Hypermarkets are poised to emerge as the winning format in China’s fast-growing retail sector: they not only have become a hit with the country’s shoppers but also generate better margins than alternatives such as supermarkets and department stores.1 Domestic and multinational retailers intending to open hypermarkets there should take note, however: China is different.
The entire retail sector is growing by 7 percent a year in China, much faster than it is in most other developing countries. With $405 billion in revenues in 2001 (Exhibit 1), it was 56 percent larger in China than in the remainder of Asia’s major markets (excluding Japan) combined and could reach $713 billion by 2010. Although hypermarkets still account for less than 2 percent of all Chinese retail sales, revenues from these stores have been growing on average by 64 percent a year—more quickly than the retail sector as a whole (Exhibit 2). And though the pace of growth is slowing, sales from hypermarkets will continue to expand at the fairly rapid clip of 25 to 30 percent annually through 2010.
China’s hypermarkets, much like their counterparts in the West, can afford to charge lower prices thanks to the high volumes...