1

AAFA ANNUAL EXECUTIVE SUMMIT: CHINA AT THE TIPPING POINT

Deborah Weinswig Executive Director—Head, Global Retail & Technology

Fung Business Intelligence Centre

March 18, 2015

2

China’s Mall Boom

Source:  Na+onal  Bureau  of  Sta+s+cs  China    

0%  

20%  

40%  

60%  

Beijing  

Chen

gdu  

Chon

gqing  

Dalian  

Guangzho

u  

Harbin  

Shanghai  

Shen

yang  

Shen

zhen

 

Tianjin  

Wuh

an    

Share  of  Mega  Malls  in  Selected  Ci3es    

Share  of  Shopping  Centers  (GFA>  100,000sqm)  among  all  shopping  centers  

•  The China Chain Store & Franchise Association (CCFA) estimates that around 300 new malls are opened in China each year and that the total number of malls will reach 4,000 by 2015.

•  Nine out of the top Ten newly completed malls are in China.

•  Malls account for the majority of China’s commercial property supplies: 68.3% (Tier 1 cities) and 61.6% (Tier 2 cities).

0  

10  

20  

30  

40  

0  

50  

100  

150  

200  

250  

2004   2005   2006   2007   2008   2009   2010   2011   2012   2013  

Total  Investment  in  China’s  Commercial  Proper3es    

CommulaQve  Commercial  Property  Development  and  Investment  (in  Billions  USD)  YoY  Growth  %  

3

What’s Driving China’s Mall Boom?

Urbanization Based on City Clusters and Rise of Middle Class

169.55 million Chinese households will reach $50,000 versus 2.76 million in 2012. (EIU)

Three mature clusters

3.2% of national total land mass

17.3% of national total population

35.1% of national total GDP

30.2% of national total sales of consumer goods.

Eight middle-weight clusters

11% of national land mass

30% of national population

37.8 % of national GDP

34.2% of national total sales of consumer goods.

4

What’s Driving China’s Mall Boom?

•  Consumer demand a “lifestyle” shopping experience some malls in China dedicate 25% of total floor area to entertainment and dining facilities. High-end Chinese malls also doubles as art galleries and fill with culture elements.

•  Kid-related facilities at malls attract traffic China’s one-child policy allows one kid to attract spending of two parents and six grandparents in a family.

•  Malls are favored property developers due to the tightening government regulation on residential property market

5

China Is the World’s Largest Online Market

Source:  iResearch  

•  Robust  Ecommerce  Growth  The  transacQon  value  of  China’s  online  market  increased  by  39.4%  YoY,  to  reach  ¥1.84  trillion  in  2013,  accounQng  for  7.9%  of  the  country’s  total  retail  sales.  By  2017,  total  online  sales  are  expected  to  reach  ¥4.45  trillion  yuan,  accounQng  for  12.4%  of  total  retail  sales.  

•  Growing  Online  Popula3on  China’s  online  populaQon  is  growing  rapidly  to  648  million  as  of  June  2014,including,  127  million  Rural  internet  users  

•  Mobile  Shopping  Gaining  Trac3on.  The  mobile  pla_orm  is  now  a  highly  popular  sales  and  markeQng  channel.  iResearch  esQmates  that  the  total  transacQon  value  of  mobile  shopping  will  exceed  ¥3,207  billion  by  the  end  of  2017,  up  from  ¥274  billion  in  2013.  There  are  527  million  mobile  users  in  China    

0%  

20%  

40%  

60%  

80%  

0  

200  

400  

600  

800  

2010   2011   2012   2013   2014  E  2015  E  2016  E   2017E  

China  Ecommerce  Growth  

China  Ecommerce  Sales  in  Billions  USD   YoY  Growth    

0  

200  

400  

600  

2011   2012   2013   2014  E   2015  E   2016  E   2017E  

China  Mobile  Commerce  Growth    

China  Mobile  Commerce  Sales  in  Billions  USD  

6

Major Trends in Chinese Ecommerce

•  Home categories are a new growth area in Chinese e-commerce. Local brands still dominate home category online sales.

•  Overseas merchants leverage 7 FTZ pilot cities and bonded warehouse to sell in China.

•  Chinese tourists shop overseas and demand same high quality goods when return home

•  WeChat shops and its “B2C2C” model (recommended purchase by friends) have huge potential to disrupt the two-player market of Alibaba and JD.com.

•  Launching stores on major e-commerce sites is becoming increasingly expensive due to high marketing charges and registration capital requirement.

•  Community shopping malls are getting popular.

7

Top 10 Trends for 2015 1.  Consumer market sees steady growth; rational consumption a norm

2.  Institutional reform of distribution sector, better regulated

3.  O2O competition intensifies

4.  Wholesale markets undergo transformation and upgrade

5.  Luxury market slows; “affordable luxury” gains

6.  Department stores and large supermarkets revamp; focus on community stores

7.  Innovation drives operational transformation

8.  New era of consumerism

9.  Catering market under transformation; mass dining trend

10.  Express delivery firms scale up

Source:  China  Business  Herald  Research  Ins+tute,  China  General  Chamber  of  Commerce  (and  Expert  CommiAee  of),  Fung  Business  Intelligence  Centre  and  Fung  Group  

8

Thank You! Deborah Weinswig

Executive Director—Head, Global Retail & Technology Fung Business Intelligence Centre