More affuent consumers
will increase consumption of higher-
end products, especially cosmetics and
toiletries, which is good news for
foreign companies, which dominate
this segment
71
.
Chinese visitors will also support
consumer goods sales in Hong Kong
during 2012-16. Although local
demand is expected to remain fairly
strong based on steady economic
growth, volume growth in retail sales
may slow because of infation. High-
end products will continue to prosper,
as will skincare and cosmetics
products, thanks to a rapid increase in
tourist arrivals and rising sales to
mainland Chinese visitors. A record 40
million tourists visited Hong Kong
during the ten months to October
2012, an increase of 15.8% over the
same period last year, with mainland
tourists accounting for 72% of the total
number
72
. Tourist demand in Hong
Kong could be negatively affected by a
proposed cut in Chinas luxury-goods
taxes that would reduce price
differentials, but the strong reputation
of the territorys goods should continue
to support sales
73
.
FMCG companies will continue to
proft from Asia over the forecast
period, as well-to-do consumers push
up demand. In 2012, major Asian
economies are slowing somewhat
while infation and prices remain high.
Therefore we now forecast regional
demand for soaps and cleansers to
grow at 6.5% in 2012, still strong, but
lower than an earlier forecast 7%.
These factors will be at play in China,
Hong Kong and Taiwan, which will
grow at 11.8%, 5.1% and 1.6%
respectively in 2012. In 2013, Asian
demand will rise at 5.6% and growth
will remain relatively robust, led by
China and India, for the rest of the
forecast period.
Fast-moving
consumer goods
Key fndings
FMCG sales growth will slow but remain robust across most of the region.
FMCG demand growth will be fastest in China, with the soaps and cleansers
market expanding by 11.8% in 2012.
Companies are reinforcing strategies to reach rural and lower-income
consumers, and expanding distribution networks.
The trend towards local acquisitions aimed at boosting market share
continues, notably in China.
24 PwC
Figure 11: Soaps and cleansers: Market demand growth (% real change pa)
Territory 2009 2010 2011 2012 2013 2014 2015 2016
China 18.4 6.7 11.3 11.8 9.0 9.2 7.4 7.1
Hong Kong 7.0 9.5 13.2 5.1 2.4 4.3 4.7 4.5
India 15.6 11.8 7.1 8.7 9.4 9.8 11.0 11.0
Japan 2.2 4.6 -0.2 1.1 0.8 1.1 1.2 1.1
Taiwan 2.3 5.1 4.1 1.6 2.5 3.7 4.3 3.9
Figure 12: Soaps and cleansers: Market demand (nominal US$ million)
0
40,000
80,000
120,000
160,000
200,000
Western
Europe
North
America
Asia and
Australasia
2016 2015 2014 2013 2012 2011 2010 2009
In Taiwan, sales of soaps and cleansers
are forecast to grow at 2.5% in 2013, a
strong performance considering the
markets maturity. Growth in these and
other FMCG products will remain good
through 2016, as Taiwans trade-
dependent economy improves in
tandem with a global recovery,
supporting incomes and demand
growth
76
.
In Japan, demand for soaps and
cleansers will grow by a modest 1.1%
in 2012 against an earlier growth
forecast of 2.4%, since buying
sentiment remains cautious post-
earthquake. Growth will slip to 0.8%
in 2013 and remain moderate through
the rest of the forecast period.
However, high incomes will still
support high-end FMCG products, such
as Japans cosmetics and toiletries
segment, the worlds second-largest
market worth around US$50 billion
annually. As in many other sectors in
Japan, demand for consumer goods in
2012-16 will largely be driven by the
introduction of new products, since
Japanese take-up of new products and
services is quick, and can create
fast-fading consumer fads. Japans
older, health-conscious demographic
will also drive sales of anti-ageing
products and those using natural
ingredients
74
.
Despite a faltering economy, high
infation and price hikes by FMCG
companies, Indias growing middle
class and its rural consumers are
retaining their strong appetite for
FMCG products. Demand for soaps and
cleansers is forecast to rise 8.7% in
2012, lower than an earlier forecast of
9.9% but still robust. Demand growth
will pick up slightly to 9.4% as
economic growth improves, and will
rise to 11% by the end of the forecast
period as income rise and consumers
look to trade up to better products.
Leading FMCG companies, including
several multinationals, will continue to
beneft from their excellent
countrywide distribution networks,
consumer insights and high brand
loyalty, built over decades. They will
continue to customise products,
package sizes and marketing efforts for
Indian consumers, aiding
consumption. Although Indias
cosmetics and toiletries market is
heavily dominated by a few players,
rapid demand growth will offer
opportunities for new players
75
.
The FMCG sector in India has been
growing rapidly. How does Godrej
compare with the industry overall?
The FMCG sector has been doing well in
the last few years with CAGR of 15% across
the industry. Godrej has outperformed with
a CAGR of 22%. Soaps and household
insecticides have done particularly well as
compared with hair colour brands.
Is FMCG growth vulnerable to factors
such as a slowdown in GDP growth and
poor monsoons, such as we are seeing
this year?
For essentials, generally no. But FMCG
impulse buying is affected, for example in
the case of snacks. But impulse buying
itself is only 10% of the market, so it does
not have much impact on growth of FMCG
sales overall.
Q&A with A. Mahendran, Managing Director,
Godrej Consumer Products, India
Is competition in the FMCG sector in
India increasing? Is competitive
intensity high?
Any market which is growing will have
competition. But if you compare with say
China and Brazil, in India competitive
intensity is nominal, it is not hyper. In a
democratic country which is opening up,
and with laisser faire capitalism, there will
always be competition but for us in India it
is not as severe.
Large players seem to dominate the
FMCG industry in India. Or are we
understating the role of the informal
sector and regional players?
Everywhere in the world there are small
players. All the data is captured in India
the share of the large national brands
across categories is around 60% -70%, and
this is stable. Regional players share the
rest.
Do regional players have any advantage
over large brands in terms of the tax
regime or regulatory environment?
No, it is a level playing feld and local
players have no special advantages, except
for some who might not be complying with
regulations. When the uniform taxation
regime under the GST comes into play the
environment will further improve. But
there are some political issues to be
resolved before a uniform GST is
introduced. Smaller players may get some
benefts in terms of, say, excise duty
concession, but then they also have certain
higher costs to bear and they also have to
grow to be viable. Small units need money,
and cannot undercut prices beyond a
certain point if they want to survive.
Will the new policy allowing foreign
direct investment in multi-brand
retailing shake up distribution
channels?
Multinationals have not yet entered into
multi-brand retailing and it is going to be a
long-drawn process, requiring deep
Godrej Consumer Products is a
major player in Indias FMCG
market with products spanning
personal, hair, and household &
fabric care segments.
pockets. The FMCG industry is today worth
Rs2 trillion (US$37.1 billion). Modern
retail chains are growing relatively well but
they account for barely 5% of sales.
Will modern retail dominate in years to
come?
Modern retail will take its own course.
There is a large middle class in India which
is conservative and not quick to change
buying habits. I do not see any urge
amongst consumers to go into modern
retail shops. They still prefer to buy locally
from street corner shops, and they see
value in that. Moreover, the consumer
perception is that the local retailer is
cheaper. He also offers delivery, credit,
exchange and so on. There is also the fact
that only people with cars can drive to a
supermarket and park there to shop.
What will traditional retail do?
There are some 10 million retail stores and
they are growing in number by 15%
annually. At present there are only about
3,000 chain store outlets shared amongst
fve or six chains. It is not going to be easy
for big chains to catch up. Moreover some
of the traditional stores will upgrade into
stand-alone self-service stores and these
will compete with large chains. This is
happening across India, even in smaller
towns.
Will e-retailing grow?
This is quite small at the moment and
happening mainly via personal computers,
of which there are only about 30 million
users. But there are some 500 million
mobile phones and a large proportion of
mobile users are accessing the internet on
their phones. So this is going to be the
driver to trigger e-commerce, especially
among younger people in their twenties.
They will drive e-commerce growth in
India.
26 PwC
Asias economies look prosperous
compared with developed markets, but
even they are showing signs of fatigue.
GDP growth is still healthy, but the
pace has slowed. In China, for
example, GDP grew 7.4% in the third
quarter of 2012 according to offcial
estimates: enviable compared to
Western economies, but still Chinas
slowest growth since the frst quarter
of 2009
77
. Indias economy is faltering
as well. GDP grew 5.8% in the year to
March 2012, down from 6.9% the
previous year
78
. Consumers pockets
are being pinched by high infation,
rising interest rates and price hikes by
FMCG companies aimed at covering
more expensive inputs and
commodities. Still, given Asias large
population, burgeoning middle classes
and fast-rising incomes, most FMCG
companies arent very worried about
future growth.
in good times to cater to rural and poor
consumers. For example, companies
such as Unilever (UK-Netherlands) and
Procter & Gamble (P&G) (US) have for
decades been successfully selling their
detergents and cosmetics in small
sachets that are affordable to Asian
families.
Companies are also expanding
distribution networks quickly to
increase penetration and reap more
sales. For instance, Unilevers Indian
subsidiary Hindustan Unilever has
tripled its rural penetration rate in the
last two years
82
. In Vietnam, P&G uses
a boat in the Mekong Delta to access
rural shoppers living on the water,
selling low-cost lines like sachets of
laundry softener
83
. At the other end,
companies are also piggybacking on
the rise of modern retail infrastructure
such as supermarkets. Indias local
FMCG company Marico posted revenue
growth of over 45% from its rural and
modern trade businesses during
FY12
84
.
In December 2011, Korean-Japanese
confectionery maker Lotte said it
would release low-priced products to
help its Southeast Asian expansion. It
hopes to raise sales in that region from
JPY8 billion (US$100.3 million) in
2011 to JPY15 billion (US$173 million)
by 2014. Its main products in Southeast
Asia are priced some 30% higher than
competing US and European products,
but it will now launch cheaper
products to expand its customer base.
Meanwhile, Lotte is also planning to
increase coverage in Southeast Asia by
tripling its sales personnel to 3,000 by
2014. In Vietnam, Indonesia and
Preparing for
slower growth
For example, according to a study by
Indias Economic Times, in the quarter
to March 2012, Indias top ten FMCG
companies outperformed analyst
expectations for both revenue and
proft growth. Performance was driven
more by consumption than by price
hikes. A separate study found that
historically, Indias leading FMCG
companies actually grow much faster
during periods of high infation, when
they are more likely to grab market
share from the unorganised sector,
enjoying economies of scale from bulk
buying and benefting from the higher
pricing their strong brands give them
79
.
However, storm clouds may be
gathering, since the FMCG sector is
usually late to suffer during a
slowdown, given that demand for its
low-value products is more inelastic
than for other consumer goods
categories. There are already early
warnings, as some fast-expanding
companies in China fnd growth
beginning to decelerate. According to
research frm Kantar Worldpanel,
value sales in Chinas FMCG category
rose by 15% in the quarter to 15th June
2012, lower than the annual rate of
16%
80
. In July 2012, Mead Johnson
Nutrition, a US baby formula maker,
signalled slower sales growth in China.
Meanwhile Taiwans TingYi, a food and
drinks maker which leads Chinas
instant noodle market, said drinks
turnover fell by more than one-ffth
year-on-year in the frst quarter of
2012
81
.
In response, FMCG companies are frst
doing more of what they already know,
reinforcing strategies they developed
Thailand, it will increase staff dealing
with small and mid-size stores and hire
personnel that deal in cash, using
motorbikes and small cars to deliver
candy to shops
85
.
These strategies are mainly aimed at
growth, but at the same time, will also
help companies weather the current
economic slowdown. But the downturn
also calls for more to be done. In April
2012, Unilever said that despite rising
input costs, it would resist raising
prices in China except as a last resort,
instead applying cost-saving measures
in its factories and working on a
product portfolio with a higher proft
margin. It said it was still confdent of
achieving its targeted fvefold growth
in its China business by 2020, to
RMB50 billion (US$7.9 billion), and of
growing 50% faster than the industry
average
86
.
Tough economic times are also
intensifying existing challenges for
foreign companies in Asia. For
example, in December 2011, two of the
largest global food companies,
Switzerlands Nestl and Frances
Danone, revisited their China business
models in the face of ferce local
competition. Nestl closed one of its
three ice cream factories in mainland
China and pulled back on retail sales in
Shanghai in order to focus on more
proftable regional markets and on
out-of-home sales, such as restaurants.
According to Euromonitor, while
Nestls share of the RMB30 billion
(US$4.8 billion) national ice cream
market still hovers around 3%, the two
market leaders, Inner Mongolia Yili
and China Mengniu Dairy, have shares
of 17% and 15% respectively. The two
Chinese companies, have also
introduced new favours and new
upmarket products and packaging.
Nestl said its Shanghai plant did not
meet internal expectations and that it
might now focus on a few particular
brands and products since it no longer
has to support local production in that
city. Meanwhile, the worlds largest
yoghurt maker, Danone, said it has
suspended operations at its Shanghai
yoghurt factory, in line with a new
strategy of focusing more on premium
brands in China
87
. Companies are
re-examining not just product and
production strategies but also their
regional plans. Both Nestl and
Danone chose to cut back in Shanghai,
where competition is intense and the
lack of suitable land is a big problem.
Labour, logistics and inputs are more
expensive than in other regions, and
earlier tax breaks have been
withdrawn
88
.
Multinationals may be regrouping, but
they are certainly not giving up on
Asias lucrative markets. Indeed, many
are looking to local acquisitions to buy
a quick presence and market share. In
early 2012, Nestl bought 60% of local
food company Yinlu, and 60% of
candymaker Hsu Fu Chi. In April 2012,
it announced its purchase of Pfzer
Nutrition, American pharma giant
Pfzers infant-nutrition business, for a
hefty US$11.85 billion. Emerging
economies contribute 85% of sales for
Pfzer Nutrition. The companys 7.4%
market share in Chinas promising
baby food market could be the key
motivation for Nestls buy; given
Chinas one-child policy, mothers
usually prefer the most expensive baby
food
89
.
28 PwC
Luxury brands
Amidst the dreariness of global
economic growth fgures, Asias
increasingly rich and luxury-loving
consumers continue to provide
surprising cheer for the worldwide
luxury market. According to
consultancy frm Bain & Co, luxury
sales worldwide will grow at 7-8% to
216 billion-218 billion (US$280
billion-US$283 billion)in 2013, with a
CAGR of 7-9% in 2011-2014. Asias
growth of 20-22% driven mainly by
China and South Korea, will be key.
Indeed, 30% of global luxury sales now
occur within emerging markets.
Meanwhile, Chinese consumers from
mainland and Greater China
(including Hong Kong, Macau and
Taiwan) and counting Chinese tourists
worldwide, account for over 20% of
global luxury sales. Add in Japan,
South Korea and Southeast Asia, and
Asian consumers account for over half
of such sales
90
.
China will drive global luxury growth
in 2013 and through the forecast
period based on its large population,
falling but still-strong GDP growth and
a rapid rise in affuence, including
increasing purchasing power in
smaller cities. These trends are coupled
Key fndings
China will drive global luxury market growth in 2013 and
beyond based on a rapid rise in affuence, including in the
smaller cities.
Mainland Chinese tourists will remain critical for luxury
sales in neighbouring Taiwan and Hong Kong, and sales
could suffer if China abolishes or cuts its tax on luxury
goods.
Homegrown Asian luxury brands are establishing
themselves in the region. Partnerships with global brand
owners are likely to become more common as Asian frms
seek capital and international expertise, and global frms
seek to cater more closely for the tastes of Asian
consumers.
with a strong appetite for status and
luxury products. According to Bain,
luxury sales in mainland China rose
35% in 2011 and are forecast to grow
18-22% in 2012 to 15 billion-
16 billion (US$19 billion- US$21
billion). Second-, third-and even
fourth-tier Chinese cities will be
important growth drivers over the next
few years
91
.
Clearly, China has replaced Japan as
luxurys most important Asian market.
The World Luxury Association predicts
that China will overtake Japan
offcially in 2012, with sales of US$14.6
billion
92
. However, during the forecast
period Japan will still remain
important and contribute signifcantly
to the revenues of many luxury
companies. It contributed 8% of
frst-half revenues at the worlds largest
luxury goods group LVMH (France)
93
,
17% of jeweller Tiffany & Co
94
global
sales in 2011 and 12% of third-quarter
2012 revenue at Frances PPRs luxury
division
95
. In future, luxury companies
will nurture their decades of
investment in Japan and focus on
gaining market share, but they will
channel new investments into high-
potential markets, particularly China.
According to a World Luxury
Association survey, 70% of global
luxury brands in Japan were shifting
their commercial plans to China during
the year to June 2012
96
.
Chinese customers will also remain
key to growth of the luxury market of
neighbouring Hong Kong and Taiwan.
According to the Chinese Tourism
Academy, Chinese travellers spent
US$69 billion during overseas trips in
2011, up 25% from the previous year,
taking 70 million trips abroad. This is
set to rise to 80 million trips in 2012
97
.
Chinese spending overseas is heavily
motivated by hefty local taxes on
imported luxury goods at home. In
2011, Hong Kong received 28.1 million
tourists from China, over two-thirds of
its total visitors
98
.
In 2011-16, Hong Kong will remain an
important market for luxury branded
goods, particularly jewellery, clothing
and accessories. Sales of expensive
items will continue to beneft from
loose local credit conditions until at
least the end of 2013, while steady
economic growth will drive local
demand back towards luxury goods
and away from utilitarian items. Rising
local demand and incomes will
probably mean that the trend towards
luxury, value-adding boutique outlets
will continue to strengthen. The
absence of sales taxes will keep prices
for luxury goods lower than in most
other countries, supporting demand
99
.
30 PwC
In Taiwan, Chinese tourists are as
important as in Hong Kong. Nearly 1.8
million Chinese mainlanders visited
Taiwan in 2011, a 20% year-on-year
increase. Numbers will likely grow as
authorities loosen visa and travel
restrictions. In 2011-16, relatively high
disposable incomes and low infation
in Taiwan will also help local sales
100
.
In both Hong Kong and Taiwan,
categories such as jewellery, watches
and gifts, consumed particularly
strongly by Chinese tourists, will see
rapid sales growth, while products and
outlets that cater effectively to their
tastes will outperform the market
101
.
However, if China goes through with
plans to drop or lower its tax on luxury
goods (more than 30% in some cases),
sales in Hong Kong and Taiwan could
suffer.
India will remain a small but high-
potential luxury market over the
forecast period. Its market is
handicapped by high duties on luxury
products and the same problems that
all retailers in India face, i.e. poor
retail infrastructure, expensive real
estate, staff shortages and regulatory
problems. In addition, brand
consciousness among Indian
consumers is not high, though this is
changing with the proliferation of
digital media. Consultants A.T.
Kearney forecast that the Indian luxury
products market will record a CAGR of
20% from 2011-2015 to reach US$5
billion- US$7 billion, but this still
accounts for only 2% of the global
luxury market then
102
.
In September 2012, the Indian
government relaxed some conditions
for the entry of foreign investors into
the retail sector. For example, foreign
retailers with over 51% equity in their
Indian operations were required to
mandatorily source 30% of their
products from small and cottage
industries and artisans, which luxury
companies were reluctant to do given
concerns about quality
103
. In
September, the government made this
requirement preferable rather than
mandatory, and also did away with a
rule that foreign retailers holding
100% of their Indian stores must own
the brands that their stores sell. The
original rule meant that a foreign
retailer that is a franchisee or licensee
for an international brand would not
be able to own 100% of its Indian
operations. Similarly, many large
companies that hold their brands and
trademarks through subsidiaries would
not have qualifed. These relaxations
could help the retail market grow
quickly, tapping latent demand. Luxury
companies remain keenly interested in
Indias potential, but given its large
size and regulatory complexity,
companies will likely opt for local
partnerships even after liberalisation.
Many people are concerned about the
current economic climate and the
forecast for next year. How do you see
your markets?
In terms of growth rates, I think everyone
is facing a kind of soft landing nowadays.
But this has a positive side in that it allows
you time to assess the business. Personally,
I am optimistic about the outlook. In an
economic downturn people might not buy
as much or as wildly in China. But sales
overseasEurope, the Middle East, Korea,
Hong Kongare actually growing. People
are a little more selective but they are still
buying. If you read Richemonts half-year
results, we are ahead of our peers. We have
been implementing a very solid strategy in
terms of brand building, and we will
continue to do so. We do not want to rush.
We do not want to open 2,000 shops in
China. We only want to open where we
should be strategically. We have not
changed our expansion plan except to
make some very slight adjustments.
Q&A with Nigel Luk, Regional Managing Director, North Asia
Cartier
Travelers from Mainland China are an
important market for Cartier around the
world. How are you maximising the
potential of this market?
How to cater for mainland tourists has
become a prominent and important issue
for Cartier in the past four to fve years. We
decided we need to have a consistent
strategy in terms of image, exposure,
service quality and so on, so that mainland
Chinese customers do not have a different
experience when they go outside China. We
have been training staff in other countries
to understand how mainland tourists shop.
For example, they always come in a group
and even though usually only one or two
are buying they like to ask all of their
friends opinions before buying. This might
seem unusual to staff in other countries so
they need to understand that it is perfectly
normal in China. It is also very helpful to
have ambassadors speaking Mandarin. We
began focusing on all of these things six to
seven years ago. We are still learning every
day. But we have a very good university in
China, with our nearly 40 boutiques in 23
cities. From our China business we have a
very good understanding of how to treat
mainland Chinese customers and this
knowledge is being transferred to our
colleagues overseas.
Whats the key to convincing Chinese
consumers to buy?
The aspirational effect created by building
the brand in China is very important. Being
expensive is not the key. Value is the key.
The story of the brand is importantthe
archives, the history, the culture, the DNA.
We have been building all of these things in
China for 20 years and we continue to
build. Consistency is also key. We are now
growing into the provincial cities but we
are being very careful to maintain a
consistent approach. Northern China
should be the same as the southern part of
China and so on. We want to be the top in
luxury.
How are you using social media? Do you
see it as an opportunity for luxury goods
frms?
Social media are very important for us. It is
very diffcult to communicate much about a
brand through print ads, particularly in a
market like China. We have been using
social media for the last six or seven years
in order to help build the brand in second-,
third- and fourth-tier cities. We are also
using it to target undergraduates and
consumers in their mid- to late-twenties in
order to cultivate them as future customers.
We recently launched our Trinity ring in
China and the news was very heavily
spread out through social media. With
social media we can also do geographical
adaptations in order to make our message
even more accessible, which is much more
powerful than a print ad.
What will be Cartiers biggest challenge
in the coming year in Asia?
Our biggest challenge will defnitely be to
keep China on the move, and to keep
Cartier at the top of luxury in China. The
aspirational aspect of the luxury business is
intangible, it is not something money can
buy. Public relations is critically important.
Whatever we do on the PR sidethe way
we act, the products we launch, the way we
execute PR eventsis very, very important.
Nowadays, brands must make extra efforts
to stand out. Every week there are probably
45 launches from different brands, all
targeting the same people. To give them a
long-lasting impression, detail counts.
Before, if you invested a lot in a big event
you could expect to win a lot of fans. Its not
like that anymore. The bar has been raised
exponentially compared to 10-15 years ago.
Cartier, a wholly owned subsidiary
of Richemont, designs and
manufactures luxury jewellery
and watches. It was founded in
1847 and today has nearly 300
boutiques worldwide.
32 PwC
Industry partnerships more
likely
According to Credit Suisse Research
Institutes Global Wealth Databook, in
2011 the Asia-Pacifc region accounted
for an estimated 22% of global wealth.
It estimates that over the next fve
years emerging markets will remain
the worlds main wealth growth
engines, leapfrogging the developed
world. By 2016, it forecasts wealth in
China to rise by over 90% to US$39
trillion, and wealth in India to more
than double to US$8.9 trillion
104
.
That rapid wealth creation will help
keep Asia centre-stage for luxury
companies, continuing 2011s trend of
Asian demand driving excellent sales
and proft growth. Heavily supported
by Asian growth, brands such as
Cartier, Herms, Christian Dior,
Jaeger-LeCoultre, Gucci, Van Cleef &
Arpels and Burberry all reported
signifcant sales increases of up to 30%
for 2011
105
. Outperformance in Asian
emerging markets led to Pradas
best-ever results in 2011, with proft
growth of 72.2%
106
. At the worlds
largest luxury goods group LVMH
(France), Asia (including Japan) is now
its leading market, accounting for 37%
of revenues in the frst half of 2012
107
.
The Asia-Pacifc region accounts for
about 45% of sales at both Italian
luxury maker Prada and Swiss group
Richemont
108
. Unsurprisingly, LVMH,
PPR, Armani Group, Ferragamo, Coach
and Prada have all announced
substantial expansion plans in Asia,
notably in China
109
.
Even as global brands increase their
Asian presence, local, home-grown
luxury brands will grow, catering for
Asian consumers rediscovery of their
own long-standing traditions of local
craftsmanship. Numerous home-grown
luxury brands, mostly unknown in the
West, have already established
themselves in Asia, mainly in China.
One of Asias best-known brands is
Hong Kongs Chow Tai Fook Jewellery
Group, a mass-luxury brand focused
almost completely on mainland China,
Hong Kong and Taiwan. The company
is growing at 60% annually and is
twice the size of Tiffany & Co by
revenue. It has over 1,500 points of
sale in Asia, and aims to add 500 more
by 2016
110
. In China, strong local
brands have also emerged in categories
like apparel and accessories. These
include fashion brands like NETIGER,
Dorian Ho, Mary Ching and Omnialuo,
and handbag maker Powerland
111
.
Having said that, local brands also
have challenges of their own including
an insatiable local demand for western
luxury brands, issues of trust and
quality among local consumers and the
costs of building a luxury brand. As
these local brands seek international
capital and expertise, and global
luxury brands remain keen to capture
new consumers in Asia and worldwide
with products that cater for their
unique tastes, partnerships between
global and local brands are likely to
become more common. An early
example is Shang Xia, a Chinese brand
that Herms launched in 2010 in
partnership with a leading Chinese
designer. It sells furniture, home
accessories, garments and tea, and
now plans stores in Paris and Beijing
112
.
Another is Hong Kong-based fashion
label Shanghai Tang, in which
Richemont acquired a controlling stake
in 1998. Catering to both Chinese and
Western buyers, it has 42 stores
worldwide and will almost double its
China stores to 30 within two years
113
.
Durable consumer goods and
electronics
Key fndings
Market demand for electrical appliances and housewares will
pick up to 6.8% in 2013, while demand for household audio and
video equipment will grow to 7.8%. Sales of PCs and mobile
phones will also remain strong.
China and India will lead the region in all categories with
double-digit growth rates.
Japanese appliance and electronics companies are struggling to
regain their footing following the yens strong rise and natural
disasters both in Japan and Thailand. South Korean and Chinese
companies have captured market share but they in turn are facing
competition from local frms in markets such as India.
Figure 13: Electrical appliances and housewares: Market demand growth (% real change pa)
Territory 2009 2010 2011 2012 2013 2014 2015 2016
China 10.9 13.3 13.2 12.4 14.5 15.8 15.2 15.1
Hong Kong -5.1 10.7 14.4 6.4 7.2 7.3 7.3 6.9
India 8.0 9.9 6.7 10.6 8.9 9.5 10.8 10.7
Japan -1.8 2.4 -1.0 1.0 0.6 0.8 0.8 0.7
Taiwan 1.5 4.2 3.6 3.3 4.0 3.3 3.8 3.6
As Asias economies face lower growth,
consumers are more careful about
their spending on non-essential items.
Hence, though still strong
comparatively, demand growth for
consumer durables and electronics is
slowing somewhat. Market demand for
electrical appliances and housewares
will rise by 5.9% in Asia in 2012, lower
than an earlier forecast of 6.6%.
However, demand will recover to 6.8%
growth in 2013 and grow every year
thereafter through the forecast period.
For the same reasons, demand for
household audio and video equipment
in the region in 2012 will rise by 6.4%
against an earlier forecast of 7.4%,
then climb to 7.8% in 2013 and grow
strongly through 2016.
Similarly, the uptake of personal
computers (PCs) and mobile phones in
the region will remain strong, though
somewhat slower than in earlier years.
The estimated stock of personal
computers is forecast to grow at 9.8%
in 2012, and then at between 8.8% and
10% through 2016. Sales of mobile
phones will remain strong as mobile
subscriptions continue to grow at an
estimated 10.9% in 2012 and at rates
of between 5.4% and 8.6% through
2016.
34 PwC
In China, demand for electrical
appliances and housewares will grow
at a robust 12.4% in 2012, slightly
lower than the earlier forecast of 13.1%
based on the weakening economy and
high prices. Demand will recover to
14.5% in 2013 and grow even better
through the rest of the forecast period.
Demand for household audio and video
will mirror that trend, growing at
13.9% against a forecast of 15.6% in
2012, and then increasing to 16.2% in
2013. China will continue to be the
worlds largest consumer of several
items like televisions and mobile
phones, and rising disposable incomes,
especially in smaller cities, will ensure
high growth through the forecast
period. Mobile phone subscriptions
will rise 11.7% in 2012 and then taper
off to reach 5.7% in 2016. The stock of
PCs will increase 9.5% in 2012 and
grow at successively lower rates each
year, ending with 7.4% growth in 2016.
Although India is also facing slower
economic growth and high interest
rates, demand for electrical appliances
and housewares will grow 10.6% in
2012, in line with our earlier forecast,
but will slow to a still healthy 8.9% in
2013. Growth is supported by the
countrys rapidly-growing and
increasingly brand-conscious middle
class, with annual incomes of
US$3,000- US$5,000
114
. For the same
reasons, demand for household audio
and video products will grow 12.6% in
2012, against an earlier estimated
11.7% and will grow by 10.4% in 2013.
Demand growth in both categories will
increase strongly through the forecast
period. Growth in the use of PCs and
mobile phones in India has been
among the regions strongest for some
years. India is already the worlds
second-largest mobile phone market
after China and its fastest growing.
Mobile phone subscriptions will rise
12.7% in 2012 and 9.9% in 2013,
before tapering off to 6.1% by 2016.
Given that Indias stock of PCs is low,
growth in this unsaturated market will
remain high, increasing by 20.1% and
22.2% in 2012 and 2013 respectively;
by 2016, growth will be a still-high
17%.
In Hong Kong, demand growth in these
categories was much higher than
expected in 2011. Given that high base
effect, demand for electrical appliances
and housewares will grow 6.4% in
2012, lower than an earlier forecast of
7.9% and then grow at 7.2% in 2013,
while household audio and video
equipment demand will grow 5.2%
against a 6.7% forecast in 2012 and
rise by 6% in 2013. Demand growth
will remain high through the forecast
period, given rising incomes and high
consumer confdence
115
. Although
Hong Kong already has high levels of
mobile phone and PC ownership,
growth will continue to be robust
Figure 14: Asia: Television sets (stock per 1,000 pop)
Territory 2009 2010 2011 2012 2013 2014 2015 2016
China 588 631 675 722 772 825 881 940
India 127 137 150 164 179 195 212 229
Japan 730 746 746 747 748 751 754 757
Figure 15: Household audio and video equipment: Market demand growth (% real change pa)
Territory 2009 2010 2011 2012 2013 2014 2015 2016
China 13.9 14.3 14.8 13.9 16.2 17.4 16.7 16.6
Hong Kong 1.9 8.6 11.1 5.2 6.0 7.0 7.0 6.6
India 14.9 11.8 8.1 12.6 10.4 10.9 12.0 11.9
Japan 1.1 3.6 0.0 0.3 0.7 0.9 0.9 0.8
Taiwan 1.6 4.8 4.1 3.7 4.5 3.8 4.3 4.1
Figure 16: Personal computers: Estimated stock (% change per annum)
Territory 2009 2010 2011 2012 2013 2014 2015 2016
China 15.8 12.6 11.4 9.5 9.1 8.2 8.2 7.4
Hong Kong 4.8 4.5 4.3 3.9 3.5 3.3 2.6 2.8
India 30.1 27.6 27.1 20.1 22.2 21.4 19.6 17.0
Japan 6.6 5.8 5.4 5.2 4.9 4.3 3.8 3.4
Taiwan 2.9 4.5 2.4 1.4 1.2 1.3 1.3 1.4
Figure 17: Mobile phone subscriptions: Total number (% change per annum)
Territory 2009 2010 2011 2012 2013 2014 2015 2016
China 12.6 12.6 14.0 11.7 9.1 7.6 6.6 5.7
Hong Kong 10.1 12.6 11.1 9.5 7.4 6.4 5.9 5.3
India 51.3 43.2 18.8 12.7 9.9 8.0 6.8 6.1
Japan 4.1 5.1 7.7 6.2 4.7 3.6 3.1 2.6
Taiwan 4.9 4.4 5.4 4.4 4.0 3.5 3.1 3.0
through the forecast period. Mobile
phone subscriptions will rise 9.5% in
2012 and at rates of between 5.3% and
7.4% through 2016. Growth in the
stock of PCs will rise more modestly, at
3.9% in 2012 and between 2.6% and
3.5% through 2016. However, the
adoption of new devices such as
smartphones and tablet devices will
remain high.
Given Japans continuing economic
problems and weak consumer
sentiment, demand for electrical
1% in 2012, lower than an earlier
forecast of 1.9%, while demand for
will grow 0.3% against an earlier
forecast of 1.7%. Demand in these
categories will grow at 0.6% and 0.7%
in 2013 and growth will remain weak
through the forecast period
116
.
However, Japans history of high
technology adoption will ensure that
demand is maintained for mobile
phones and computers, especially in
new categories such as smartphones
and tablets. Despite very high
penetration rates, mobile subscriptions
are forecast to grow 6.2% in 2012, and
then at between 2.6% and 4.7%
through 2016. The growth in the stock
of PCs is forecast at 5.2% in 2012 and
at successively lower rates until 2016,
when growth will be 3.4%.
In Taiwan, demand for electrical
3.3% in 2012, against an earlier
estimate of 4.5%, and demand for
will grow 3.7% against an earlier
forecast of 5.1%. Demand in these
categories will recover to 4% and 4.5%
respectively in 2013, and grow
moderately well through 2016.
Taiwans penetration rates for mobile
and internet access are high, as is its
use of newer devices like smartphones.
However, those factors, combined with
a small population will mean that
growth rates will be modest going
forward. The stock of PCs is forecast to
grow 1.4% in 2012 and remain around
that fgure through 2016, although the
uptake of newer devices will remain
strong. Mobile phone subscriptions will
grow 4.4% in 2012 and between 3%
and 4% through 2016.
36 PwC
Japanese durable and electronics
manufacturers are losing their
decades-long dominance in Asia.
During the last fve years, the global
economic crisis has destroyed demand
for expensive Japanese products, while
a 50% rise in the yen against major
currencies has also hurt export
competitiveness. Those problems were
compounded when Japanese
manufacturing facilities were hit by
Japans earthquake and Thailands
foods. Companies are suffering the
consequences. Sony, Panasonic and
Sharp together lost JPY1.6 trillion
(US$20.1 billion) last fscal year and
are cutting jobs and restructuring
117
.
Even as Japanese companies struggle
to regain their footing, companies from
South Korea like LG and Samsung,
Chinese companies such as Haier and
Taiwanese companies like hardware
maker Hon Hai have swooped in to
capture market share across Asia,
expanding quickly by offering lower
prices, a wider range and adequate
technology in an increasingly
commoditised market.
But these new leaders are now being
challenged by other local players. For
example, South Korean companies like
LG and Samsung have established their
leadership in Indias Rs350 billion
(US$6.6 billion) durables and
electronics market since their entry in
the late 1990s, edging out local brands
like Onida, Godrej and Voltas. By
end-2011, Samsung and LG together
sold 34% of Indias market for air
conditioners and 45% of the market for
refrigerators and semi-automatic
washing machines. However, local
durables and electronics makers are
fghting back. In 2011, Samsung and
LG have both lost between fve and
eight percentage points of market
share in air conditioners to local
players, who are catching up in other
segments like televisions too. In recent
years, Indian brands have overhauled
their images, withdrawn from
categories where they could not
compete, focused more tightly on
fewer areas, strengthened their
position in specifc regions and
improved dealer margins and their
time to market. They are now
improving their product range and
expanding into new areas. Rural
markets are of particular interest.
Here, Godrej Appliances has come up
with a Rs3,500 (US$65) refrigerator
called ChotuKool aimed at rural
households which do not yet own
refrigerators
118
. Meanwhile air
conditioner maker Voltas has
overtaken rivals like Samsung and
Carrier and now aims to overtake
LG
119
.
A new cycle?
Figure 18: Retail sales in Asia (in US$ million)
Territory 2009 2010 2011 2012 2013 2014 2015 2016
Australia 183,035 226,152 263,281 272,576 277,446 286,665 285,406 302,297
China 1,384,700 1,611,600 1,935,500 2,265,900 2,628,400 3,086,500 3,573,000 4,133,700
Hong Kong 35,440 41,825 52,069 55,366 58,560 62,951 68,548 74,578
India 574,819 742,694 821,838 873,398 1,020,086 1,235,994 1,486,902 1,883,418
Indonesia 225,956 284,503 326,778 334,946 363,422 411,287 473,909 543,066
Japan 1,413,508 1,544,663 1,683,805 1,723,518 1,652,612 1,573,818 1,545,687 1,507,940
Malaysia 58,246 68,616 79,530 83,877 92,572 102,111 114,070 124,545
New Zealand 29,364 34,987 39,727 39,981 37,329 37,531 38,713 40,747
Philippines 77,194 89,660 99,601 107,976 118,676 128,502 140,491 155,033
Singapore 28,573 33,439 38,636 41,395 44,700 48,418 52,438 57,398
South Korea 206,372 245,331 271,377 273,924 293,956 314,604 348,434 370,946
Taiwan 103,365 118,909 136,020 138,481 144,651 152,822 162,826 172,229
Thailand 85,955 102,484 112,248 122,179 136,594 149,464 163,356 179,198
Vietnam 43,026 46,118 53,878 62,704 72,557 82,296 94,488 104,007
At a glance:
Indonesia, Malaysia,
Singapore, South Korea,
Thailand and Vietnam
38 PwC
At a glance
Indonesia
Overview
As exports account for a relatively
small proportion of its GDP, Indonesia
should cope better than most of its
neighbours with any slowdown in
global economic expansion this year,
but growth will still be moderate. Real
GDP growth is forecast at only 6.0% for
2012, while infation continues to rise
steadily
120
. Retail sales volumes in
Indonesia are forecast to grow 4.6% in
2012, as originally expected. Retail
sales volumes will then rise 5.5% in
2013 and hover around 6.5% annually
until 2016, supported by strong
domestic economic expansion.
Indonesias large domestic market and
favourable demographic profle offer
long-term potential, but it will take
time for personal disposable income to
rise to levels needed for double-digit
growth in retail sales. Over the next
fve years, the sale of relatively
low-cost staple goods will dominate,
although the small but growing group
of high-income consumers will also
support sales of higher-cost items
121
.
Retail activity will continue to grow in
urban areas. The island of Java, home
to around 60% of the population
despite making up only 7% of the
countrys land area, remains the most
important retailing region. Though the
market remains highly fragmented and
is dominated by informal stalls and
wet markets, modern retailing is
expanding rapidly. With only around
30% of total retail sales accounted for
by modern outlets, there is enormous
growth potential here, supported by
Indonesias emerging middle class.
Nevertheless, the traditional retail
sector is expected to continue to
dominate in the near term, particularly
outside the cities
122
.
Non-food retail sales will rise strongly
in 2012-16, helped by rising incomes
and easier access to credit. The fastest
growth will be in motor vehicles and
parts, followed by audio and video
equipment. Spending on clothing and
footwear will increase throughout the
forecast period, driven by image-
conscious young Indonesians in the
larger cities
123
.
PC penetration in Indonesia is low by
Southeast Asian standards, owing to
low income levels. There are also wide
regional disparities: in rural areas
there are only an estimated 0.6 PCs per
100 people, against an average of 6.9
PCs per 100 in the entire country. The
popularity of smartphones indicates a
high potential for e-commerce growth,
but the weakness of payment and
delivery systems in the country is a
major problem
124
.
At a glance
Preparing for the ASEAN
Economic Community
Indonesias population of 245 million is
Asias third-largest after China and
India, while its economy is among the
worlds fastest-growing. Indonesias
middle class, already almost four times
the UKs entire population, is also
growing rapidly and getting richer.
Those factors have made Indonesia
attractive to Western retailers such as
Frances Carrefour and the UKs
Debenhams.
Now, Indonesias retail sector is
attracting interest and investment
from its Southeast Asian neighbours.
In 2015, ASEAN (Malaysia, Singapore,
Indonesia, the Philippines, Thailand,
Cambodia, Laos, Vietnam, Burma and
Brunei) hopes to establish the ASEAN
Economic Community (AEC), a single
market allowing the free fow of goods,
services and investment
125
.
Ahead of the proposed establishment
of the AEC, companies in the region
are looking for a foothold in Indonesia,
Southeast Asias biggest economy.
Indonesia already hosts several
retailers from the region, including
Sogo and Seibu department stores,
both from Japan, Singapores Metro
and South Koreas Lotte. Now, several
new regional companies are entering
the market.
In July 2012, Thailands Central Retail
Corporation (CRC) said it planned to
open its frst Central Department Store
in Indonesia in 2014 with fve more
stores by 2017. The company says
taking advantage of the upcoming AEC
is part of its main strategy
126
. In July
2012, Malaysian retailer Parkson
Retail Group announced it would
invest US$15 million to open fve new
stores in Indonesia in 2013, citing
political stability and growing
consumer purchasing power. Parkson
has 108 stores across Malaysia, China
and Vietnam and intends to open seven
new stores in 2013 across Vietnam,
Malaysia, Cambodia and Indonesia. In
June 2011, Parkson bought the Centro
Department Store business from
Indonesias Sentosa Group. Centro
currently has eight stores across
Indonesia, targeted at middle class
consumers. Along with three more
Centro stores, the group will open two
Parkson stores targeted at the middle-
and upper-class market. Between its
two brands, Parkson aims to quadruple
its Indonesian sales over the next few
years
127
.
40 PwC
At a glance
Malaysia
Overview
Retail sales volumes in Malaysia are
expected to grow by 4.9% in 2012. The
economy is expected to expand by only
4.9% in 2012, lower than the growth of
5.1% seen in 2011 based on weak
economic growth in Malaysias main
export markets. But consumer price
infation is expected to moderate in
2012, to an average of 1.8%, from
3.2% in 2011, refecting falling global
commodity prices
128
.
Malaysias economic expansion is
expected to pick up momentum
thereafter, averaging 5.3% a year in
2013-16, when private consumption
will help drive growth, boosted by a
fairly strong domestic labour market
129
.
Retail sales volume growth will
therefore climb to 5.7% in 2013 and
range between 4.8% and 5% for the
rest of the forecast period,
underpinned by improving consumer
confdence.
At US$4,270 in 2011, Malaysia boasts a
relatively high level of personal
disposable income per head. However,
this is low compared with its closest
neighbour Singapores fgure of
US$22,420. In the next fve years the
governments policy agenda will centre
on numerous initiatives aimed at
raising income levels and attempting to
turn Malaysia into a high-income
country by 2020
130
, which would go
towards boosting retail sales.
Malaysias retail sector will remain
fragmented in 2012-16. In rural areas,
it will continue to be dominated by
traditional stores and markets, while
supermarkets and hypermarkets will
increase in popularity in urban areas.
Major hypermarket operators such as
Tesco, Carrefour and Dairy Farm have
built up a signifcant presence in
Malaysia, despite a requirement that
their operations have 30% local
(Bumiputera) equity. Existing
legislation limiting the expansion of
hypermarkets is unlikely to be lifted in
2012-16. Hypermarkets, supermarkets
and department stores are also
prohibited from 24-hour trading (they
may open for 12 hours on weekdays
and 14 hours on weekends, public
holidays and during festive seasons).
More shopping malls are likely to be
built in 2012-16, since the regulations
governing their construction are less
restrictive
131
, but specialty stores are
required to comply with certain
qualifying criteria before they are
allowed to operate.
Sales of apparel and footwear,
cosmetics and toiletries are all forecast
to grow fairly briskly in 2012-16.
Toiletries and some beauty products,
such as sun protection, skincare and
colour cosmetics, are no longer
perceived as luxuries. Consumer
electronics sales are expected to
increase as incomes rise and prices fall.
PC sales are expected to grow steadily
in 2012-16 in urban areas, partly as a
result of government policies to
increase affordability. Online retailing
remains underdeveloped in Malaysia,
but the government hopes to see a
rapid increase in e-commerce, which it
continues to promote. The main
obstacle to faster growth in this area is
low computer ownership and low
broadband penetration. Many of the
online retailers catering for the market
specialise in apparel or electronics
132
.
At a glance
Targeting tourists for growth
Given its small population of 28
million, tourism is important to both
consumption and revenues in Malaysia
and a major contributor to the
economy. In 2011, tourism was the
seventh-largest contributor to gross
national income and the third-largest
foreign exchange earner after
manufacturing and palm oil. The
industry provided 1.8 million jobs
15.9% of total employment in
2010
133
.
According to the World Tourism
Organisation, Malaysia was the ninth
most popular tourist destination
worldwide in 2010. In 2011, it hosted
24.7 million tourists, who brought in
tourism receipts of MYR58.3 billion
(US$19.1 billion). Malaysias
government is now trying to boost
tourism further. Its Malaysia Tourism
Transformation Plan 2020 targets 36
million visitors and MYR168 billion
(US$55 billion) in receipts by 2020.
Under the governments Economic
Transformation Programme, tourism is
one of the 12 national key economic
areas viewed as having the greatest
potential to boost economic growth.
Rather than simply increasing tourist
numbers, the government also hopes to
grow the yield per tourist by targeting
high-spending tourists from affuent
countries. To increase yields, it also
hopes to boost shopping, especially at
the higher end. In early 2012, it
launched a new tourism brand called
Luxury Malaysia, promoting the
country as a duty-free shopping
destination for luxury goods and
targeting key Asian markets and
Europe
134
.
Malaysia already has several duty-free
zones. Unlike many of its Asian
counterparts, it also waives import
duties on several luxury goods, with
the intention of lowering prices and
attracting luxury brands to set up shop
in Malaysia. The government hopes
that their presence in turn will lure
visitors, by offering more products
along with competitive prices. For
example, from January 2011, the
government waived import duties on
about 300 luxury goods. Around 29
luxury brands responded by reducing
retail prices by an average of 20% on
goods including perfumes, handbags,
apparel, rugs, bed linen, footwear,
hats, jewellery and toys
135
.
All those efforts may be paying off,
albeit slowly. According to Malaysias
Ministry of Tourism, in the frst fve
months of 2012, Malaysia received
9.43 million tourists. That was only a
1.2% increase over the previous year,
but arrivals from high-spending
countries were up substantially,
including from Saudi Arabia (up
50.7%), China (34.1%) and Japan
(30.6%). The share of tourist shopping
in total tourism receipts also increased
slightly to 32.3% compared to 30% last
year
136
.
42 PwC
At a glance
Overview
Given the Singapore economys heavy
exposure to the global slowdown, its
real GDP growth will slow from 4.9%
in 2011 to 2.4% in 2012, while
consumer price infation will remain
high, averaging 4.4% in 2012
137
.
Therefore, retail sales in Singapore are
forecast to rise only 1.7% in 2012,
lower than an earlier forecast of 2.7%.
Singapores economy should rebound
in 2013, growing 4%, while expansion
should average 5.3% a year in 2014-16.
Price rises are expected to moderate in
2013-16, averaging 2.7% a year. Retail
sales will refect that improvement,
rising 2.7% in 2013, and growing at a
better pace each year until 2016, when
they are forecast to grow 5.3%.
Singapore is one of Asias most affuent
countries, with personal disposable
income per head of around US$22,420
in 2011. The countrys population of
5.2 million is small, but entirely urban.
Singapore
Singapores tourism sector is booming,
also providing a boost to the retailing
industry. According to the
governments Singapore Tourism
Board, Singapores visitor arrivals in
2010 rose by 13.8% to 13.2 million, a
record high
138
.
Singapore has a highly developed retail
sector, with numerous large
department stores and shopping
centres. The popularity of
supermarkets has grown in recent
years, while hypermarket operators
have extended their product ranges to
include non-food items. In 2012-16, the
food retailing sectors structure is
likely to change, with a further shift
away from market stalls and towards
mini-markets, popular with the
young
139
.
In clothing and footwear, price
competition among brand names will
rise and prices of private labels and
branded products will converge more.
Despite strong demand for cosmetics
and toiletries, sales of expensive
brands could continue to be affected by
the price-conscious nature of
Singapores consumers
140
.
Spending on consumer goods,
particularly consumer electronics will
strengthen over the next fve years.
The growth of the overall market will
be limited by its maturity, though
smartphones, netbooks, e-readers and
tablet computers will prove popular.
High disposable incomes and brand
awareness will continue to ensure a
substantial market for foreign luxury
goods, although demand growth will
be weak in the next few years. The
online sector will also grow quickly
141
.
At a glance
The growth of online shopping
and m-commerce
Singapore is one of Asias most
connected countries, with an excellent
telecommunication infrastructure and
a technology-literate population.
According to government fgures, as of
end June 2012 the mobile penetration
rate was 151.4% while the wireless
broadband penetration rate was
160.2%
142
. Little wonder that both
online retail and m-commerce are
growing quickly.
According to online payment frm
PayPal and research company Nielsen,
in 2011 online spending in Singapore
rose 33% to a substantial S$1.4 billion
(US$1.1 billion). Consumers mainly
bought clothes, shoes, handbags,
airline and movie tickets and beauty
products
143
.
The online shopping market for
groceries is also booming, given the
convenience of home delivery. PayPal
said that consumers spent 200% more
in this category in the frst eight
months of 2011 than they did in all of
2010. The most common items bought
online are essentials such as rice, milk
powder and diapers, as well as bulky
items like mineral water. The online
stores of supermarket chains like
FairPrice, Cold Storage and Carrefour
report that demand is growing fast. For
example, FairPrice said that customers
at its eight-year-old online store are
growing by 25% per year
144
.
Meanwhile, m-commerce is exploding
even faster. According to PayPals
Online and Mobile Shopping Insights
2011 study, released in May 2012,
Singapores m-commerce market grew
by 660% in 2011, to S$328 million
(US$259 million), from S$43 million
(US$33 million) in 2010. It forecasts
that the m-commerce market will grow
nearly ten-fold by 2015, to S$3.1 billion
(US$2.45 billion).
According to the study, mobile
shopping constituted 23% of all online
shopping in 2011, nearly six times its
2010 share of 4%, while mobile
shoppers made up 48% of all online
shoppers compared to 29% in 2010.
The majority (75%) of purchases made
using mobile devices were via
smartphones. However, the average
spend per head by shoppers using
tablet devices was much higher than
that of shoppers using smartphones, at
S$380 (US$300) against S$274
(US$217).
The top m-commerce spending
categories were fashion and
accessories, movie tickets, books,
applications, and food and groceries.
Almost a quarter of mobile shoppers
indicated a desire to purchase fashion
items, airline and movie tickets using
their smartphones, while tablet users
said they would like to buy automotive
goods and computer hardware
145
.
44 PwC
At a glance
Overview
South Koreas real GDP is expected to
grow at 2.7% in 2012, down from 3.6%
in 2011, as its heavily trade-dependent
economy remains affected by the
weakness of the global economy and a
modest slowdown in China, South
Koreas leading export market
146
.
Therefore, retail sales volumes are
forecast to grow only 1% in 2012,
against an earlier forecast of 1.8%,
though sales will be aided by moderate
infation and low interest rates.
As export growth and the economy
pick up in 2013, refecting stronger
world economic growth, and infation
remains low, retail sales volume
growth will recover to 2.1%. Growth
will continue to pick up pace
throughout the forecast period. With
total retail sales of US$271.4 billion in
2011, South Koreas retail market ranks
ffth in the region behind China, Japan,
India and Indonesia. South Koreans
are relatively wealthy compared with
South Korea
many of their Asian neighbours and
over 80% of the population is urban.
These factors make the country an
attractive retail market for domestic
and foreign players alike
147
.
The retail industry has been slowly
undergoing a transformation, with
hypermarkets gaining market share
from smaller retail outlets and
department stores. Construction of
new outlets and complexes will
continue in the forecast period, albeit
at a subdued pace, as the market
appears to be approaching saturation
point and large retailers subject to
tighter regulations
148
.
As the domestic economy remains
relatively healthy in the forecast
period, the consumer products market
will expand. Consumer electronics
sales will rise, driven by a highly
innovative local industry, strong
demand and lower prices. Demand
growth is expected to be buoyant for
tablet computers and smartphones.
Clothing and footwear sales will also
increase as the economy improves in
2012-16, though sales of household
goods and appliances could be volatile,
given the poor state of the housing
market
149
.
With the worlds highest penetration
rate for broadband internet access and
steady growth in credit-card use, South
Koreas online retail sector will remain
one of Asias fastest-growing. Statistics
Korea reported that in 2011
e-commerce transactions amounted to
W999 trillion (US$901.4 billion), an
increase of 21.2%. Most of this was
accounted for by business-to-business
transactions but consumer
transactions rose 15.7% to W18.5
trillion (US$16.9 billion). Mobile
retailing will also grow quickly in the
period
150
.
At a glance
Restricting retailers
Unfair competition from big retailers
was a key theme of campaigns for
parliamentary elections in April 2012,
and South Koreas politicians are
taking aim at the countrys biggest
retailers ahead of the presidential
elections in December 2012. The
ruling Saenuri Party, which won the
parliamentary elections, said it will
push to ban the countrys biggest retail
chains from opening new stores in
provincial cities as part of its drive to
protect small retailers and traditional
marketplaces.
The ban on retail expansion, if it
happens, will apply to all cities with a
population of under 300,000. Under
the proposals, retailers such as E-Mart,
Homeplus and Lotte Mart will not be
allowed to open new stores in 50 of the
countrys 82 cities and all counties,
covering about a quarter of South
Koreas 48 million population.
Retailers are understandably
displeased. British diplomats in Seoul
have previously advised the UKs Tesco
that it has grounds to appeal against
restrictions under the terms of a trade
agreement with the EU, which came
into force last year. The government
says that without such restrictions,
South Koreas small-and-medium-sized
retailers are bound to shrivel up,
raising unemployment and increasing
welfare demands. Retailers counter
that their stores actually provide
employment and contribute to the
economy. Tesco says it is addressing
these problems by setting up franchise
stores and says it has increased the
number of smaller urban stores to 299
from 255 in August 2011, providing
hundreds of jobs.
The countrys big retailers already face
additional restrictions. Regulations
that took effect in March 2012 forbid
the biggest retail chains from opening
their stores between 11pm and 8am
every day, and will force them to close
completely for one to two days every
month. Previously, most stores were
open every day of the week and some
operated until as late as 1am. Seoul
has already moved to enforce the
regulations, which will affect some 64
discount chain stores and 267
supermarkets in the capital. Offenders
face up to US$25,000 in fnes.
The restrictions come when the sector
is doing well. Sales at major discount
outlets and department stores grew
3.7% in December 2011 compared
with a year earlier, a turnaround from
a 0.5% year-on-year contraction the
previous month, according to the
Ministry of Knowledge Economy.
Meanwhile, combined sales at the
three major department stores, Lotte,
Shinsegae and Hyundai, surged 11% in
December, up from a 0.5% year-on-
year reduction the month before. If the
ban on retail expansion goes through,
2012 might not be quite the buoyant
retail year many were expecting
151
.
46 PwC
At a glance
Overview
Retail sales volumes in Thailand in
2011 grew only 1.5%, against a
forecast of 3.2%, as the severe foods
that swept across central and northern
parts of the country in 2011s second
half depressed buying. However, as the
food waters receded in early 2012,
retail sales recorded strong growth as
consumers replaced destroyed goods.
Retail sales volumes are now forecast
to grow by 7.8% in 2012, higher than
an earlier forecast of 5.2%, as the
economy recovers. Sales will rise by
6.9% in 2013 and by between 4.7% and
5.3% through the rest of the forecast
period.
Demand will be supported by rising
incomes. Thai consumers were richer
on average in 2011 than those in
Vietnam, Indonesia and the Philippines
but poorer than those in Malaysia and
Singapore. Personal disposable income
per head will rise from an estimated
US$2,382 in 2011 to US$3,373 in
2016
152
.
Thailand
As the economy recovers, higher-
income consumers will strengthen
demand for shopping malls and
boutiques in the latter part of the
forecast period, although discount
retailers will prosper in the earlier
period. Thailands retail sector has
changed markedly in recent years. The
sector was once dominated by
thousands of small, local shops, but
large numbers of shopping malls have
emerged with a rapid rise in the
number of modern retail outlets,
especially foreign invested
hypermarkets. According to a study
from researcher Nielsen, in 2011
traditional trade accounted for 54% of
overall FMCG sales by value, but
convenience stores have increased
their share rapidly from 16.9% in 2009
to 20% in 2011, while supermarkets
have held steady at a 26% share of
sales since 2009
153
. Smaller retailers
will continue to struggle as foreign
chains infuence consumer preferences
for modern distribution outlets.
In the early part of the forecast period,
essential items will dominate the
demand for consumer goods;
thereafter, demand for non-essential
items, such as health and beauty
products, sportswear and equipment,
and home improvement tools and
equipment, will improve. Sales of
cosmetics and toiletries have been
growing particularly strongly in recent
years.
Sales of PCs have grown robustly in
major urban areas in recent years,
aided by government policies to
increase affordability. Expenditure on
consumer electronics will continue to
rise in tandem with growing incomes.
Online retailing will remain
underdeveloped until internet
penetration improves. It is likely to
develop in line with greater access to
the internet through mobile devices
and the emergence of companies
offering secure online-payment
systems
154
.
At a glance
Threat of restrictions
resurfaces
Thailands retailers are still recovering
from the devastating foods of 2011,
but they may soon have a new problem.
The government seems keen once
again to push the passage of the
Retailing and Wholesaling Business
Law, which has been hanging fre for a
decade. The government prepared an
updated draft in mid-2012, which
retailers continue to oppose. The law
seeks to regulate the growth of modern
retailers. If it is passed, a government
committee will oversee retail
expansion plans and large retailers
will have to seek the committees
permission to open a new store if its
area is to surpass 1,000 sq metres or if
the operator has exceeded BT1 billion
(US$32.5 million) in sales the previous
year
155
. The draft defnes four major
business categories for regulation:
hypermarkets and superstores,
discount stores, supermarkets, and
convenience stores. It would cover
several important operators, including
Tesco Lotus, Big C Supercenter, Makro
and Tops Supermarket.
Equally ominously, new hypermarkets
and superstores, discount stores and
supermarkets may have to locate a
minimum of 10 kms outside of
municipal centres. They may also have
to limit operating hours, possibly to 12
hours a day. The governments aim is
to control expansion in city centres and
help protect small traditional
retailers
156
.
The Thai Retailers Association (TRA)
has opposed the draft bill, saying it
appears biased, since it would control
only modern trade operators. Retailers
are already subject to onerous
regulations, including six major ones
that cover city zoning and building
controls, environmental restrictions
and laws overseeing competition and
consumer protection
157
. If passed, the
law would curtail growth by limiting
expansion. It could also accelerate
consolidation as major players look to
grow through acquisitions instead.
Ahead of the new restrictions, retailers
are continuing with their rapid
expansions. Tesco Lotus, owned by the
UKs Tesco, says it will invest
signifcantly in the Thai market in
2012, opening 300 new stores,
modernising existing malls and
opening three new distribution
centres. Japanese-owned 7-Eleven,
which has 6,000 stores in Thailand,
plans to expand to 10,000 outlets by
2018
158
.
Several large retailers are also
expanding in the increasingly popular
small to medium-size retail outlet
segment, a trend that could accelerate,
given the new laws size regulation.
Thailands fourth-ranked retailer,
Central Retail Corporation, plans to
spend BT1 billion (US$32.5 million) in
2012 to add 200 of its Tops Daily
mini-supermarket outlets measuring
200 sq metres. It added only 70 in
2011
159
. Companies may also turn to
online retailing to expand in the face
of the new regulations. Tesco Lotus
plans to launch internet shopping for
dry and fresh products in Thailand in
2012, its frst such Southeast Asian
initiative
160
.
48 PwC
At a glance
Overview
Retail sales volumes in Vietnam are
forecast to grow 8.3% in 2012, better
than an earlier forecast of 5.8%. A key
factor behind the rosier outlook is a
drop in the average rate of consumer
price infation, which spiraled to an
alarming 18.7% in 2011. It will slow to
8.5% in 2012, as global commodities
prices fall. However, economic growth
is expected to slow in 2012, to 5.3%,
after expanding by a lacklustre 5.9% in
2011, since a subdued global economic
performance will also cause external
demand to weaken.
Given a more benign climate from
2013, both at home and worldwide,
Vietnams GDP growth will pick up to
6.9% a year on average in 2013-16,
when infation should slow further, to
an average of 7.4%
161
. Consequently,
retail sales volumes will surge 11.1% in
2013 and stay strong for the rest of the
period but taper downwards in 2016.
Vietnam
Fundamentals are strong. The
countrys middle class is growing, as
are disposable incomes. Cost-of-living
increases and strong employment
growth will support continued fast
wage growth
162
.
According to Kantar Worldpanel, in
2012 modern trade accounts for only
18% of the retail structure in
Vietnam
163
. Food retailing remains
dominated by popular wet markets and
independent grocers, constituting over
80% of all food retailers. The
development of modern retailing
remains confned to urban centres, and
the traditional retailing sector will
continue to dominate in rural areas
during 2012-16. However, there are a
growing number of modern retail
outlets, many of which are foreign
invested. As the market is opened
further, multinational retail giants are
likely to enter
164
.
Relatively low incomes in Vietnam will
keep demand for high-end consumer
goods subdued throughout 2012-16.
However, demand for consumer
electronics and white goods will
continue to expand in 2012-16 as
Vietnamese consumers begin
regarding such items as necessities
rather than luxuries. Sales volumes of
PCs, laptops, tablet computers and
smartphones will rise as internet
services and usage improves. Demand
for online retailing will remain
lackluster in 2012-16, given relatively
low internet penetration and poor
online-payment systems
165
.
At a glance
Restrictions on expansion
Several foreign retailers are entering
or expanding in Vietnams relatively
undeveloped retail market. Japans
Aeon plans to open its frst Vietnamese
store in early 2014, while Japanese
convenience store operator FamilyMart
hopes to more than double its 18-store
network in the country by end-2012,
and South Koreas Lotte Mart
supermarket chain plans to open its
third store in 2012, growing to 30
stores by 2018.
Vietnam is an interesting growth
market, but the operating environment
for foreign retailers is diffcult. After
joining the World Trade Organization
in 2007, Vietnam now allows 100%
foreign ownership in retailing.
However, once they have opened their
frst store, foreign-owned retailers
must seek permission from local
authorities to expand further
166
.
Retailers must pass an economic needs
test justifying the expansion, a
regulation intended to protect
domestic retailers. Local departments
of industry and trade can refuse to
grant licences simply on the grounds
that the localities in question do not
need more retail outlets
167
.
Some companies are fnding ways to
work within the restrictions. Aeon
intends to expand by opening stores in
locations where new commercial or
residential developments are being
planned, hoping this will help justify
the need for its expansion. FamilyMart
plans to expand its chain of locally-run
stores through an agreement with its
Vietnamese partner, Pho Tai Group, a
major retailer and distributor. If it
obtains the necessary permissions in
2013, FamilyMart plans to rapidly
open franchised stores, aiming to
operate 300 stores throughout Vietnam
by 2016
168
.
Both foreign and local retailers are also
hampered by the diffculty of fnding
good properties and by sky-high rents
in prime locations, which can account
for as much as half of a retailers
operating expenses
169
. The local
Fivimart supermarket chain has had to
shut down six of its supermarkets after
being unable to renew their leases.
Meanwhile, another local retailer, the
Co.opmart supermarket chain, has
been unable to open several new stores
it was planning for want of suitably-
priced space
170
.
As Asias markets leap forward and Asian consumers come into their own, the
great Asian retail story is still being written. Companies, both foreign and local,
have an unprecedented opportunity to help write that story. Geographical
expansion is still their big priority. Over the next few years, companies will fan out
across China, penetrating into its smallest cities. Simultaneously, they will make
inroads into Asias other up-and-coming markets, from India to Indonesia.
Regional companies, although sitting on vibrant home markets, are already
seeking to tap growth in neighbouring countries.
As developed countries struggle and their markets contract, Asia holds out the
promise of both growth and profts. But the Asian story has many sub-texts that
companies must interpret wisely. As economic development threatens to displace
some segments of the economy such as traditional retailers, and income disparities
widen, governments are increasingly moving to restrict big, especially foreign,
retailers. Large companies will need to fnd ways to maintain their dialogue with
regulators and reassure both communities and small competitors about their
intentions.
Makers of consumer goods will face other challenges. They will need to be
judicious in selecting regional and product strategies, be sensitive in
understanding local consumer needs and preferences, be fexible in building
partnerships and networks, and be nimble in dealing with ferce competition. If
they can get all of that right, this story will indeed have a happy ending.
Conclusion
50 PwC
Footnotes
1. Industry Report, Consumer Goods and
Retail: China, Economist Intelligence
Unit, Jul 2012
Retail: Japan, Economist Intelligence
Unit, May 2012
Retail: India, Economist Intelligence
Unit, Aug 2012
4. Industry Report, Consumer Goods
and Retail: Hong Kong, Economist
Intelligence Unit, Apr 2012
Retail: Taiwan, Economist Intelligence
Unit, Jun 2012
Unit, Jul 2012
7. JAPAN: Retailer Aeon targets Vietnam,
Malaysia, China expansion, just-food.
com, 12 Mar 2012
8. Carrefour to Open 30 new China
Stores in 2012, mingtiandi.com, 20 Jan
2012
9. India Retail: Retail Details, Economist
Intelligence Unit, 3 Oct 2012
10. Wal-Mart slows down expansion in
Chinese market, wantchinatimes.com,
25 Aug 2012
11. 7-Eleven to start accepting franchise
stores in China, Want China Times, 13
Jul 2012
12. CR Vanguard Launches New
Supermarket Brand, buybuychina.
com, from BBTNews and Winshang, 10
Aug 10 2012
13. Carrefour China: Dont Panic, Buy
Organic, buybuychina.com, from QD
News, 19 Jun 2012
14. Kantar Worldpanel, 23 Jul 2012
15. Walmart to increase stake in Chinas
Yihaodian, Asia.cnet.com, 17 Aug 2012
Unit, Jul 2012
Unit, May 2012
Unit, Aug 2012
19. Winds of Change: the Wellness
Consumer, FICCI-PwC India, Aug 2012
21. Looking to the Far East,
privatelabelbuyer.com, 29 Mar 2012
22. AseanContract Manufacturing
and Private Label, Australian Trade
Commission, 2010
23. Company website, tescolotus.com
24. Looking to the Far East,
privatelabelbuyer.com, 29 Mar 2012
25. Private Labels euphoria subsides in
retail, Economic Times, 13 Jun 2011
26. Ibid.
27. Speedy Growth in FMCG Segment
Expected, India Today, 16 Nov 2011
28. Private labels owned by retailers
such as Bharti Retail, Future Group
outsell national brands in own stores,
Economic Times, 6 Feb 2012
29. Private labels euphoria subsides in
retail, Economist Times, 13 Jun 2011
30. Croma Eyes Rs250cr Revenues from
Private Labels in FY13, Economist
Times, from PTI, 29 Apr 2012
Unit, Jul 2012
Unit, Aug 2012
Unit, Jun 2012
Unit, May 2012
36. Inditex: a Spanish Love Affair with
China, buybuychina.com, 20 Apr 2012
37. Fast Retailing in Massive China Push,
insideretail.asia, 18 Jul 2012
38. Tommy to Accelerate in India,
insideretail.asia, 24 Jun 2012
39. Gap speeds up China Expansion,
insideretail.asia, 17 Aug 2012
40. Worldwide brand reaches Chinese
mainland, usa.chinadaily.com.cn, 7
Aug 2012
Unit, Jul 2012
43. Chinese Fashion Group has Global
Designs, ft.com, 15 May 2012
44. South China Morning Post, 21 Feb 2012
45. LVMH Fund Takes Stake in Trendy,
online.wsj.com, 13 Feb 2012
46. Key Statistical Highlights, International
Telecommunication Union, Jun 2012
47. Taiwan: Telecoms and Technology
Report, Economist Intelligence Unit,
Jun 2012
48. Asia-Pacic to Grab Greatest Share of
Ecommerce Sales, emarketer.com, 17
Aug 2012
49. China: Telecoms and Technology
Sept 2012
50. Analysys International, reports from
analysys.com, Jun 2012; Jan 2012
Unit, Jul 2012
52. Hong Kong: Telecoms and Technology
Jul 2012
53. Online Payment Pioneer Comes of
Age, The Standard, 9 Jul 2012
54. Japan: Telecoms and Technology
Aug 2012
Unit, May 2012
56. India to be the fastest growing
E-Commerce Market in Asia-Pacic;
Market Set To Grow to $8.8bn by 2016,
iamwire.com, 19 Apr 2012
57. India: Telecoms and Technology
Jul 2012
58. Trends in Indias e-commerce Market,
Forrester Research Aug 2012
59. Amazons Junglee, India Retail,
Economist Intelligence Unit, 6 Feb 2012
60. Taiwan: Telecoms and Technology
Jun 2012
61. Taiwan Sees Slowdown in
e-Commerce: MIC, 14 Dec 2011
asiatoday.com
Unit, Jun 2012
52 PwC
Unit, Jul 2012
64. Amazons Junglee, India Retail,
Economist Intelligence Unit, 6 Feb
2012; From e to Commerce, epaper.
timesondia.com
Unit, Jul 2012
66. Macys China: First we take
e-Commerce, then we take Beijing?,
buybuychina.com, 6 Jun 2012
67. Eau de Colonialism: East Asian brands
ride e-Commerce wave into Chinas
interior, buybuychina.com, 11 Jul 2012
68. Online shopping for luxury brands
clicking with Indians, livemint.com,
Mar 2012; and Japan Luxury Goods
Survey 2011, McKinsey & Co., May 2011
69. Coach to open Luxury Store on
Taobao Mall, globaltimes.cn, 12 Dec
2012; Coach to Launch Chinese
e-Commerce Platform, buybuychina.
com, 28 Jun 2012.
70. Neiman Makes Web Push to Lure
Chinese Shoppers, wsj.com, 21 Mar 2012
Unit, Jul 2012
72. Tourism.gov.hk, Dec 2012
Unit, May 2012
Unit, Aug 2012
Unit, Jun 2012
77. Country Forecast, China, Economist
Intelligence Unit, Aug 2012
78. Country Forecast, India, Economist
Intelligence Unit, Jul 2012
79. FMCG companies like HUL, Dabur,
Godrej, Marico continue to achieve
consumption-driven growth, Economic
Times, 22 May 2012
80. FMCG Growth Slows in China, warc.
com with data from CTR, 14 Jul 2012
81. Tricky Customers, ft.com, 13 Aug 2012
Times, 22 May 2012
83. P&G Targets Vietnam, warc.com with
data from Bloomberg, 9 Jul 2012
Times, 22 May 2012
85. Asia Retail: Lotte to Triple Candy Staff
in SE Asia, Economist Intelligence
Unit, Viewswire from Acquire Media-
Newsedge reprinted from The Nikkei,
22 Dec 2011
86. Unilever China condent of vefold
growth by 2020, shanghaidaily.com, 28
Apr 2012
87. Nestl and Danone fail to tempt
China, ft.com, 7 Dec 2011
88. Why Danone, Nestle and other
Food Giants are Struggling in China,
worldcrunch.com, 4 Jan 2012
89. Feeding Chinas Offspring,
economist.com, 23 Apr 2012
90. Spring 2012 Update: Luxury Goods
Worldwide Market Study, Bain.com,
May 2012
91. Spring 2012 Update: Luxury Goods
Worldwide Market Study, Bain.com,
May 2012
Unit, Jul 2012
93. LVMH H1 2012 presentation, 26 Jul 2012
94. Tiffany & Co company prole, Reuters
95. PPR Q3 2012 presentation, 25 Oct 2012
96. China to Pass Japan as Top Luxury
Market in 2012, Shanghai Business
Review, 13 Jun 2011
97. Chinas Outbound Travel Boom Shows
no Signs of Slowing, Jing Daily, quoted
by chinatraveltrends.com, 20 Jul 2012
98. Hong Kong braces for more mainland
tourists, wsj.com, 29 Aug 2012
Unit, Jun 2012
Intelligence Unit, Apr 2012; Industry
Report, Consumer Goods and Retail:
Taiwan, Economist Intelligence Unit,
Jun 2012
102. India Luxury Review 2011, CII-AT
Kearney, Oct 2011
103. Retail Revolution?, Economist
Intelligence Unit, Industry Briengs, Jan
2012
104. Global Wealth Databook 2011, Credit
Suisse Research Institute, Oct 2011
105. Luxurys New Cult, chinadailyapac.
com, 13 Jan 2012
106. Pradas Asia Focus Boosts Prot
72%, wsj.com, 29 Mar 2012
107. LVMH Q1 2012 presentation, 18 Apr 2012
108. Across Asia, an Engine of Growth for
Luxury Firms, nytimes.com, 8 Dec 2011
109. Various media reports
110. Across Asia, an Engine of Growth for
Luxury Firms, nytimes.com, 8 Dec 2011
111. Are Luxury Shoppers Ready for Made-
in-China Brand Shang Xia?, adage.com,
24 Oct 2011
112. Luxury brand makes links with Chinas
past, ft.com, 20 Mar 2011
113. Are Luxury Shoppers Ready for Made-
in-China Brand Shang Xia?, adage.com,
24 Oct 2011
Retail: India, Economist Intelligence Unit,
Aug 2012
Intelligence Unit, April 2012
Unit, May 2012
117. Japanese Industry Plagued by Hard
Knocks, ft.com, 19 Aug 2012
118. How can you enter an emerging
marketand improve the lives of
millions?, innosight.com
119. Domestic Consumer Durables
Attempting to Beat LG & Samsung at
Their Own Game, Economic Times,
15 Feb 2012
120. Country Forecast: Indonesia,
Economist Intelligence Unit, Aug 2012
and Retail: Indonesia, Economist
Intelligence Unit, May 2012
125. China invests in south-east Asia for
trade, food, energy and resources,
guardian.co.uk, 22 Mar 2012; and
Mind the Gap Between Rich and Poor
as Asean Prepares Free Trade, The
Jakarta Globe, 28 Aug 2012
126. Indonesia retail: Thailands Central to
Try its Luck in Indonesias tight Retail
Market, Economist Intelligence Unit,
from Acquire Media-Newsedge, from
the Jakarta Post, 30 Jul 2012
127. Malaysias Parkson looks to Indonesia
for Expansion, The Jakarta Post, 28
Jun 2012; and Indonesia - Parkson
To Launch Flagship Store In Jakarta,
commercialasia.com, 4 Jun 2012
128. Country Forecast: Malaysia,
and Retail: Malaysia, Economist
Intelligence Unit, Jun 2012
and Retail: Malaysia, Economist
133. Ministry of Tourism, Malaysia
135. Tourism Malaysia
137. Country Forecast: Singapore,
and Retail: Singapore, Economist
Intelligence Unit, Mar 2012
142. Info-communications Development
Authority of Singapore website,
ida.gov.sg
143. Singapore Retail: Online Shopping
Booming, Economist Intelligence Unit,
Straits Times, 21 Jun 2012
144. Singapore Retail: Online Grocery
Shopping Grows Fast, Economist
Intelligence Unit, from Acquire Media-
Newsedge, from Xinhua News Agency,
3 Oct 2011
145. Singapores m-commerce market
jumps seven-fold to US$259m in one
year, sgentrepreneurs.com,
17 May 2012
146. Country Forecast: South Korea
and Retail: South Korea, Economist
151. South Korea Retail: Playing to the
People, Economist Intelligence Unit,
Industry Brieng, 22 Mar 2012
and Retail: Thailand, Economist
153. Modern Trade Boosts Demand for
Consumer Goods, The Nation,
26 Mar 2012
156. Commerce to Submit Modied Version
of Draft Retail Bill to the Cabinet, The
Nation, 10 Apr 2012
157. Thailand Retail: Retailers oppose
draft bill, claim modern outlets
harmed, Economist Intelligence Unit,
Bangkok Post, 29 May 2012
158. Thailand Strengthening Retail,
oxfordbusinessgroup.com, 27 Mar
2012; Plans for 10,000 7-Eleven
Stores, Bloomberg.com, 13 Aug 2012
159. Thailand Strengthening Retail,
oxfordbusinessgroup.com, 27 Mar 2012
160. Top Retailer to Launch Internet
Shopping, The Nation, 28 Apr 2012
161. Country Forecast: Vietnam,
and Retail: Vietnam, Economist
163. From Traditional to Modern Shoppers,
Vietnam Investment Review, 27 Aug 2012
166. Vietnam Retail: Asian Retailers Racing
to Expand in Vietnam, Economist
Intelligence Unit, from Acquire Media
Newsedge, from Nikkei English News,
2 Mar 2012
167. Vietnam not Most Attractive Retail
Market, TBKTSG/VietNamNet Bridge,
22 Jun 2012
168. Vietnam Retail: Asian Retailers Racing
to Expand in Vietnam, Economist
Intelligence Unit, from Acquire Media
Newsedge, from Nikkei English News,
2 Mar 2012
169. Vietnam not Most Attractive Retail
Market, TBKTSG/VietNamNet Bridge,
22 Jun 2012
170. Vietnam Retail: Vietnamese Retailers
Facing Difculties Obtaining Retail
Space, Economist Intelligence Unit,
from Acquire Media Newsedge, from
Asia Pulse Businesswire, 27 Mar 2012
54 PwC
Asia Pacifc Retail and
Consumer Contacts
Australia
Stuart Harker
[email protected]
Hong Kong
Michael Cheng
[email protected]
India
Rachna Nath
[email protected]
Indonesia
Irhoan Tanudiredja
[email protected]
Japan
Koji Kawasaki
[email protected]
Shigeyuki Takahama
[email protected]
South Korea
On-Gyun Chang
[email protected]
Malaysia
Theresa Lim
[email protected]
New Zealand
Julian Prior
[email protected]
Philippines
Che Javier
[email protected]
Singapore
Chee Kar Ooi
[email protected]
China & Asia Pacifc Retail and Consumer Leader
Carrie Yu
[email protected]
Taiwan
Lewis Lee
[email protected]
Thailand
Paul Stitt
[email protected]
Vietnam
Richard Irwin
[email protected]
Further reading on retail and consumer topics, such as reports
below, can be accessed at www.pwc.com
1. Retailing 2020: Winning in a polarized world
2. 2011/2012 Financial performance study for retailers in China
3. Issues and solutions for the retail and consumer goods industries
4. Customers take control: How the multi-channel shopper is changing the global retail landscape
5. New leadership, new agenda for growth 18th National Congress of the Communist Party of China
6. PwC 15th Annual Global CEO Survey (2012) Retail and consumer industry summary
1.
4.
2.
5.
3.
6.
56 PwC
Editorial advisory board
Carrie Yu
China & Asia Pacifc Retail and Consumer Leader
Chee Kar Ooi
Singapore Retail and Consumer Leader
Michael Cheng
Hong Kong Retail and Consumer Leader
Paul Stitt
Thailand Retail and Consumer Leader
Rachna Nath
India Retail and Consumer Leader
Theresa Lim
Malaysia Retail and Consumer Leader
Special thanks to Esther Mak, Jennifer Yep,
Sherine Ong, Ray Liu, Zona Chu and the
Economist Intelligence Unit for their
contributions to the development of this report.
www.pwc.com
This content is for general information purposes only, and should not be used as a
substitute for consultation with professional advisors.
2012 PricewaterhouseCoopers Limited. All rights reserved. PwC refers to the
Hong Kong member rm, and may sometimes refer to the PwC network. Each
member rm is a separate legal entity. Please see www.pwc.com/structure for
further details. HK-20121113-1-C1
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