Wuhan Retail Market: A shining star on the Yangtze River

Traditionally, when international retailers come to China, they would consider China’s first-tier cities such as Beijing and Shanghai as their point of entering the market, due to first tier cities’ stronger consumption power and more mature market for foreign brands. Recently, however, as the first–tier cities’ retail market becomes relatively saturated, many retailers have felt the impact of the increasingly competitive market, skyrocketing operational, and the shrinking of their profit margin. Therefore, instead of China’s first-tier cities, many retailers are now focusing on the faster growing second–tier China, where customers’ disposable income is ever increasing and the arrival of high-quality foreign brands is eagerly anticipated.

Wuhan, arguably the most pivotal second-tier city along China’s Yangtze river, has stood out as one of the most promising areas for further retail investment because of its status as one of China’s most important logistics, manufacturing, and education centers. In this article, we will discuss Wuhan’s retail market, including some of the city’s key retail areas, and present to our readers the challenges of entering this emerging market.

Wuhan

Wuhan is the provincial capital of Hubei province located in the center of China. It is the economic, finance, education, and technology hub of central China and the most affluent provincial capital city among all the six provinces in the region of central China. In accordance to the ‘Wuhan 2049 Long-term Development Strategic Plan’, implemented in 2014, Wuhan targets the goal in becoming one of Asia’s world cities. As Wuhan is one of the most important transportation hubs in China, dozens of railways, expressways and flight routes pass through the city, connecting China’s central and western inland and its eastern coastal regions. As a result, manufacturing and domestic trade have flourished in Wuhan, allowing the city to become a strategic location for many companies that wish to expand their business from the cities in the east of China such as Beijing and Shanghai to the central and western part of the country. Many businesses even regard Wuhan as the ‘golden key’ to fully penetrate the Chinese market.

Among Wuhan’s key industries including manufacturing, logistics, and high-tech development, the city’s retail industry might be the most interesting for many Western businesses, who understand the importance of the city but possessed little knowledge about the market. Therefore, we will discuss in this article the current situation of the city’s retail market, the projection of its future growth, and the opportunities and challenges posed by the city that no retailers should dismiss.

Wuhan’s Retail Market

Wuhan’s rapid economic development has resulted in a significant increase in its resident’s disposable income, which in turn has contributed to its incredible retail growth. To put it in numbers — during the year of 2016, Wuhan’s GDP experienced a 7.8% growth to RMB 1.1 trillion.

With the city’s strong economic performance, people’s quality of life is also increasing step by step — in 2016, the average annual disposable income of Wuhan citizens has increased by 8.94% to RMB 35,383. In the more affluent districts of the city, the average annual disposable income has even far passed the 40,000 RMB.

Because Chinese people are now much more inclined to spend part of their disposable income on shopping for products of their choice rather than just saving it all like 30 years ago, the retail industry is booming in Wuhan. In 2015, Wuhan’s total retail sales of consumer goods have increased by 14 % to RMB 510.2 bn, accounting for 36.5% of Hubei province’s overall retail sales. This data underline Wuhan’s strong customer basis that goes beyond the city itself.

Where is the Center of Retail Activities in Wuhan?

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If you look at the map of Wuhan, you will easily discover that the two main rivers flowing through the city have separated the city into three parts — Wuchang (the political and education center), Hankou (transportation and commerce center), and Hanyang (manufacturing center). These three notable towns of Wuhan have been functioning quite independently from each other until the last century. After more bridges were built and the transportation across the Yangtze and the Han Rivers were improved significantly, Wuhan’s three towns have been increasingly integrated while each town’s uniqueness and specialty have been well maintained. The traditional commerce center of the city is in the town of Hankou. While the largest number of commercial districts among the three areas are still located in Hankou, the retail development of the other two towns have been catching up fast. Below a summary of the top three most important retail districts can be found.

Jianghan Road (江汉路) in Hankou 

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Historically, Hankou has been the center of trade and commerce, so the district’s commercial area is also more developed than the ones of Wuchang and Hanyang. Jianghan Road, located in the heart of Hankou district, has been the oldest and the most popular high street of Wuhan since 1920s. The street now boasts more than 400 shops, boutiques, restaurants, and hotels, with a mixed range of brands from traditional Chinese brands and department stores to the modern western fast-fashion brands. Jianghan Road is also famous for its various kinds of architecture styles, including European, Romanesque, Byzantine buildings. Targeting at younger customers with middle to lower income, Jianghan Road commercial district will continue to be one of the most successful retail districts in Wuhan. In Jianghan Road area are many shopping malls and department stores located, only some examples are: Wuhan Wanda Plaza, New Beauties Fashion Plaza, New World Department Store Fashion Square or the Grand Ocean Department Store.

Wuhan Mall (武商摩尔城) in Hankou

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The Wuhan Mall City is a commercial complex located in the center of Hankou’s CBD on Jiefang Avenue. Consisting of three different shopping centers (Wuhan International Plaza, Wuhan Plaza, and Shimao Plaza), the Wuhan Mall City is the biggest shopping center complex in the whole of central China. While Wuhan Plaza and Shimao Plaza are both traditional Chinese shopping malls with a mixture of mostly Chinese and some foreign medium-level brands, Wuhan International Mall stands out as the shopping center for higher end luxury products. The mall opened in 2006, and with its initial success, its second phase was established in 2011, featuring boutiques stores of Louis Vuitton, YSL, Tiffany, and Hermes, Dolce & Gabbana, Tod’s etc. Besides the luxury market, the mall also offers a range of more affordable fast fashion brands such as UNIQLO and Zara, attracting customers from a wide range of income levels.

Optics Valley (光谷) in Wuchang

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Optics Valley is the high-tech development zone located in the southeast part of Wuhan near the city’s East Lake. The area is Wuhan’s center of science and technology with a large number of higher-education institutes, including some of the highly ranked national universities, a great number of industrial parks, and numerous research labs. Situated in the center of the Optics Valley, the central Optics Valley shopping district targets predominantly the younger and educated generation and offers not only boutique-style department stores, but also five-star hotels, hypermarkets, deluxe cinemas that allow the nearby students, teachers, corporate executives, and researchers to enjoy their day off.

Brands that target younger audiences such as Forever 21 and Paul Frank chose the Optic Valley as the location for their first shop in Wuhan because they see the potential of its strong customer base that is young, educated, and Westernized. One of the most unique features of the Optics Valley shopping district is that European themes are added into the traditional high street shopping experiences. The famous ‘Italian street’ and ‘Spanish street’ are not only popular for the street’s resemblance to Europe in terms of the architecture, but also for shopping experiences with bars, cafes, and fountain plazas all over the district. ‘Themed’ commercial real estate projects have been quite successful all over China for the recent few years. Although these themed streets might not attract the most high-end brands and offer much authenticity to Westerners, the average Chinese consumer still finds the experiences very exhilarating and is willing to shop at the ‘Little Italy’ of Wuhan.

Fast Fashion Retail vs. Luxury Fashion Retail

Fast fashion is in its golden time in Wuhan. In 2010, ZARA, as the first fast fashion brand entering the Wuhan market, achieved a total sales over one million RMB on its opening day. After that, other fast fashion brands started entering this market successively, including H&M, UNIQLO, Vero Moda.

The following chart shows the number of fast-fashion retail stores in China’s second-tier. With a total of 128 stores, Wuhan is ranked No. 3 across the country, following Chengdu and Chongqing. The data collected are based on the top ten of most influential fast fashion brands such as ZARA, H&M, UNIQLO, and Pull & Bear. These brands are mainly located in the CBD of Wuchang and Hankou districts, an ideal choice for new players to test the market for these locations’ status as traditional business centers with stable visitors flows.

 Source: Maxxelli Consulting 2017

Compared to the fast fashion market, the luxury market’s high-end brands did not enter Wuhan’s market until a couple of years ago. After Louis Vuitton’s second flagship store opened in Wuhan in May 2013, luxury brands started grasping greater attention in central China’s richest city. Since China’s economic growth is slowing down and the long-term impact of the anti-corruption and anti-extravagancy campaign undertaken by the Chinese central government, luxury retailers closed stores throughout the country. Brands such as Burberry, Hermes, and Prada closed stores in the past. Louis Vuitton for instance closed outlets in Harbin and Urumqi. The second half of 2016 showed a turnaround for China’s luxury goods industry, several high-end brands announced an increase in their sales.

Regarding the number of luxury fashion retail stores in China’s second tier cities Maxxelli ranked Wuhan No. 6, inhabiting 23 luxury fashion stores, the same number as Nanjing and Harbin. International luxury fashion retailers established most of their stores in Chengdu, Shenyang, Tianjin, Hangzhou and Dalian. The data acquired by Maxxelli is based on the top 15 most popular luxury fashion brands in China, including brands such as Chanel, Louis Vuitton and Hermes.

Source: Maxxelli Consulting 2017

Challenges faced by Wuhan’s Retail Market

  • Staying Competitive

The retail sector’s growth rate has been slowing down since 2010, largely due to the outstanding performance of the e-commerce sector. In 2016, more than 470 million Chinese purchased goods online. The total sales revenue of e-commerce is constantly increasing and surpassed USD 724 bn in 2016, which represented an increase of 26% to the year before. Nowadays e-commerce accounts for around 12.6% of China’s overall retail sales. Obviously, traditional business models for retailers need some change in order to keep up with the rhythm of current market, where dominance of e-commerce is unprecedented. The trend of e-commerce is a challenge for investors, developers, and brands that are planning to expand their business in Wuhan.

  • Retail Rental Price

Similar to many other cities in China, there has been a significant increase in rents in Wuhan in the recent years. There are also many business owners who decide to move their stores away from primary business districts. However, by having the right and experienced partner during the location hunt and contract negotiation, companies can effectively reduce their overhead in terms of rent cost.

  • Chinese Overseas Spending on Luxury Products

In 2015, Chinese spend USD 116.8 bn on luxury products overseas, which accounted for nearly half of the global sales of high-end goods. One reason for Chinese customers buying overseas luxury products is the comparatively higher price of luxury products in China. Usually a high import tariff is assigned to luxury products, which makes them even more expensive, thus Chinese love to go shopping overseas, where most of the time a tax refund is also possible.

  • Need for Local Partners

Wuhan’s retail market is dominated by local retailers. The big three players are Wushang (武商), Zhongbai (中百), and Zhongshang (中商). Foreign retailers, developers, and brands who want to penetrate the Wuhan retail market need to find a way to work with these local retail giants, who own a large portion of the city’s shopping malls, supermarkets, and department stores.

  • Talent Recruitment and Retention

Second-tier cities are in need of talents and young professionals. This also counts for the retail industry, which needs high qualified management personnel. Since Wuhan doesn’t show a comparable level of internationalization to Shanghai or Beijing, it can be difficult for foreign companies to attract suitable candidates and to retain them.

Looking Ahead — Wuhan Keeps Shining along the Yangtze

As more fashion brands are entering and expanding in this market, customers demand for a wider range of brands and different shopping experiences is being gradually met. Nonetheless, challenges from e-commerce, increasing rents, and keeping talented management personnel should be carefully thought about and included in a company’s Wuhan business expansion strategy. All in all, Wuhan’s retail market has witnessed significant growth in the past few years and is expected to continue to rise with its economy rapidly developing and disposable income increasing. Wuhan’s regional GDP is forecasted to surpass RMB 3.0 trillion in 2030 and RMB 6.0 trillion by 2050, which underlines Wuhan’s potential to keep a shining star along the Yangtze.

Are you interested in learning more about Wuhan’s retail market and Maxxelli Consulting services? Send us an email info@maxxelli-consulting.com to find out more.

 

Profile of Wuhan’s Major Commercial Districts

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