asia distribution and retail 0 · 2018-08-24 · china retail & e-commerce quarterly issue 07 |...

China Retail & E-commerce Quarterly Issue 07 | August 2018

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Asia Distribution and Retail

Issue 07 | August 2018


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Table of Contents

I. Market overview ......................................................................... 4

1. Retail sales up by 9.4% yoy in 1H18 ............................................................................................................ 4

2. Rural retail sales growth continues to outpace urban retail sales growth in 1H18; per capita income of

rural residents also grows faster than urban income ................................................................................. 5

3. Online retail sales rise 30.1% yoy in 1H18 .................................................................................................. 7

4. China has 802 million Internet users and 569 million online shoppers in 1H18 ........................................ 8

5. Consumer confidence index remains stable in 1H18.................................................................................. 9

6. Performance of large-scale retailers fluctuates in 1H18 .......................................................................... 10

II. Latest developments ................................................................ 11

General retail ............................................................................................................................................... 11

1. Final consumption accounts for 78.5% of China’s economic growth in 1H18.......................................... 11

2. Growth in retail sales softens in May, June and July 2018 ....................................................................... 11

Internet & E-commerce ................................................................................................................................ 12

3. Internet and e-commerce players to look for IPO .................................................................................... 12

4. E-commerce players proactively invest in and form strategic partnerships with other companies ........ 13

5. E-commerce players invest in blockchain to better service merchants ................................................... 14

6. Short video platforms become the next wave of digital marketing ......................................................... 14

7. Internet giants launch group-buying platforms to tap consumers in lower-tier cities............................. 15

Cross-border e-commerce ............................................................................................................................ 15

8. iiMedia: Kaola remains the most popular CBEC (import) platform in 1H18 ............................................. 15

Retail logistics .............................................................................................................................................. 16

9. Logistics companies works on reducing delivery time .............................................................................. 16

10. Logistics players and retailers trial new models to strengthen last-mile delivery.................................... 16

11. JD Logistics teams up with CTS International Logistics to expand cross-border logistics network .......... 17

Supermarkets and hypermarkets .................................................................................................................. 17

12. Supermarket/ hypermarket chains cooperate with Internet giants for smart retailing........................... 17

13. JD Daojia expands services across China rapidly ...................................................................................... 18


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Department stores and shopping malls ......................................................................................................... 18

14. Shopping malls sector maintains stable and healthy development; Shanghai sees the best overall

development ............................................................................................................................................. 18

15. Actively forming partnerships and collaborations .................................................................................... 18

16. Further expansion of physical presence ................................................................................................... 19

Convenience stores ...................................................................................................................................... 19

17. MOFCOM: CVS industry remains stable and healthy in 2Q18 .................................................................. 19

18. JD Daojia partners with over 10,000 CVS branches .................................................................................. 19

19. NetEase sells products from its private label “Yanxuan” in CVS............................................................... 20

Apparel market ............................................................................................................................................ 20

20. Apparel retailers are ambitious in tapping the international market ...................................................... 20

21. Apparel retailers enrich brand portfolio to boost domestic demand ...................................................... 20

22. Apparel retailers accelerate smart retail development by cooperating with e-commerce giants ........... 21

Luxury market .............................................................................................................................................. 21

23. Luxury players scramble to strengthen social commerce presence in China; many international brands

market their products through WeChat Mini Program during Qixi festival ............................................. 21

24. Luxury brands step up e-commerce efforts through tie-up with local luxury shopping sites or self-

operated online flagship store .................................................................................................................. 23

25. Luxury retailers lower prices in China in response to tariff cuts by the Chinese government ................. 23

III. Competitive landscape ............................................................ 25

1. Grocery players ......................................................................................................................................... 25

2. Department stores chain operators.......................................................................................................... 25

3. Internet and e-commerce companies ....................................................................................................... 26

IV. Regulation updates .................................................................. 27

Market supervision ...................................................................................................................................... 27

1. MOFCOM: Expanding consumption remains a major task ....................................................................... 27

2. Government supports the upgrade and transformation of pedestrian streets ....................................... 27

3. China to further boost imports and lower import duties for selected daily consumer goods ................. 28

Agriculture ................................................................................................................................................... 28


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4. MARA accelerates promotion of “strong agricultural brands” ................................................................. 28

5. Government aims to speed up application of information technology in agricultural production ......... 28

Cross-border e-commerce ............................................................................................................................ 29

6. 22 new CBEC comprehensive pilot zones to establish ............................................................................. 29

Retail technology ......................................................................................................................................... 29

7. Government to support the development of AI and the integration of AI into different industries ....... 29

8. China releases Three-year Action Plan for information technology consumption................................... 30

V. Outlook ...................................................................................... 31

1. China’s retail industry to continue to maintain its steady growth momentum in 2018 .......................... 31

2. China’s retail sales growth expected to soften in 2018; China-U.S. trade war is set to hinder economic

growth and retail sales growth in 2H18 .................................................................................................... 32


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I. Market overview

1. Retail sales up by 9.4% yoy in 1H18

Total retail sales of consumer goods increased nominally by 9.4% yoy to reach 18.0 trillion yuan in 1H18. By month,

the nominal growth in April, May and June were 9.4%, 8.5% and 9.0% yoy. Total retail sales of consumer goods

reached 3.08 trillion yuan in June 2018, up nominally by 9.0% yoy.

Exhibit 1: Total retail sales of consumer goods, June 2017 – June 2018

Source: National Bureau of Statistics of the PRC; compiled by Fung Business Intelligence

2.98 2.96 3.03 3.09 3.42 3.41 3.47 6.11 2.92 2.85 3.04 3.08

11.0% 10.4%

10.1% 10.3%10.0% 10.2%

9.4% 9.7%10.1%

9.4%

8.5%9.0%

10.0%

9.6% 8.9%9.3%

8.6% 8.8%

7.8% 8.00%

8.6%

7.9%

6.8% 7.0%

0%

2%

4%

6%

8%

10%

12%

0

1

2

3

4

5

6

7

Jun-17 Jul Aug Sep Oct Nov Dec Jan-Feb2018

Mar Apr May Jun

Tri

llio

n y

uan

Total retail sales Nominal yoy growth Real yoy growth


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2. Rural retail sales growth continues to outpace urban retail sales growth in 1H18; per capita income

of rural residents also grows faster than urban income

Urban retail sales increased nominally by 9.2% yoy to 15.4 trillion yuan, while rural retail sales rose 10.5% yoy to

2.6 trillion yuan in the period. By month, rural retail sales amounted to 0.45 trillion yuan in June 2018, up by 10.4%

yoy, while urban retail sales amounted to 2.64 trillion yuan, up by 8.8% yoy.

Exhibit 2: Total retail sales of consumer goods, urban vs. rural areas, June 2017 – June 2018


2.55 2.55 2.62 2.62 2.95 2.94 2.98 5.20 2.51 2.45 2.61 2.64

0.43 0.41 0.42 0.47

0.47 0.47 0.50

0.90

0.41 0.400.43 0.45

10.7%10.2%

9.9% 10.1%9.8% 9.9%

9.3%9.6%

9.9%

9.2%

8.3%8.8%

12.9%11.7% 11.5%

11.5%

11.3%11.7%

10.1%10.7% 10.9%

10.6%

9.6%

10.4%

0%

2%

4%

6%

8%

10%

12%

14%

0

1

2

3

4

5

6


Mar Apr May Jun

Tri

llio

n y

uan

Total retail sales (urban areas) Total retail sales (rural areas)

Nominal yoy growth (urban areas) Nominal yoy growth (rural areas)


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Per capita disposable income of urban and rural households reached 19,770 yuan and 7,142 yuan in 1H18, up 7.9%

yoy and 8.8% yoy in nominal terms respectively. Rural household income grew faster than that of urban

households, but the per capita disposable income of urban households was more than double than that of their

rural counterparts.

Exhibit 3: Per capita disposable income of urban and rural households, 2017 – 1H18

Urban households Rural households

Absolute value (yuan)

yoy growth Absolute value (yuan)

yoy growth

Quarterly data

1Q17 9,986 7.9% 3,880 8.4%

1Q18 10,781 8.0% 4,226 8.9%

Half-yearly data

1H17 18,322 8.1% 6,562 8.5%

1H18 19,770 7.9% 7,142 8.8%

1-3Q data

1-3Q17 27,430 8.3% 9,778 8.7%

Yearly data

FY17 36,396 6.5% 13,432 7.3% Source: National Bureau of Statistics of the PRC; compiled by Fung Business Intelligence


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3. Online retail sales rise 30.1% yoy in 1H18

Total online retail sales of goods and services amounted to 4,081.0 billion yuan in 1H18, up by 30.1% yoy. Of which,

online sales of goods amounted to 3,127.7 billion yuan, up 29.8% yoy and accounted for 17.4% of the total retail

sales of consumer goods. Total online retail sales in June amounted to 627.6 billion yuan.

Exhibit 4: Transaction value of online retail sales of goods and services, June 2017 – June 2018


641.0554.4 589.4

627.6 656.3

895.6

744.5

1227.1

704.7647.4

689.9

627.6

0

200

400

600

800

1,000

1,200

1,400


Mar Apr May Jun

Bill

ion

yu

an

Online retailing transaction value


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4. China has 802 million Internet users and 569 million online shoppers in 1H18

As of June 2018, there were 802 million Internet users in China, and the Internet penetration rate was 57.7%. Of

which, 569 million were online shoppers. A total of 557 million people used mobile devices to shop on the Internet.

Exhibit 5: Internet population and penetration, 2012-1H18

Source: China National Commercial Information Center; compiled by Fung Business Intelligence

Exhibit 6: Online shoppers population and penetration, 2015-1H18


564 618 649 688 731 772 802

42.1%45.8%

47.9% 50.3%53.2%

55.8% 57.7%

0%

20%

40%

60%

80%

100%

0

100

200

300

400

500

600

700

800

900

2012 2013 2014 2015 2016 2017 1H18

Po

pu

lati

on

(mill

ion

)

Internet population Internet penetration

413 467 533 569340 441 506 557

60.0%63.8%

69.1% 71.0%

54.8%

63.4%67.2%

70.7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

0

100

200

300

400

500

600

2015 2016 2017 1H18

Po

pu

lati

on

(mill

ion

)

No. of online shoppersNo. of mobile shoppersOnline shopping penetration (out of total internet population)


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5. Consumer confidence index remains stable in 1H18

Consumer confidence index remained fairly stable in 1H18. Consumer confidence index was 122.9 in April, and

122.9 in May and 118.2 in June respectively.

Exhibit 7: Consumer Confidence Index, January 2017 – June 2018


109.2

112.6111.0

113.4112.0

113.3

114.6

114.7

118.6

123.9

121.3122.6122.3

124.0

122.3 122.9 122.9118.2

90

95

100

105

110

115

120

125

130

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Bas

e in

dex

= 1

00

2017 2018


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6. Performance of large-scale retailers fluctuates in 1H18

Retail sales growth of 100 key retailers increased by 1.7% yoy in 1H18. By month, retail sales growth rebounded to

2.1% yoy in June from -0.4% yoy and -2.5% yoy in April and May respectively.

Exhibit 8: Yoy growth of retail sales of 100 key retailers in China, June 2017 – June 2018


-0.2%

3.7%

2.9%

0.2%

4.1%

5.2%

-0.4%

3.3% 3.4%

-0.4%

-2.5%

2.1%

-4%

-2%

0%

2%

4%

6%

8%


Mar Apr May Jun

Yoy growth of retail sales of 100 key retailers in China


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II. Latest developments

General retail

1. Final consumption accounts for 78.5% of China’s economic growth in 1H18

The National Development and Reform Commission (NDRC) held a press conference in August to discuss the work

progress of expanding consumption and revealed that China’s consumption market remained stable in 1H18. The

total retail sales of consumer goods reached 18 trillion yuan in 1H18, up 9.4% yoy. Final consumption accounted

for 78.5% of China’s economic growth in 1H18. Below are some of the points highlighted:

• Consumption structure continued to optimize – Driven by increasing household income and expanding mid-to high-end supply, consumption upgrading continued to accelerate;

• Demand for service consumption increased – Tourism, entertainment and sports consumption continued to heat up;

• Online retailing continued to grow rapidly – Growth of online retail sales of goods and services amounted to 4.1 trillion yuan in 1H18, up 30.1% yoy;

• Potential of rural consumption market further unleashed – Growth of rural retail sales rose by 10.5% yoy in 1H18, 1.3 ppts higher than urban retail sales1.

2. Growth in retail sales softens in May, June and July 2018

Growth in China’s retail sales decelerated slightly in May, June and July 2018 compared with the first four months

of 2018. Retail sales of consumer goods rose nominally by 8.5% yoy in May, reaching a 15-year low level; it picked

up slightly to 9.0% yoy in June and fell again to 8.8% yoy in July. Major economic indicators in July also showed

slight pullback in growth – fixed asset investment slowed to record low in July; urban unemployment rate was at

5.1% in July, 0.3 ppt higher than in June; growth of urban household income decelerated to 7.9% yoy in 1H18 from

8.1% yoy in 2017. The more complicated domestic and external environment have forced some consumers to rein

in their spending in 2018. By category, consumers were buying fewer automobile and residential housing, diverting

their spending to lower-cost items because of concerns about slowing economic and income growth. Mounting

personal debt levels has also cast a cloud over consumer confidence and affected consumers’ willingness to buy

big-ticket items. On the other hand, service consumption such as entertainment, education, health care and travel

played a more important role in consumption in 1H182.


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Internet & E-commerce

3. Internet and e-commerce players to look for IPO

In this quarter, several leading e-commerce players have sought IPO outside China to raise fund for expansion.

Selected prominent examples include:

Pinduoduo raises US$1.63 billion in U.S. listing

Pinduoduo, a Chinese online group purchase platform, made its debut on NASDAQ Stock Exchange on 26 July, 2018,

raising US$1.63 billion. The deal is one of the largest Chinese tech IPOs of the year in the U.S. According to

Pinduoduo, the fund raised will be used mainly to expand the company's business operation, promote research

and development, and enhance its technology infrastructure. Founded in September 2015, Pinduoduo was set up

by former Google engineer Colin Huang in Shanghai. Pinduoduo is a third-party social commerce platform that

offers low-priced group-buying deals. It has become one of the leading Chinese e-commerce players in terms of

gross merchandise volume and number of total orders. Pinduoduo’s revenue amounted to about 1.7 billion yuan in

2017, with a net loss of 525 million yuan3.

Meili Inc. submits IPO filings to SEC

Meili Inc., a leading fashion e-commerce platform in China, has reportedly submitted confidential filings to the U.S.

Securities and Exchange Commission (SEC) in June 2018, for an IPO that could raise up to US$500 million. Created

through a merger between Meilishuo, Mogujie and Taoshijie in 2016, Meili Inc. was valued at around US$3 billion

at the time of the merger. Meili Inc. has integrated resources of the three companies including e-commerce, social

network, KOLs and content. Currently, Meili Inc. has over 230 million registered users and over 10 million daily

active users4.

Meituan-Dianping files for Hong Kong IPO

Chinese food delivery and online services company Meituan-Dianping filed an IPO prospectus to the Hong Kong

Stock Exchange in July 2018. Meituan-Dianping did not disclose the detail about the amount of funds targeted or a

time frame. According to the filing document, Meituan-Dianping’s revenue in 2017 reached 33.9 billion yuan, up

161.2% yoy, with an adjusted net loss of 2.85 billion yuan. Meituan-Dianping said it will use around 35% of the

funds raised from the IPO to upgrade its technology, around 35% to develop new products and services, 20% to

make acquisitions and investments, and 10% for general operation5.


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4. E-commerce players proactively invest in and form strategic partnerships with other companies

In this quarter, some e-commerce players have continued their efforts to invest in technology companies or e-

commerce platforms to expand their ecosystem and provide better shopping experience for consumers. E-

commerce forming strategic partnerships with their peers also remained commonplace. Selected examples

include:

Secoo drives expansion via US$175 million deal with JD.com and L Catterton

Secoo Holding Limited, a Chinese luxury e-commerce platform, announced a strategic partnership with L Catterton

Asia, the Asian unit of L Catterton which is the largest consumer-focused private equity firm in the world, and

JD.com in July 2018. Through the partnership, L Catterton Asia and JD.com will invest US$175 million in Secoo. By

partnering with L Catterton Asia, Secoo will be able to leverage L Catterton's global fashion and retail expertise to

further expand within the luxury market. The transaction will also enable Secoo to continue enhancing shareholder

value and strengthen its leading position in the rapidly growing Chinese luxury e-commerce market6.

JD.com raises stake in Vipshop to 6.8%

As revealed in JD.com’s recently submitted document to the SEC, the company invested another US$120 million in

Vipshop in June 2018 to increase its stake to 6.8%. The document also shows that since April 2018, JD.com has

bought approximately 8.59 million ASDs (American Depositary Shares) at a weighted average trading price of

US$14.1517 each. Those aggregate ADSs represent 1.72 ordinary shares of Vipshop, amounting to a total of

approximately US$120 million. In December 2017, Tencent, JD.com and Vipshop jointly announced that the three

parties have reached an agreement that Tencent and JD.com would invest approximately US$863 million cash into

Vipshop. After the transaction, Tencent and JD.com hold approximately 7% and 5.5% of the total outstanding

shares of Vipshop respectively7.

Google to invest US$550 million in JD.com

JD.com and Google announced in June 2018 that Google will invest US$550 million in cash in JD.com and the two

parties will form an extensive strategic partnership. According to the agreement, Google will receive 27,106,948

newly issued JD.com Class A ordinary shares at an issue price of US$20.29 per share. Google and JD.com will

cooperate on a series of strategic projects, one of which is to develop retail solutions in various regions around the

world, including Southeast Asia, the U.S., and Europe. Both parties will work together to explore ways to build

next-generation retail infrastructure solutions and to provide consumers with valuable, personalized, smooth and

convenient shopping experiences. JD.com also plans to optimize a series of high-quality merchandise and sell

through Google Shopping platform in various regions of the world8.


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Xiao Hong Shu raises US$300 million from investors led by Alibaba

Chinese social commerce player Xiao Hong Shu (aka “Red”) completed an Alibaba-led financing round in June 2018,

raising more than US$300 million with a valuation in excess of US$3 billion. Some of the other notable backers

include GSP Ventures, Tencent Investment, GGV Capital, Genesis Capital, Tiantu Capital, Zhen Fund and K11’s

Adrian Cheng. It is reported that the new funds would be used to support talent acquisition, machine learning

infrastructure and user growth. Founded in 2013, Xiao Hong Shu has more than 100 million users as of May 20189.

5. E-commerce players invest in blockchain to better service merchants

Application of blockchain in the commercial sector has become more common recently. As a case in point, in June

2018, Alipay and Philippines-based payment service platform GCash launched a cross-border remittance service

based on blockchain technology – the first of its kind in the world. The new service allows users to wire money

from Hong Kong to the Philippines through a secure, transparent and fast channel10. Also, Alibaba’s supermarket

chain, Hema Xiansheng, has recently launched a food-provenance feature across 17 Hema Xiansheng supermarkets

in Shanghai that can trace a fresh produce’s farm-to-store journey. Customers can use the Hema mobile app to

scan a food’s QR code, which will bring up the provenance details. Powered by blockchain technology, the food-

tracing system can trace products in nine categories, including meat, seafood, rice and tofu. Hema plans to roll out

the system to all of its 64 stores in 13 cities by end-201811. Further in August 2018, JD.com announced that it has

launched a new blockchain technology platform “JD Blockchain Open Platform” to help enterprise customers build,

host and use their own blockchain applications for more secure, transparent and convenient operations

management. The technology can help companies streamline operational procedures such as tracking and tracing

the movement of goods and charity donations, authenticity certification, property assessment, transaction

settlements, digital copyrights, and enhance productivity. To date, JD.com has implemented blockchain tracing for

more than 400 brands and 11,000 SKUs on its platform12.

6. Short video platforms become the next wave of digital marketing

Recently, short video streaming platforms have become an increasingly popular channel for marketing. For

instance, Suning launched its short video streaming platform “Touhao maijia” in August 2018. The new channel is

an exclusive channel for customized products, with different themes for buyers periodically. By integrating

resources of brands and retailers, media, and veterans into one single platform, Internet KOLs and individual sellers

can recommend products through video streaming, while viewers can share easily among their friends. The

channel will cover various product categories including beauty, home products, baby and maternity products,

FMCG and home appliances13. Meanwhile, Taobao is reportedly developing a short video platform “Du Ke” in May

2018 which works similar to Douyin, a fast-emerging short video platform in China, but details have not been

revealed yet.


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At the same time, some brands are leveraging third-party short video platforms such as Douyin to market their

products. For example, French luxury brand Dior officially opened an account on Douyin in April 2018. As of August

2018, Dior has released a total of 13 short videos, and accumulated a total of 33,000 fans on the platform. In July

2018, the brand released five short videos while launching the Dioramour handbag collection which is exclusively

available in China. After viewing the videos, audiences can click the “New Products” button on the page and will be

directed to relevant product page on the online platform for purchase. Dior is reportedly the first luxury brand to

officially set up an account on Douyin.

7. Internet giants launch group-buying platforms to tap consumers in lower-tier cities

Eying the rising marketing power and potential sales generating power of social networks, both JD.com and

Alibaba have tapped the group-buying market in this quarter. JD.com’s group-buying platform “JD Pingou” is now

open to individuals for store opening. Starting from 1 June, individuals with valid ID cards can register and open

their store on the platform under the category of “unbranded product”. Individuals need to pay 10,000 yuan as

product quality assurance deposit, plus monthly fee of 500 yuan and 1% commission for selling on the platform. At

present, the categories that have been opened to individual merchants include apparel and underwear,

sportswear, footwear, jewellery, watches, home textiles, and home furnishings. JD Pingou aims to leverage group-

buying and social-selling among merchants on JD.com to drive more foot traffic and generate sales. The platform

features the concept of “low price but not low quality"14. Meanwhile, Alipay also launched a group-buying function

on Alipay’s homepage in August. It offers group-buying deals within limited time, and the deals will be changed

regularly. The goods from the group-buying offers come from different Taobao merchants, covering more than ten

categories including daily necessities, food, and apparel. Prices for the group-buying offers are generally lower than

the prices on Taobao; some of the offers may have discounts as low as 50%. Consumers can either initiate a group-

buying deal and ask friends to join, or they can simply join the deals that are set up by others. Taobao will also

recommend deals to users according to their purchasing behavior on the platform15.

Cross-border e-commerce

8. iiMedia: Kaola remains the most popular CBEC (import) platform in 1H18

Domestic consulting agency iimedia released the “Report on China’s Cross-border E-commerce (CBEC) in 1H18” in

August. The report shows that NetEase’s CBEC arm Kaola ranked the first in the CBEC market by transaction value

with 26.2% market share in 1H18, followed by Tmall Global with 22.4% market share and JD Worldwide with 13.4%

market share. In 1H18, CBEC shoppers bought most products from Japan, the U.S., South Korea, France and

Germany. In the same period, 56.9% of respondents said they are loyal to the brands they usually buy, while 37.7%

of respondents stated that they like to purchase new brands16.


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Retail logistics

9. Logistics companies works on reducing delivery time

In this quarter, logistics companies continued to offer new delivery services that can speed up delivery. For

example, Suning Logistics launched "Suning Miao Da" instant delivery service in July 2018. The service mainly

provides delivery services for customers in the 3-km community circle in less than 30 minutes, as well as scheduled

delivery services. Selected physical stores of Suning including Suning Xiaodian, Su Fresh, Suning Plaza and Red Baby

have already connected to the instant delivery system. There are reportedly three different types of distribution

teams to handle the last-mile delivery, including the self-operated Suning logistics professional delivery team, the

crowdsourced delivery team, and the human-machine collaborative delivery solution17. In the same month, JD

Logistics launched the “Jingzhunqu” service in hundreds of cities across the country. With the implementation of

the new service, JD Logistics has split the delivery time into five two-hour sessions from 9 a.m. to 7 p.m. Users can

choose their own pick-up time from the five sessions. The new service can reduce the time to pick up the parcels

after purchase and thus enhance user experience. The effective performance rate was reportedly over 98% during

the trial operation period18.

10. Logistics players and retailers trial new models to strengthen last-mile delivery

To speed up delivery and enhance consumer convenience, some logistics companies and retailers have trialed new

logistics models. “Express Delivery to Car” is a case in point. According to JD Logistics, the new “Express Delivery to

Car” service was launched when NIO ES8 went into the market this year. Currently, JD Logistics has kick-started the

cooperation with LYNK & Co.; some other automobile manufacturers such as Ford and BAIC Group have also

expressed interests in working with JD Logistics. In July 2017, JD Logistics announced the first “Express Delivery to

Car” service standard in China. The new service standard has clearly defined the channels and requirements for

using the delivery services and laid out specific details for before and after sales services including communication

before delivery and order delivery enquiry. Indeed, with the implementation of the new service, authorized

couriers can place the goods purchased to the car trunk without the car owners’ presence, provided that the car

owners have subscribed to the service19.

Drone delivery is another innovation for last-mile delivery adopted by retailers. In June 2018, YH Super Species

opened its first store in Guangzhou M+Park, which is also the first YH Super Species which provides drone delivery

service. Earlier in May this year, YH Super Species reached an agreement with Guangzhou-based technology

company Ehang Inc. and gained the approval to trial drone delivery for physical products between YH Super

Species store in Guangzhou M+Park and a designated pick-up area in a residential community nearby. Currently,

YH Super Species has more than 50 drones of two models – with 500g payload and 5kg payload. YH Super Species


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also employs couriers in the residential buildings which can collect the delivery orders from drones and complete

the last mile delivery to consumer’s designated address. It is reported that orders can be delivered in 15-20

minutes within a 3-km distance from the store20.

11. JD Logistics teams up with CTS International Logistics to expand cross-border logistics network

On 28 June, Beijing Jingbangda Trading Co., Ltd., a subsidiary of JD.com, signed a strategic cooperation agreement

with CTS International Logistics Corporation Limited. The two companies will focus on cross-border logistics and

carry out all-round cooperation in the fields of warehousing, transportation capacity, logistics technology and e-

commerce, etc. According to the agreement, JD Logistics will support CTS International Logistics with its expertise

in smart logistics technology, warehouse network, last mile delivery as well as big data; CTS International Logistics

will support JD.com’s cross-border logistics services with is extensive overseas logistics network and services. Both

companies will work together on improving overseas logistics network and strengthen their ecosystem21.

Supermarkets and hypermarkets

12. Supermarket/ hypermarket chains cooperate with Internet giants for smart retailing

Supermarket/ hypermarket chain operators are embracing smart retail by cooperating with Internet giants.

Walmart China and Tencent jointly announced in June 2018 that they have formally entered into a strategic

partnership. The two companies will have in-depth cooperation on smart retail and digitalization process including

shopping experience enhancement, precision marketing, comprehensive payment services, and membership

system enhancement by fully utilizing their strengths in their respective fields. Earlier in March, Walmart China

partnered with Tencent to launch an in-store self-service payment service “Scan and Go” through its WeChat Mini

Program; customers can complete their payment by scanning the product barcodes while they shop and pay

directly via their mobile phone. As of to date, Walmart has launched this service in its stores in 28 cities and plans

to extend this service to 400 plus stores in the country during this year22. Besides working with Tencent, Walmart

China has also formed a strategic partnership with JD.com. In July 2018, Walmart China and JD.com announced

that both parties will accelerate the integration of their stores and platforms, inventory and customers. The two

companies plan to achieve full inventory integration and roll out a pilot one-hour delivery service before the end of

this year. JD.com said that the company will make sell-out forecast in Walmart stores, adjust inventory according

to consumer behavior and needs, reduce invalid inventory, improve the efficiency of supply chain operation, and

reduce costs. It is expected that by the end of this year, the two sides will achieve full integration of inventory

across the nation and launch the pilot one-hour delivery service in selected cities23.

Meanwhile, after announcing the retail transformation with Tmall in March 2018, RT-Mart said that 100 stores of

RT-Mart have completed Tmall's New Retail transformation by June 2018. These stores have achieved online and


18

offline integration and connected the 3-km distribution network of Hema Xiansheng; they had also participated in

Tmall’s 618 shopping festival. By the end of the year, approximately 400 RT-Mart stores in China are expected to

complete the transformation. Hundreds of millions of people will be able to enjoy the one-hour delivery service24.

13. JD Daojia expands services across China rapidly

JD Daojia, an O2O delivery platform of JD.com, has lined up with major supermarket and hypermarket chain

operators in China to offer convenient O2O service to consumers. In July 2018, JD Daojia announced that it will

start operation in ten more cities in China including Guiyang, Nanning, Jiaxing, Jinan, Yangzhou, Zhenjiang,

Nantong, Xiangtan, Huizhou and Taiyuan by the end of August. The newly covered population will exceed 60

million. In 2018, the number of cities covered by JD Daojia will increase to 55, reaching full coverage in tier-1 and 2

cities, and selective coverage in tier-3 and 4 cities, bringing the experience of “online consumption and one-hour

delivery to home” to more consumers. At the same time, JD Daojia will also join hands with regional giants to

establish in-depth cooperation25.

Department stores and shopping malls

14. Shopping malls sector maintains stable and healthy development; Shanghai sees the best overall

development

The Ministry of Commerce of the PRC (MOFCOM) recently released the "China’s Shopping Mall Index" for 2Q18.

According to the report, the shopping mall index for 2Q18 dipped 1.4% qoq to 66.1 but it was 16.1 ppts above the

50-point threshold that separates the expansion and contraction status, indicating that the shopping mall sector

was in a healthy state of development in the quarter26. In June, the China Chain Store & Franchise Association

(CCFA), Nielsen and Winner Technology jointly published the “2017 China Shopping Center Consumer Insights

Report”. From the perspective of urban development, shopping malls in Shanghai ranked first in the overall index

with its strong customer spending power and shopping mall quality. In terms of shopping mall popularity and

consumer satisfaction, Shenzhen ranked first in the country, far ahead of other cities27.

15. Actively forming partnerships and collaborations

In this quarter, similar to many other sectors, frequent strategic partnership activities also happened across the

department store sector. For example, in July, Intime Retail and Xiamen ITG Group jointly invested 50 million yuan

to establish a joint venture company to manage the relevant commercial projects of Xiamen ITG and develop the

Fujian market. The two sides will launch new retail practices in various dimensions such as member digitalization

and, merchandise digitalization to promote new retail development28. In the same month, Wangfujing Group Co.,

Ltd. announced that the company has reached a strategic cooperation intention with Nanjing Xinjiekou Department

Store Co., Ltd. to carry out in-depth cooperation in retail business. Wangfujing said that the strategic cooperation


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intention with Nanjing Xinjiekou Department Store will promote in-depth cooperation between the two companies

in retail business, which will help the company further expand its market influence and market scale at a lower cost,

further enrich and improve regional business development, as well as improve the company's core competitiveness29.

16. Further expansion of physical presence

Recently, increasing numbers of regional department store operators have further expanded their footprints in the

country. In July, Rainbow Department Store Co. Ltd. officially signed a contract with Jiangsu Taizhou Ruijia Real

Estate Co. Ltd., a subsidiary of Taizhou Oriental China Medical City Holding Group Co. Ltd. Rainbow will launch a

new store in Taizhou National Pharmaceutical High-tech Industrial Development Zone, marking the official entry of

Rainbow into central Jiangsu province30. On the other hand, ever since Liqun Group acquired the Lotte outlets in

Eastern China, they have been accelerating store expansion nationwide, and quickly carried out transformation of

the acquired stores. Liqun has renamed the acquired Lotte Mart stores as “Liqun Times”. In August, the first batch

of “Liqun Times” new stores was reportedly opened in Shanghai, Yangzhou, Lianyungang, Taizhou and Nantong31.

Convenience stores

17. MOFCOM: CVS industry remains stable and healthy in 2Q18

The MOFCOM released the “Report on the Prosperity Index of China's Convenience Stores” in 2Q18. The

development of convenience store (CVS) industry has remained stable and healthy in 2Q18. The overall prosperity

index of China’s convenience stores in 2Q18 was 70.25, 20.25 ppts higher than the 50-point threshold; however,

the industrial prosperity index and store climate index of the convenience stores both fell back slightly, showing

that there were still some concerns for managers and store operators in the CVS industry in terms of overall

operation in 2Q18. Meanwhile, the MOFCOM said that application of new technologies such as big data, artificial

intelligence (AI) and Internet of Things (IoT) has injected new vitality to brick and mortar business like CVS while

bringing new consumption experience to the customers32.

18. JD Daojia partners with over 10,000 CVS branches

Besides working with supermarket and hypermarket chains, JD Daojia has also proactively cooperated with CVS

players to offer convenient O2O delivery service to customers. According to the company, it has formed

partnerships with over 10,000 CVS branches as of July 2018. JD Daojia not only has established in-depth

cooperation with leading convenience store operators including FamilyMart, Lawson and 7-Eleven, but also

partnered with more than 50 national and regional chains such as OurHours, Buddies, Today, Wudongfeng,

Meiyijia and Youke. By levering big data and other technologies, JD Daojia can help accelerate the digitalization of

the CVS particularly in product management and customer data management33.


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19. NetEase sells products from its private label “Yanxuan” in CVS

Being a growingly important retail format, more brands and retailers are eager to sell their products in CVS. For

example, in July 2018, NetEase’s Yanxuan started to sell selected products in Anda Convenience Store in Inner

Mongolia. This is reportedly the first attempt of Yanxuan to go offline to sell in CVS. Yanxuan is a supplier of Anda

Convenience Store; Anda chose different products from Yanxuan for different stores based on the store size and

location. Around 60 to 200 SKUs were being chosen; these products are mainly daily necessities which are priced

around 35 yuan, including batteries, data cables, bandages, wet wipes, rags and cloths, bath sponges, and

slippers34.

Apparel market

20. Apparel retailers are ambitious in tapping the international market

In view of the nearly saturated demand in the domestic market, Chinese apparel retailers are looking for

breakthroughs to drive sales growth; tapping into overseas markets is a major initiative of many apparel players.

In this quarter, HLA opened its first store in Singapore’s Suntec City Mall in May 2018 and its first store in

Thailand’s Central Shopping Mall Rama9 in August 2018. Indeed, HLA opened its first overseas store in Kuala

Lumpur, Malaysia in July last year; and it has opened a total of nine stores in Malaysia in less than a year. Another

apparel retailer, Semir also opened its first overseas store in Saudi Arabia in August. Its kidswear brand, Balabala,

opened two stores in Hong Kong in June 2018, hoping to use Hong Kong as a stepping stone to tap into the global

market in the future. In July 2018, fast fashion retailer MJstyle entered the Japan market for the first time;

thereafter the brand will leverage its long-term relationship with Japan’s leading conglomerate and retail giant

AEON to expand its store network nationwide. MJstyle plans to open stores in the Philippines, Japan, Malaysia,

Singapore and other places over the next few years. Another example is Li-Ning. The company entered the Russian

market in July and plans to open 15 to 20 retail stores in Moscow and St. Petersburg in the near future35.

21. Apparel retailers enrich brand portfolio to boost domestic demand

To boost domestic demand, in this quarter, it is observed that some Chinese apparel retailers achieved horizontal

expansion of business through diversification of its brands and brand portfolio. For example, JNBY launched a new

menswear designer brand SAMO in April 2018 and another apparel brand REVERB focusing on sustainability in

June 2018. Another apparel retailer Marisfrolg Group launched its first menswear brand MJU:T in June 2018;

sportswear brand Anta launched a new athleisure brand AntapluS in July 2018 and NetEase launched its first

sportswear brand Yessing in August 201836.


21

22. Apparel retailers accelerate smart retail development by cooperating with e-commerce giants

To create a better customer experience, apparel retailers have sought to upgrade its stores by cooperating with e-

commerce giants. For instance, in July 2018, GUESS and Alibaba jointly showcased a new AI-equipped apparel

concept store “FashionAI concept store”, which is the first of its kind in the world. In the store, customers could

find gadgets with latest technologies, including smart mirror, RFID-enabled clothing rack, and fitting room with

real-time notifications. Other than that, GUESS also brought Alibaba's Alipay into the brick-and-mortar stores

across Guess’ brands in the U.S. Another fashion brand, Hongdou signed a boundaryless retail strategic agreement

with JD.com in April. Under the agreement, the two companies will jointly work on areas including borderless retail

cooperation, setting up smart stores, and brand communication; the two companies will also share big data to

achieve precision marketing and boost up Hongdou’s sales. The two companies launched the first-ever

boundaryless store in the apparel sector in August 2018. The store features various black technologies such as

smart virtual shop assistant with mix-and-match consultation service and smart mirror with virtual try-on

capability. Other than that, footwear retailer Belle International signed a strategic cooperation agreement with AI

platform Horizon Robotics in July 2018 and the two companies will jointly explore the integration of AI technology

into offline retail scenes, and jointly create a new smart retail model37.

Luxury market

23. Luxury players scramble to strengthen social commerce presence in China; many international

brands market their products through WeChat Mini Program during Qixi festival

Considering that Chinese consumers are increasingly obsessed with social platforms for shopping and

entertainment, increasing numbers of international luxury players are striving to boost their social commerce

presence in China to better engage customers in the market. For example, in June 2018, Italian luxury leather

goods brand Tod’s partnered with China’s popular fashion blogger Tao Liang, better known as Mr. Bags, to launch

and sell a new bag on the bloggers’ own WeChat Mini Program “Baoshop”, a limited-time exclusive online pop-up

store within WeChat38.

After Tod’s new launch on WeChat Mini Program, many international brands have also followed suit to market

their products on WeChat Mini Program. During Qixi festival, Chinese Valentine’s Day which fell on 17 August in

2018, many luxury brands have embraced WeChat Mini Program and offered their products on the social platform

exclusively for the festival (Exhibit 1). For example, on 3 August, British luxury brand Burberry officially launched its

WeChat Mini Program, through which the brand released its two new Qixi-themed bags – red “Belt Bag” and red

“Pin Clutch” only available in China. It is also the first time that Burberry has introduced “China-only” products39.

U.S. designer brand Michael Kors, after setting up its WeChat Mini Program on 24 July, has introduced a limited-

edition Whitney purse co-designed with Chinese actress Yang Mi on the brand’s WeChat Mini Program in

celebration of Qixi festival40.


22

Exhibit 9: Selected WeChat Mini Program marketing campaigns rolled out by luxury brands during Qixi festival in

2018

Brand Details

Marni On 24 July, the Italian luxury brand started selling its limited-edition “Caddy” bag in celebration of Qixi festival on the brand’s WeChat Mini Program store.

Valentino On 25 July, the Italian luxury brand launched its Chinese Valentine’s Day campaign “Be My VLTN” and offered its special collection of fashion items co-designed with Chinese actress Zhang Yixing on the brand’s WeChat Mini Program store.

Montblanc On 26 July, the German luxury brand started selling its Chinese Valentine’s Day collection co-created with Chinese fashion blogger Mr. Bags on the blogger’s WeChat Mini Program store.

Dior On 31 July, the French luxury brand released its “DiorAmour” handbag for sales exclusively on its WeChat Mini Program in celebration of Qixi; prior to the new launch, the brand had already published 16 posts to promote the new handbag. With the limited-edition bags sold out in seconds on its WeChat Mini Program, Dior then opened a pop-up store at Beijing’s SKP shopping mall (from 5-19 August), releasing more “DiorAmour” fashion products to further cash in on the raging demand.

Bottega Veneta On 31 July, the Italian luxury brand launched its Chinese Valentine’s Day campaign through its WeChat Mini Program; a number of the brand’s limited special items were available on the platform, including Catena City Knot handbag and Intrecciato Maze wallet.

Michael Kors On 1 August, the U.S. designer brand introduced its limited-edition Whitney handbag, co-designed with Chinese actress Yang Mi, on the brand’s WeChat Mini Program in celebration of Qixi festival.

Burberry On 3 August, the British luxury brand officially launched its WeChat Mini Program, through which the brand released its two China-only limited-edition bags – red “Belt Bag” and red “Pin Clutch” to celebrate Qixi festival.

Stella McCartney On 3 August, the British designer brand’s WeChat Mini Program officially went online, allowing users to place orders directly.

Givenchy On 5 August, the French luxury brand officially launched its WeChat Mini Program store, enabling Chinese shoppers to order the brand’s special GV3 handbag created for Qixi festival.

Gucci On 6 August, the Italian luxury brand launched its Chinese Valentine’s Day campaign along with the release of its WeChat Mini Program. To celebrate Qixi festival, the brand rolled out limited-edition products, including special “GG Marmont” handbags and “Ace Patch” sneakers exclusively designed for Chinese consumers.

Cartier On 7 August, the French premium jewelry brand launched its WeChat Mini Program store dedicated to selling the brand’s Qixi special “Juste un Clou” bracelet.

Berluti On 8 August, the French luxury leather goods brand released Qixi limited-edition “Nino GM” leather document holder, exclusively available on the brand’s WeChat Mini Program store.

Source: Ebrun, Jing Daily, China Daily, Fashion Network, Sohu, Vogue; compiled by Fung Business Intelligence


23

24. Luxury brands step up e-commerce efforts through tie-up with local luxury shopping sites or self-

operated online flagship store

Proliferation of e-commerce in China represents abundant opportunities for luxury retailers. To vie for a bigger

slice of the prosperous e-commerce market in this quarter, some international brands have accelerated their

online retailing efforts in China through tie-up with local luxury shopping sites or launching self-operated online

flagship stores. As a case in point, in August, German luxury brand MCM officially entered Tmall and launched its

flagship store on Luxury Pavilion, Tmall’s luxury portal. In this collaboration, MCM has unveiled several products for

Qixi festival and were exclusively sold on Tmall, including the silver mini shoulder bags and the small crossbody

bags; only 50 bags were released worldwide41. Another example is Balenciaga. In July, the Paris-based luxury

fashion brand announced their online debut on JD.com’s luxury goods platform Toplife. Through this partnership,

Balenciaga will provide a 24/7 service support for customers, and accept domestic payment methods such as JD

Pay, which will bring more convenient luxury shopping experience to Chinese consumers. Meanwhile, Toplife will

present Chinese consumers with comprehensive creative content from Balenciaga, including promotional

advertising and the latest social media interactions. Customers who purchase through the Toplife platform will

enjoy the exclusive “JD Luxury Express” service. All Balenciaga products will be delivered to customers by a courier

who wears a suit and white gloves42. In August, U.S. luxury jewelry brand Tiffany & Co. opened a pop-up store on

Luxury Pavilion, Tmall's luxury platform, and started the pre-sale of its latest “Tiffany Paper Flowers” jewelry

collection. This is the first time for Tiffany to have a product launch event on an online platform. It also cooperated

with Tmall to lure consumers to create a personalized online message card to share on their social media

platforms. It is reported that “Tiffany Paper Flowers” collection will also be available in Tiffany’s offline stores in

China two weeks after the launch of the pre-sale event on Tmall Luxury Pavilion43.

On the other hand, instead of teaming up with local luxury shopping platforms, Louis Vuitton has launched its self-

managed online flagship store in China. On 15 July, the French luxury brand announced the official opening of its

self-operated online flagship store in China after a year of trial operation. Contrary to catering to 12 of China’s

largest cities in the past year, Louis Vuitton has opened its online services to all cities in the country, meaning that

all Chinese consumers can now enjoy the brand’s premium services including delivery service and 7-day return

policy. In addition, the luxury brand has also extended the product range available online, from leather goods and

accessories to footwear, ready-to-wear and fine jewelry44.

25. Luxury retailers lower prices in China in response to tariff cuts by the Chinese government

In response to the Chinese government’s latest policy to reduce import duties on consumer goods with effect from

1 July 2018, some international brands have marked down their prices in China. For example, Burberry and French

luxury brand Louis Vuitton have lowered the prices of some of their products sold in China. Burberry has trimmed

the prices of selected apparel and luggage products by 4% in China from 14 July onward45, while Louis Vuitton

lowered prices of some of its products available on its China’s official website and physical stores in end-June,

ranging from 300 yuan to 1,500 yuan, which is equivalent to a drop of between 3% and 5%. Italian fashion house


24

Gucci also confirmed that it will adjust retail prices of all merchandise with an average drop of about 5%. This is

applicable to all products including new and classic items sold in its directly operated stores in China46.


25

III. Competitive landscape Financial and operating performance of selected listed retailers, Internet and e-commerce companies:

1. Grocery players

Company Sun Art Retail

Group Yonghui Superstores

Lianhua Supermarket

Better Life Zhongbai Group

Financial period 1H18** 1H18** 1Q18* 1Q18* 1H18**

Total revenue (million yuan)

54,060 34,400 7,745 5,390 7,825

Yoy change +0.00% +21.47% -1.71% +13.95% +1.60%

Net profit attributable to shareholders of the company (million yuan)

1,758 933 55 167 4,590

Yoy change +0.10% -11.54% +52.00% +10.35% +237.05% * For the three-month period ended 31 March, 2018. **For the six-month period ended 30 June, 2018. Source: Company data; compiled by Fung Business Intelligence

2. Department stores chain operators

Company Parkson Wangfujing

Department Store Bailian Group Dashang Rainbow

Department Store

Financial period 1Q18* 1Q18* 1Q18* 1Q18* 1H18**

Total revenue (million yuan)

4,324

7,150

13,558

7,144

9,523

Yoy change -1.90% +6.11% +1.40% -7.51% +6.02%

Net profit attributable to shareholders of the company (million yuan)

44

454 309 352

485

Yoy change +3,762.50% +107.81% -14.32% +6.88% +29.52% * For the three-month period ended 31 March, 2018. **For the six-month period ended 30 June, 2018. Source: Company data; compiled by Fung Business Intelligence


26

3. Internet and e-commerce companies

Alibaba Group Holding Ltd. – Financial results for the quarter ended 30 June, 2018:

• Revenue was 80,920 million yuan (US$12,229 million), an increase of 61% yoy. o Revenue from core commerce increased 61% yoy to 69,188 million yuan (US$10,456

million). o Revenue from cloud computing increased 93% yoy to 4,698 million yuan (US$710 million). o Revenue from digital media and entertainment increased 46% yoy to 5,975 million yuan

(US$903 million). o Revenue from innovation initiatives and others increased 64% yoy to 1,059 million yuan

(US$160 million).

• Annual active consumers reached 576 million, an increase of 24 million over 31 March, 2018.

• Mobile MAUs reached 634 million in June 2018, an increase of 17 million over March 2018.

• Tmall physical goods GMV increased 34% yoy.

• Income from operations was 8,020 million yuan (US$1,212 million) and adjusted EBITA increased 13% yoy to 26,502 million yuan (US$4,005 million); adjusted EBITA for core commerce was 32,797 million yuan (US$4,956 million), an increase of 22% yoy, representing a margin of 47%.

Tencent Holdings Ltd. – Unaudited consolidated results for 2Q18 ended 30 June, 2018

• Total revenues were 73,675 million yuan (US$11,135 million), an increase of 30% yoy.

• Operating profit was 21,807 million yuan (US$3,296 million), a decrease of 3% yoy. Operating margin was 30%, down from 40% last year.

• Profit for the period was 18,580 million yuan (US$2,808 million), an increase of 2% yoy. Net margin decreased to 25% from 32% last year.

• Profit attributable to equity holders of the company for the period was 17,867 million yuan (US$2,700 million), a decrease of 2% yoy.

• Combined MAU of Weixin and WeChat were 1,057.7 million, an increase of 9.9% yoy.

• Monthly active user accounts of QQ was 803.2 million, a decrease of 5.5% yoy.

JD.com, Inc. – Unaudited consolidated results for 2Q18 ended 30 June, 2018

• Net revenues were 112.3 billion yuan (US$18.5 billion), an increase of 31.2% yoy.

• Operating loss from continuing operations for the period was 1,033.9 million yuan (US$156.2 million), compared to 403.0 million yuan for 2Q17.

• Operating margin of JD Mall before unallocated items for 2Q18 was 1.1%, as compared to 0.8% for 2Q17.

• Annual active customer accounts increased by 21.5% to 313.8 million from 258.3 million over 30 June, 2017.

Source: Company data, compiled by Fung Business Intelligence


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IV. Regulation updates

Market supervision

1. MOFCOM: Expanding consumption remains a major task

On 12 July, the Ministry of Commerce of the PRC (MOFCOM) held a regular press conference and said that further

to the third meeting of the Central Comprehensively Deepening Reforms Commission of the PRC on 6 July, which

adopted the “Opinions on Promoting the Mechanism of Consumption and Further Encouraging the Consumption

Potential of Residents”, the MOFCOM will follow the new trend of consumption in accordance with the

requirements of high-quality development from the perspectives of both supply and demand-sides. Major tasks

include:

• Promote urban and rural convenience consumption. For example, to actively promote the construction of

the “15-minute community service circle”;

• Increase the supply of mid-end and high-end products. The focus is on promoting the construction of high-

grade pedestrian streets and the cultivation of international consumer cities. At the same time, the

MOFCOM will actively expand imports, make full use of platforms such as China International Import Expo,

and enrich domestic supply of goods and services;

• Improve supply chain. To comprehensively promote the modern supply chain pilot demonstration and

efficient logistics distribution system construction;

• Create a safe and secure consumer environment. For example, to continue to promote the construction of

traceability systems for important products such as edible agricultural products and food, and actively

promote the construction of a business credit system47.

Details can be accessed at http://www.mofcom.gov.cn/xwfbh/20180712.shtml (in Chinese only) (Source: 12 July

2018. Ministry of Commerce.)

2. Government supports the upgrade and transformation of pedestrian streets

On 10 July, the MOFCOM published the “Notice of the General Office of the Ministry of Commerce on Promoting

the Construction of High-Quality Pedestrian Streets”. The notice pointed out that the government will support

selective cities to transform and upgrade potential pedestrian streets, and to cultivate a number of high-quality

pedestrian streets which comply with international and domestic standards in two to three years. The notice also

stated that the government will encourage qualified regions to provide special funds to support the renovation of

pedestrian streets, and establish a government-supported, multi-participatory pedestrian street renovation project

to enhance investment and financing mechanisms48.

http://www.mofcom.gov.cn/xwfbh/20180712.shtml


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Details can be accessed at http://www.mofcom.gov.cn/article/h/redht/201807/20180702764451.shtml (in Chinese

only) (Source: 10 July 2018. Ministry of Commerce.)

3. China to further boost imports and lower import duties for selected daily consumer goods

At the State Council Executive Meeting on 13 June, Premier Li Keqiang revealed that China will further boost

imports to drive domestic industrial upgrading and better meet the increasingly diversified consumption demands

of people, while keeping exports stable. China will also lower import duties for selected daily consumer goods,

medicine, as well as nursing and rehabilitation facilities. Meanwhile, it will improve policies on duty-free shops and

introduce more duty-free products into the China market49.

Details can be accessed at http://english.gov.cn/premier/news/2018/06/13/content_281476183707022.htm (in

Chinese only) (Source: 13 June 2018. State Council.)

Agriculture

4. MARA accelerates promotion of “strong agricultural brands”

On 29 June, the Ministry of Agriculture and Rural Affairs of the PRC (MARA) announced the "Opinions on

Accelerating the Promotion of Strong Agricultural Brands". The opinions pointed out that in the next three to five

years, it is necessary to cultivate a large number of national-level agricultural brands which are nationally

influential, cover a wide range of distribution, and with strong international competitiveness. MARA targets to

promote 300 national brands of agricultural regions, 500 national agricultural enterprise brands and 1,000

agricultural product brands. The opinions emphasized the importance of strong agricultural brands, and pointed

out that promoting strong agricultural brands is vital for achieving high-quality economic development, promoting

agricultural supply side structural reform and enhancing agricultural competitiveness. It is also a powerful measure

for farmers to increase their income50.

Details can be accessed at http://www.scs.moa.gov.cn/dongtai/201806/t20180629_6153371.htm (in Chinese only)

(Source: 29 June 2018. Ministry of Agriculture and Rural Affairs of the PRC.)

5. Government aims to speed up application of information technology in agricultural production

At the State Council Executive Meeting on 27 June, Premier Li Keqiang revealed that the government will continue

to push forward policies and measures to promote “Internet + agriculture”, aiming to speed up the application of

information technology in agricultural production; to help agricultural products to sell outside its own village and

to strengthen the connection of e-commerce enterprises with farmers and farmer cooperatives; and to encourage

the development of new retail formats and business models in rural areas and increase employment opportunities

for farmers51.

http://www.mofcom.gov.cn/article/h/redht/201807/20180702764451.shtml

http://english.gov.cn/premier/news/2018/06/13/content_281476183707022.htm

http://www.scs.moa.gov.cn/dongtai/201806/t20180629_6153371.htm


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Details can be accessed at http://www.gov.cn/guowuyuan/cwhy/20180627c16/index.htm (in Chinese only)

(Source: 27 June 2018. The State Council.)

Cross-border e-commerce

6. 22 new CBEC comprehensive pilot zones to establish

In August, the State Council announced to establish the third batch of cross-border e-commerce (CBEC)

comprehensive pilot zones to promote the opening up of China’s cities to facilitate foreign trade transformation

and upgrading. The third batch of CBEC comprehensive pilot zones will be established in 22 cities in central and

western regions, as well as the northeastern regions, including Beijing, Hohhot, Shenyang, Changchun, Harbin,

Nanjing, Nanchang, Wuhan, Changsha, Nanning, Haikou, Guiyang, Kunming, Xi'an, Lanzhou, Xiamen, Tangshan,

Wuxi, Weihai, Zhuhai, Dongguan and Yiwu52.

Details can be accessed at http://www.gov.cn/zhengce/content/2018-08/07/content_5312300.htm (in Chinese

only) (Source:7 August 2018. The State Council.)

Retail technology

7. Government to support the development of AI and the integration of AI into different industries

On 26 June, the Ministry of Industry and Information Technology of the PRC (MIIT) said that the government will

continue to support the development of artificial intelligence (AI) and will focus on the following areas:

• Support the R&D for AI core technologies including AI sensors, AI chips and software, as well as accelerate

the integration of AI and different industries;

• Push forward the integration of AI and manufacturing industries, nurture more new models of smart

manufacturing, and promote industrial upgrade in terms of quality and efficiency;

• Strengthen the cooperation between various government departments to nurture AI industry clusters;

• Speed up the establishment of industry standards related to AI and other related intellectual property

issues; the MIIT will also promote the construction of training database, standard test data sets and open

platforms supporting the development of AI. It will also improve policies relating to talent, finance, and

taxation for the AI industry53.

Details can be accessed at http://www.scio.gov.cn/xwfbh/xwbfbh/wqfbh/37601/38501/index.htm (in Chinese only)

(Source: 26 June 2018. State Council.)

http://www.gov.cn/guowuyuan/cwhy/20180627c16/index.htm

http://www.gov.cn/zhengce/content/2018-08/07/content_5312300.htm

http://www.scio.gov.cn/xwfbh/xwbfbh/wqfbh/37601/38501/index.htm


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8. China releases Three-year Action Plan for information technology consumption

On 13 August, the MIIT and the National Development and Reform Commission have jointly released the “Three-

Year Action Plan to Expand and Upgrade Information Consumption (2018-2020)”. The plan is part of the National

Congress’ advocacy to encourage domestic consumption. According to the plan, China aims to expand the scale of

information technology-related consumption to 6 trillion yuan and maintain an average annual growth of the

sector at 11% by 2020. In the same period, 98% of villages in China will have established a 4G network. The plan

highlighted four main areas: new information technology supplies, information services, consumption willingness

building, and the improvement of information technology’s business environment54.

Details can be accessed at

http://www.miit.gov.cn/n1146295/n1652858/n1652930/n3757022/c6309188/content.html (in Chinese only)

(Source: 10 August 2018. Ministry of Industry and Information Technology.)

http://www.miit.gov.cn/n1146295/n1652858/n1652930/n3757022/c6309188/content.html


31

V. Outlook

1. China’s retail industry to continue to maintain its steady growth momentum in 2018

On 3 June, the Ministry of Commerce (MOFCOM) released the “Review and Prospects of China's Domestic Trade

Development 2017” and highlighted five key areas of development:

1. Innovation

• Innovation in concepts: New concepts such as “new retail”, “borderless retail” and smart retailing lead the

innovation and development of domestic trade.

• Innovation in technologies: Internet of Things (IoT), big data, cloud computing, virtual reality, and artificial

intelligence (AI) are transforming the retail sector.

• Innovation in business models: New business models such as fresh food O2O supermarkets and social e-

commerce platforms evolve.

2. Integration

• Integration of domestic and foreign trade: Facilitated by the rapid development of new trade models such

as cross-border e-commerce.

• Online and offline integration: Facilitated by the omni-channel strategies of large enterprises such as

Alibaba, JD.com and Suning, as well as the rapid development of “Internet + lifestyle services”.

• Cross-sector integration: Facilitated by the initiatives of local governments to promote the integrated

development of commerce, tourism, culture, and sports, etc.

3. “Smart” development

• Smart cities: Local governments push forward the development of smart cities to enhance consumer’

shopping experience.

• Smart stores: Various e-commerce platform operators launch smart stores and unmanned stores that are

equipped with self-checkout facilities, face recognition system, robots, smart shopping carts, etc.

• Smart lifestyle: Emergence of new retail formats and business models for lifestyle services.

• Smart logistics: Driven by the application of the Internet of Things (IoT), big data, cloud computing, artificial

intelligence, as well as facilities such as drones, unmanned vehicles, and unmanned warehouse in the

commercial and logistic industries.

4. Coordinated development

• Integration of urban and rural areas; accelerated regional cooperation and industry cooperation.


32

5. Green development

• The rapid development of green circulation strategy will guide green manufacturing and green

consumption.

The MOFCOM expected the domestic trade sector to continue to maintain its steady growth momentum in 2018,

and play a more critical role in guiding production, promoting consumption, creating employment, and stabilizing

economic growth. It is estimated that the total retail sales of consumer goods will increase by about 10% yoy in

2018; online retail sales will increase by about 30% yoy; and the contribution of consumption to GDP growth will

stabilize at over 60%. Consumption will continue to be the largest driving force of China’s economic growth55.

2. China’s retail sales growth expected to soften in 2018; China-U.S. trade war is set to hinder

economic growth and retail sales growth in 2H18

On 13 August, the China National Commercial Information Center released a report on the performance of China’s

retail sector in 1H18 and outlook for 2H18. It summarized some reasons for the slowing down of retail sales growth

which include: slow-down in the growth of household income; consumption upgrade of consumers and their

increasing spending on services; fierce competition with heavy price cut; the decelerating growth of automobiles

and residential housing leading to falling demand for petroleum and related products, furniture, as well as building

and decoration materials. The CNCIC forecasted that the total retail sales of consumer goods in 2018 will be

around 9.5% yoy if the macro economy is stable and the growth of household income continues. It also stated that

the product prices might be affected by the increasing tariffs of imported products from the U.S. amid the China-

U.S. trade wari. In our view, the China-U.S. trade war is set to last for a while and will hinder China’s economic

growth; the effect could spill over to the retail market and adversely affect consumer confidence and consumer

spending in the second half of the year.

i After months of threats and negotiations, the trade war between China and the U.S. officially broke out on 6 July, 2018 when a 25% tariff

levied on US$34 billion worth of Chinese goods took effect, which prompted Beijing to react with tariffs of equal size on some U.S. goods imported to China. On 10 July, 2018, the U.S. administration announced to impose another 10% duty on US$200 billion worth of Chinese products. On 1 August, the U.S. further proposed to raise the tariff rate to 25%. This round of tariffs is undergoing a public review process until 5 September, after which the United States Trade Representative (USTR) will issue a final determination. U.S. President Donald Trump also warned to levy extra tariffs on all Chinese imports if China retaliates. The US$200 billion-worth product list covers 6,031 tariff items, including consumer goods such as apparel, footwear, furniture, handbags and suitcases, gloves, beauty products, and refrigerators. It also includes hundreds of food products as well as textiles, tobacco, chemicals, coal, steel and aluminum and technology products. In retaliation, the Chinese government announced on 3 August that it is poised to impose additional tariffs of 5%, 10%, 20% or 25% on US$60 billion worth of US imports, if the U.S. goes ahead with its latest tariff threat. On 23 August, the two countries further escalated the trade war with both sides implementing punitive 25% tariffs on US$16 billion worth of the other’s products.


33

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https://www.cnbc.com/2018/08/01/reuters-america-update-2-china-to-probe-e-commerce-firm-pinduoduo-over-reports-of-fake-goods.html

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http://www.ebrun.com/20180721/287492.shtml

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http://finance.sina.com.cn/stock/usstock/c/2018-06-18/doc-iheauxvz0165285.shtml

http://news.zgswcn.com/2018/0618/836100.shtml

http://36kr.com/p/5136725.html

https://www.alizila.com/alipayhk-gcash-cross-border-remittance-service-blockchain/

https://www.alizila.com/hema-food-tracking/

http://jdcorporateblog.com/jd-launches-blockchain-open-platform/




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https://www.longsok.com/dt/2018/0730/47428.html

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http://news.winshang.com/html/064/0309.html




http://news.zgswcn.com/2018/0611/834975.shtml



34

26 “MOFCOM: China's shopping malls and convenience stores sectors maintain stable and healthy development in 2Q18”, 2 August 2018. MOFCOM. http://www.gov.cn/shuju/2018-08/02/content_5311363.htm (in Chinese only) 27 “CCFA, Nielsen and Winner Technology: Shopping malls in Shanghai enjoy the best overall development”, 14 June 2018. Winshang. http://news.winshang.com/html/064/0557.html (in Chinese only) 28 “Xiamen ITG Group and Intime Retail establish joint venture to develop new retail in Fujian area”, 16 July 2018. Beijing Business Today. http://www.bbtnews.com.cn/2018/0716/252798.shtml (in Chinese only) 29 “Wangfujing and Nanjing Xinjiekou Department Store to cooperate in retail business”, 18 July 2018. Winshang. http://news.winshang.com/html/064/2554.html (in Chinese only) 30 “Rainbow Department Store enters Central Jiangsu”, 5 July 2018. Linkshop. http://www.linkshop.com.cn/web/archives/2018/405437.shtml (in Chinese only) 31 “Liqun's first batch of stores in Eastern China to open soon”, 16 July 2018. Linkshop. http://www.linkshop.com.cn/web/archives/2018/406040.shtml (in Chinese only) 32 “MOFCOM Releases the Report on the Development Index of China’s Shopping Centers and the Prosperity Index of China’s Convenience Stores in the Second Quarter of 2018”, 4 August 2018. Ministry of Commerce. http://english.mofcom.gov.cn/article/newsrelease/significantnews/201808/20180802774934.shtml 33 “JD Daojia partners with over 10,000 CVS”, 31 July 2018. Ebrun. http://www.ebrun.com/20180731/289295.shtml (in Chinese only) 34 “NetEase’s Yanxuan sells offline in convenience stores”, 16 July 2018. Longsok. https://www.longsok.com/dt/2018/0716/47176.html (in Chinese only) 35 “HLA opens first store in Singapore”, 20 May 2018. Linkshop.

http://www.linkshop.com.cn/web/archives/2018/402615.shtml (in Chinese only)

“Balabala opens two stores in Hong Kong”, 25 June 2018. Linkshop.


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http://cn.fashionnetwork.com/news/li-ning-bu-ju-e-luo-si-shi-chang,1000949.html#.W1kjYqczaUk (in Chinese only)

“MJstyle opens 36 new stores in China in 1H18; enters the Japan market for the first time”, 24 July 2018. Linkshop.

http://news.china-ef.com/635278.html (in Chinese only) 36 “JNBY unveils new menswear brand “SAMO”, 20 April 2018. Linkshop.


“JNBY launches new brand “REVERB””, 20 June 2018. Linkshop


“Marisfrolg Group launches first menswear brand MJU: T”, 22 June 2018. Fashion Network.

http://man.ef43.com.cn/data/2018/2018-06-22/283012.html

“Anta launches new brand AntapluS’; first store opens in Changchun”, 30 July 2018. Ebrun.

http://www.ebrun.com/20180730/289039.shtml (in Chinese only)

“NetEase launches first sportswear brand Yessing”, 9 August 2018. Linkshop.

http://www.linkshop.com.cn/web/archives/2018/407609.shtml (in Chinese only) 37 “JD.com and Hongdou sign unbounded retail strategic agreement”, 21 April 2018. Ebrun.

http://www.ebrun.com/20180421/273616.shtml (in Chinese only)


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http://cn.fashionnetwork.com/news/li-ning-bu-ju-e-luo-si-shi-chang,1000949.html#.W1kjYqczaUk

http://news.china-ef.com/635278.html




http://man.ef43.com.cn/data/2018/2018-06-22/283012.html






https://alibabanews.com/article/shishangzhineng-alibabafashionaixiangmu-xieguessluxiantuigainiandian

http://smart.huanqiu.com/city/2018-07/12569661.html


https://wwd.com/fashion-news/fashion-scoops/mr-bags-designs-tods-purse-for-wechat-baoshop-launch-1202702927/

https://jingdaily.com/burberry-wechat-mini-program/


35

http://us.fashionnetwork.com/news/Michael-Kors-marches-on-in-China-with-WeChat-expansion-Yang-Mi-collaboration,1003602.html#.W3SUaOgzaUl 41 “German luxury brand MCM officially launches on Tmall”, 6 August 2018. Ebrun. http://www.ebrun.com/20180806/290387.shtml (in Chinese only) 42 “Balenciaga opens flagship store on JD.com’s Toplife”, 24 July 2018. Linkshop. http://www.linkshop.com.cn/web/archives/2018/406629.shtml (in Chinese only) 43 “Tiffany & Co. opens online pop-up store on Tmall’s Luxury Pavilion”, 15 August 2018. Linkshop. http://www.linkshop.com.cn/web/archives/2018/407927.shtml (in Chinese only) 44 “Louis Vuitton opens online platform to all cities in China”, 16 July 2018. Linkshop. http://www.linkshop.com.cn/web/archives/2018/406044.shtml (in Chinese only) 45 “Burberry lowers prices of selected products in China”, 14 July 2018. Linkshop. http://www.linkshop.com.cn/web/archives/2018/405992.shtml (in Chinese only) 46 “Tariffs cuts prompt Gucci to drop prices in China”, 6 July 2018. Sina. http://news.sina.com.cn/o/2018-07-06/doc-ihexfcvk8049588.shtml (in Chinese only) 47 “MOFCOM holds regular press conference on 12 July", 12 July 2018. Ministry of Commerce. http://www.mofcom.gov.cn/xwfbh/20180712.shtml (in Chinese only) 48 “MOFCOM to support the upgrade of pedestrian streets”, 11 July 2018. Beijing Business Today. http://www.bbtnews.com.cn/2018/0711/251967.shtml (in Chinese only) 49 “China to further boost imports and lower import duties for selected daily consumer goods”, 13 June 2018. State Council. http://english.gov.cn/premier/news/2018/06/13/content_281476183707022.htm (in Chinese only) 50 “Ministry of Agriculture and Rural Affairs accelerates promotion of “strong agricultural brands””, 3 July 2018. Ebrun. http://www.ebrun.com/20180703/284632.shtml (in Chinese only) 51 “State Council to continue to push forward policies and measures for promoting “Internet + agriculture””, 27 June 2018. Xinhua. http://www.xinhuanet.com/politics/2018-06/27/c_1123046233.htm (in Chinese only) 52 “The State Council to establish 22 new CBEC comprehensive pilot zones”, 13 July 2018. Ebrun. http://www.ebrun.com/20180713/286352.shtml (in Chinese only) 53 "Government to support the development of AI and the integration of AI into different industries", 26 June 2018. The State Council. http://www.scio.gov.cn/xwfbh/xwbfbh/wqfbh/37601/38501/index.htm (in Chinese) 54 " China releases three year action plan for information technology consumption", 13 August 2018. Technode. https://technode.com/2018/08/13/china-it-3-year-action-plan/ 55 "Review and Prospects of China's Domestic Trade Development 2017", 3 June 2018. Ministry of Commerce. http://www.gov.cn/shuju/2018-06/03/content_5295874.htm (in Chinese)

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http://us.fashionnetwork.com/news/Michael-Kors-marches-on-in-China-with-WeChat-expansion-Yang-Mi-collaboration,1003602.html#.W3SUaOgzaUl






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http://www.mofcom.gov.cn/xwfbh/20180712.shtml


http://english.gov.cn/premier/news/2018/06/13/content_281476183707022.htm


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http://www.scio.gov.cn/xwfbh/xwbfbh/wqfbh/37601/38501/index.htm

https://technode.com/2018/08/13/china-it-3-year-action-plan/

http://www.gov.cn/shuju/2018-06/03/content_5295874.htm

Contacts

Asia Distribution and Retail

Fung Business Intelligence

10/F, LiFung Tower, 888 Cheung Sha Wan Road, Kowloon, Hong Kong

Fax: (852) 2635 1598 Phone: (852) 2300 2470

Email: [email protected] https://www.fbicgroup.com

Though Fung Business Intelligence endeavors to ensure the information discussed in this material is accurate and updated, no

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Intelligence’s prior written consent is prohibited.

Key authors

Teresa Lam and Christy Li

Contributors

Lucia Leung, Renne Chan and Tracy Chan

@ Copyright 2018 Fung Business Intelligence. All rights reserved.

asia distribution and retail 0 · 2018-08-24 · china retail & e-commerce quarterly issue 07 |...

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