http://pwc.to/12lo5kE Réalisée en partenariat avec l’Economist Intelligence Unit, le rapport propose un panorama unique des évolutions du secteur de la distribution et de la consommation en Asie, avec un focus par pays et par segment.

1. www.pwc.com
2013 Outlook for the
Retail and Consumer
Products Sector in Asia

3. Carrie Yu
China & Asia Pacific
Retail and Consumer Leader
PwC
Foreword
Impacted by the global economic As the largest market in Asia, China making a comeback, and still more
conditions, growth in many Asian remains crucial for many retail and that have turned around successfully
markets has slowed down. However, consumer companies. The Chinese through transforming the operating
the region as a whole remains ahead of government has reiterated its emphasis models and product offerings. In an
North America and Europe. Retail in boosting domestic consumption, evolving and dynamic market
sales volume in Asia Pacific is relative to fixed investments and environment, the strong survivors are
forecasted to grow 6% in 2013 and will export, as the key economic driver of often those who stand firm on their
maintain this upward momentum growth. While the pace of growth may corporate mission, backed by solid
through to 2016 with an estimated have slowed, the retail industry is infrastructure fundamentals and
market worth of US$11.8 trillion, forecasted to grow at 10.5% in 2013 equipped with razor sharp focus to
while that of North America and and 10.4% through to 2016. At the constantly reinvent themselves to
Western Europe is US$4.4 trillion and same time, India, with its huge young create value to stakeholders.
US$3.1 trillion respectively. Home to population and growing income of the
China and India, Asia continues to be middle class, will continue to attract Indeed, we have witnessed numerous
the main driver of retail growth the attention of international and innovations and success stories of
globally and holds out the best regional players. This is particular so many local and international
opportunity for growth and profits for with the recent relaxation of the limits companies in the industry. In this
many international retail and on foreign investments in Delhi to connection, I am personally inspired
consumer companies. allow 51% foreign equity in multi- by the interviews featured in this
branded retail operation. India’s retail report and hope our readers will find
The growing critical mass of growth is forecasted to bounce back the same inspiration. We are honoured
consumers in Asia warrants long-term strongly from 1.9% last year to 6% in to have some of the region’s most
investments and tailored market 2013. successful companies in generously
strategies. Indeed, by 2020, the sharing their core values and ethics,
percentage of the population However, Asia’s consumer markets are business visions and consumer
considered as middle class is envisaged not completely liberalised and remain insights. I am deeply grateful to Mr
to shift from North America and highly fragmented. Traditional Motoya Okada of Aeon, Mr John Lo of
Europe to the Asia Pacific region. This retailing still dominates and local Tencent, Mr A. Mahendran of Godrej
shift may happen even earlier, as players are abound. Apart from the and Mr Nigel Luk of Cartier for sharing
China’s leadership has committed in challenges in navigating through their wisdom. I would also like to take
the recent 18th National Congress of regulatory hurdles as well as adapting this opportunity to thank our
the Communist Party of China, to to cultural differences and consumer colleagues in the region and the
double the country’s 2010 GDP and per preferences, retail and consumer Economist Intelligence Unit for their
capita income of both urban and rural companies also have to cope with the invaluable input and assistance.
households by 2020. The expanding influx of new competitors to the
middle class consumers will be a market, whether online or offline. Over Sincerely,
substantial force in driving demands the years, some international retail
for a wide spectrum of products, and consumer companies might have
ranging from functional food, personal exited from certain markets in the
care products to the latest smartphone region, but there are also others
models. The same phenomenon is also
happening across many Asian
countries including India, Indonesia January 2013
and Vietnam.
2013 Outlook for the Retail and Consumer Products Sector in Asia 1

4. This report was written in cooperation with the Economist Intelligence Unit’s industry and management research division.
The economic and industry forecasts included are those of the Economist Intelligence Unit. Due to a change in methodology
some historical figures may be significantly different to those published in last year’s report.

5. Table of contents
4 Executive summary
6 Introduction
Section 1: Retail
10 Food and general retail
11 Hypermarkets, supermarkets and convenience stores
12 — Q&A with Motoya Okada of Aeon
13 Food, beverages and tobacco
14 Private label
15 Fashion and apparel
18 Online retailing
20 — Q&A with John Lo of Tencent
Section 2: Consumer goods
23 Fast-moving consumer goods
25 — Q&A with A. Mahendran of Godrej
28 Luxury brands
31 — Q&A with Nigel Luk of Cartier
33 Durable consumer goods and electronics
37 At a glance: Indonesia, Malaysia, Singapore,
South Korea, Thailand and Vietnam
50 Conclusion
2013 Outlook for the Retail and Consumer Products Sector in Asia 3

6. Executive Summary
The outlook for the global economy
remains uncertain, as consumers and
businesses alike wait for clear
directions on a range of economic
risks, from the US deficit to the euro
zone crisis. The European Union (EU)
is forecast to contract in 2012 and to
muster only marginal growth in 2013.
Growth in the US and China is also
slowing. Although governments in
both countries have introduced
stimulus measures, any upturn is
expected to be modest. Asia’s other
economies will slow as well, but will
look healthy by comparison with the
US and EU, with regional growth
(excluding Japan) averaging 5.7% in
2012 and 6.4% in 2013.
This report discusses the outlook for September 2012 that it would permit
six retail and consumer products foreign direct investment of up to 51%
Asia will remain the main driver of sub-sectors in Asia — food and general in multi-brand retailing. Retailers,
global retail sales growth, but retail, fashion and apparel, online particularly in China, are beginning to
companies will be challenged by retailing, fast-moving consumer goods target customers more carefully. For
slowing economies and high inflation (FMCG), luxury brands, and durable example, CR Vanguard is launching a
and interest rates. Retail sales are still consumer goods and electronics. It new high-end chain of boutique
expected to expand by a respectable focuses, in particular, on China, Hong supermarkets, while Carrefour is
5.8% in 2012# and 6% in 2013, Kong, India, Japan and Taiwan, and stepping up its strategy to cater for
although this is down substantially looks at how the industry is faring in consumers concerned about China’s
from 9.6% volume growth in 2010. 2012 and is expected to grow through frequent food safety problems by
Companies are responding by 2016, and the opportunities and focusing on organic food.
reworking their product, production challenges in the years ahead.
and regional strategies.
As Asia’s current environment of
The main findings of the report are as high inflation and rising prices
All eyes will continue to focus on follows: drives customers to seek value,
Mainland China (China), by far Asia’s private food labels have new
largest retail market. For many, the opportunities to increase their
Major international retailers will
fastest growth will come in the less share. While the private label business
continue to expand in Asia, with
developed third- and fourth-tier cities, took decades to develop in Western
more tailored strategies being
as disposable incomes there rise countries and came about only after
introduced in China. By 2016 China
rapidly. The proportion of Chinese the retail sector matured, the concept
will overtake the US as the world’s
households earning over US$15,000 is rapidly catching on in Asia, where
largest retail sales market, worth some
per year will increase from roughly large populations and growing
US$4.2 trillion. India, too, is now
11% of the total in 2011 to 41% in incomes mean that the region will
attracting considerable interest, after
2016, by conservative estimates. remain the world’s largest food market,
its government announced in
# This figure is expected to be revised downward based on new forecasts for India, which became
4 PwC available just prior to publication of this report.

7. Executive Summary
worth US$4.2 trillion in 2012. India’s including both Asian retail companies Chinese and other Asian travellers
big retailers have been very active in and foreign offline retailers such as abroad. But local, home-grown luxury
introducing private label products, America’s Macy’s department stores, brands will also emerge, catering to
which now account for 20-25% of are now expanding their own online Asian consumers’ rediscovery of their
profits for most. In addition to catering presence in Asia in partnership with own long-standing traditions of local
for the needs of value-conscious e-tailers. The online market’s growth craftsmanship. For example, Chow Tai
consumers, private label goods can in 2012-16 will be aided by increased Fook Jewellery Group of Hong Kong is
also fill a void in markets such as India broadband and mobile-phone already twice the size of iconic
where many categories of goods are penetration, the spread of smartphones American jeweller Tiffany & Co in
underdeveloped. To overcome and tablet computers, and terms of revenue. As local brands seek
consumers’ concerns about the quality improvements in payments and international capital and expertise,
and safety of private labels, retailers logistics infrastructure. and global luxury brands remain keen
are upgrading packaging and to appeal to local tastes, partnerships
promoting their international backing Rising incomes will continue to between global and local brands, such
where possible. drive growth in the FMCG sector but as Richemont’s controlling stake in
companies will have to contend with Hong Kong-based fashion label
Asian demand for fashion and several challenges, including Shanghai Tang, will become more
apparel will continue to lead the increasingly demanding, value- common.
world, and international fast conscious consumers and cut-throat
fashion brands are expanding competition. Consumer spending is Growth in demand for consumer
aggressively to cash in on Asia’s being hit by high inflation, rising durables and electronics is slowing
young demographic and rising interest rates and price hikes by FMCG but will remain strong. However,
affluence. Asian demand for fashion companies in response to costlier Japanese manufacturers are losing
and apparel will continue to surpass inputs and commodities. Tough their decades-long dominance in
that in Western Europe and North economic times are intensifying Asia in these sectors. Market demand
America and the gap will widen in the existing challenges for foreign for electrical appliances and
coming years. This has attracted the companies. For example, in December housewares will increase 5.9% in Asia
interest of many foreign brands, 2011, Switzerland’s Nestlé and France’s in 2012, lower than an earlier forecast
particularly in the area of fast fashion, Danone revisited their China business of 6.6%. However, growth will recover
which targets young, upwardly mobile models in the face of fierce local to 6.8% in 2013 and expand
customers. Newcomers to the Asia competition. In response to all these consistently through the forecast
market in 2012 included Topshop of challenges, FMCG companies are period to 2016. Strong growth is
the UK and US retailer Forever 21, who planning their expansions more encouraging competition and Japanese
join Spain’s Inditex, owner of the Zara judiciously, partnering with local manufacturers, hurt by the global
brand, Uniqlo of Japan and H&M of companies, and better targeting economic crisis, a strong yen and
Sweden, all of which have been rapidly customer groups. Many are putting natural disasters in Japan and
expanding in recent years, notably in renewed emphasis on expansion in Thailand, are rapidly losing their
China. rural areas and smaller cities. They are dominance. As they struggle,
also looking to acquisitions to buy companies such as South Korea’s
Online retailing continues to grow market share. Samsung, China’s Haier and Taiwan’s
rapidly in Asia, prompting Hon Hai, have swooped in to capture
traditional and foreign offline Asian consumers now account for market share by expanding quickly and
retailers and even luxury brands to over half of global luxury sales, and offering lower prices, a wider range
embrace online sales in the region. the boom is spurring the growth of and adequate technology in an
According to industry intelligence local luxury brands. According to the increasingly commoditised market.
provider eMarketer, from 2013 World Luxury Association, China is set
onwards Asia will lead the world in to replace Japan as the most important
global business-to-consumer (B2C) market for luxury in Asia. Global
e-commerce sales, with a 41.4% share brands will continue to increase their
by 2016. Traditional retailers, presence and efforts to cater for
2013 Outlook for the Retail and Consumer Products Sector in Asia 5

8. 9.8%, on the back of companies
Introduction
widening their reach, the
modernisation of the retail industry
and the influx of new consumers.
China will overtake the US as the
world’s largest retail sales market in
2016, when its retail sales are forecast
to be worth US$4.2 trillion. Growth
will remain high through the rest of
the forecast period. The fastest growth
The outlook for the global economy 9.6% volume growth in 2010 they are will come in the less developed
remains uncertain at best. The EU still expected to expand by a third- and fourth-tier cities, as
economy is forecast to contract in 2012 respectable 5.8% in 2012. Next year disposable incomes there rise rapidly.
and to manage only marginally that should accelerate to 6%, with the The proportion of Chinese households
positive growth in 2013. Growth in the upturn lasting through the forecast earning over US$15,000 per year will
US and China is also slowing. While period to 2016, when the market will increase from roughly 11% of the total
policymakers continue to work on be worth US$11.8 trillion. in 2011 to 41% in 2016, by conservative
action plans, the circumstances are estimates1.
such that they are likely to accomplish All eyes are on prospects for China, by
little more than to prevent a deeper far Asia’s largest retail market. While In Japan, Asia’s second-biggest market
economic downturn. Asia’s economies the economy has been slowing, the after China in dollar terms, retail sales
will slow as well, but will still look Chinese government has made clear will expand by a modest 1.6% in 2012
healthy by comparison, with regional that it will intervene to stimulate and contract slightly for two years
growth (excluding Japan) averaging growth if necessary. China’s GDP is thereafter as Japan’s trade-dependent
5.7% in 2012 and picking up to 6.4% in predicted to grow 7.8% in 2012 and at economy continues to suffer against a
2013. around 8% through the rest of the backdrop of weak external demand
forecast period. Despite high inflation and a strong currency. Domestic
Asia will remain the main growth and prices, China’s retail sales will demand is expected to remain weak,
driver of retail sales globally. Although grow at a still impressive 10.9% in given poor economic growth and an
retail sales have slowed from their 2012, higher than an earlier forecast of uncertain employment market. Retail
6 PwC

9. Introduction
sales growth will remain negligible Figure 1: Real GDP growth (% change)
through the forecast period, partly
Region 2009 2010 2011 2012 2013 2014 2015 2016
because unemployment will remain
Asia and Australasia (incl Japan) 1.2 7.1 4.0 4.2 4.2 4.5 4.3 4.3
relatively high and wage growth
Economies in transition* -5.6 3.4 3.8 2.5 3.0 3.7 3.7 3.9
subdued at best. Nevertheless,
Latin America -1.9 6.0 4.3 3.1 3.9 4.2 4.0 4.1
relatively high incomes and strong Middle East and North Africa 1.7 5.2 3.4 3.4 3.9 4.7 4.9 5.3
demand for high-end goods will keep North America -3.4 3.0 1.8 2.1 1.8 2.1 2.2 2.3
Japan’s retail spending among Asia’s Western Europe -4.2 2.2 1.7 -0.2 0.5 1.3 1.4 1.4
highest2. World -2.3 4.2 2.7 2.2 2.4 2.9 2.9 3.0
Source: Economist Intelligence Unit
India’s economy has started to look *Bulgaria, Czech Republic, Hungary, Poland, Romania, Russia, Slovakia and Ukraine
sluggish, and GDP growth will slow to
5.8% in 2012, while consumer price
inflation remains a high 9.3%. Given Figure 2: Global retail sales growth by volume (% pa)
the uncertain economic outlook and
rising prices, retail sales growth will Region 2009 2010 2011 2012 2013 2014 2015 2016
slow substantially to 1.9% in 2012, Asia and Australasia 5.3 9.6 5.2 5.8 6.0 6.9 6.7 6.8
Economies in transition -4.4 3.9 6.6 3.4 3.6 4.0 4.4 4.5
much lower than an earlier forecast of
Latin America 0.1 3.1 5.2 4.9 4.6 5.4 4.7 5.3
5.3%, although demand growth for
Middle East and North Africa 1.6 3.6 2.7 1.0 3.4 3.7 4.0 4.1
more basic items like food and soaps
North America -5.8 0.8 3.8 1.6 1.5 2.0 1.9 1.8
and cleansers will remain strong. India
Western Europe -2.5 0.2 -1.0 -1.3 0.0 0.3 0.7 0.8
is Asia’s third-largest retail market World -0.6 4.2 3.6 2.9 3.4 4.1 4.1 4.2
after China and Japan, although it has
one of Asia’s lowest sales per head Source: Economist Intelligence Unit
ratios. Retail sales growth will bounce
back to 6% in 2013 as GDP growth Figure 3: Global retail sales (in US$ trillion)
picks up and inflation abates
Region 2009 2010 2011 2012 2013 2014 2015 2016
somewhat, with growth hovering
Asia and Australasia 4.93 5.88 6.81 7.43 8.23 9.24 10.43 11.81
between 5% and 6% for the remainder
Western Europe 2.89 2.85 3.05 2.91 2.94 2.97 3.00 3.14
of the forecast period, driven by
North America 3.25 3.36 3.61 3.74 3.89 4.06 4.23 4.41
income growth, increasing
Latin America 1.02 1.17 1.29 1.37 1.49 1.63 1.75 1.89
urbanisation, and a rising number of
Source: Economist Intelligence Unit
attractive stores and foreign brands.
The increase in the number of wealthy
households from an estimated 494,000
with annual earnings over US$50,000
Figures for 2012 onwards are forecasts. Prior years are actuals or estimates.
in 2012 to 2.4 million in 2016 will
drive demand for non-essential and
luxury goods3. Delhi has once again
announced a relaxation of the limits on
foreign investment in its retail sector,
saying it will allow 51% foreign equity
in multi-brand retail operations.
Foreign retailers have expressed keen
interest, but there is still strong
opposition to the move from some
quarters.
2013 Outlook for the Retail and Consumer Products Sector in Asia 7

10. Introduction
Figure 4: Asia retail sales growth by volume (% pa)
Territory 2009 2010 2011 2012 2013 2014 2015 2016 In Hong Kong, retail sales volumes will
Australia 3.29 2.15 0.10 0.70 1.10 1.30 1.70 2.00 grow 2.7% in 2012 as economic
China 16.82 19.07 10.90 10.90 10.50 11.10 10.20 10.00 growth in the territory dips to 1.5% on
Hong Kong 0.01 15.61 18.50 2.70 1.50 3.40 4.50 4.50 the back of a slowing global economy
India -0.37 8.95 3.10 1.90 6.00 5.60 5.90 6.10 and China’s reduced growth rate.
Indonesia 3.47 4.78 5.20 4.60 5.50 6.70 6.60 6.50 Retail sales volume growth will slow to
Japan -0.93 3.30 -0.60 1.60 -0.10 -0.50 0.30 0.40
1.5% in 2013 as unemployment rises.
Malaysia 0.62 5.83 6.70 4.90 5.70 5.00 4.90 4.80
Nevertheless, relatively strong
New Zealand 0.50 2.50 -0.40 -1.20 2.30 2.30 3.20 3.30
economic growth (which is expected to
Philippines 3.98 5.56 1.80 2.90 4.90 5.00 5.20 5.20
return to 4.2% in 2014 based on a
Singapore -0.58 6.70 1.30 1.70 2.70 3.80 4.60 5.30
South Korea -0.31 4.55 1.90 1.00 2.10 2.20 2.80 2.90
recovery in global trade) and rising
Taiwan -1.42 9.10 5.00 0.20 1.80 2.60 3.00 2.70 local incomes will provide impetus to
Thailand -0.54 6.70 1.50 7.80 6.90 5.30 4.80 4.70 retail sales in Hong Kong over the
Vietnam 3.05 4.73 6.30 8.30 11.10 10.30 8.70 6.40 medium term. Though visitor numbers
from mainland China have increased,
Source: Economist Intelligence Unit
growth in sales of luxury products such
as jewellery, watches and clocks and
Figure 5: Retail sales in Asia (in US$ billion)
valuables has slowed, indicating that
while the uncertain global economic
4,500 outlook has not dissuaded tourists
from visiting Hong Kong, it has made
4,000 them more cautious about spending.
Given the relatively high cost of
3,500 inflation, retailers’ profitability will
depend partly on their ability to pass
3,000 on rising costs to customers, hence
China ensuring that they are able to develop
2,500
Hong Kong
premium brands for which higher
2,000
prices can be charged4.
India
1,500 Japan Taiwan’s retail sales will increase by
Taiwan
only 0.2% in 2012, as its export-
1,000 oriented economy slows on weakening
global demand. However, as growth in
500 the wider economy picks up, retail
volume growth is likely to recover to
0
2009 2010 2011 2012 2013 2014 2015 2016
1.8% in 2013 and to rise to between
2% and 3% for the remainder of the
Source: Economist Intelligence Unit
forecast period. With a population of
just over 23 million, Taiwan is a
smaller market than most in East Asia.
Figures for 2012 onwards are forecasts. Prior years are actuals or estimates.
However, at over US$10,000, annual
disposable income per head is
relatively high, and over 50% of
households have an annual income
over US$25,000 (this will rise to a
forecast 65% by 2016). Retail sales will
also be supported by more visitors
from China, as visa and travel
restrictions continue to be eased5.
8 PwC

11. Section 1: Retail
The future of global retail lies firmly in Asia, but economic growth in the region is
slowing and inflation and interest rates are high. Companies are responding by
reworking their product, production and regional strategies and looking for
acquisitions, while continuing with their organic expansion. China remains the main
focus for foreign companies across all categories. As international companies try to
make inroads into Asian markets, they will face stiff competition from well-
established local brands. Countries across Asia are quickly expanding access to
broadband and mobile phones. This is helping online retailing in Asia to expand
quickly and traditional retailers are exploring the online channel.
2013 Outlook for the Retail and Consumer Products Sector in Asia 9

12. Section 1: Retail
Food and
general retail Key findings
• Major international retailers
continue to expand in Asia,
although sluggish home markets
mean that some are finding
Figure 6: Retail sales of food in Asia and Australasia (in US$ billion) investment resources
constrained.
8,000 • Recognising customer preferences
for online shopping, traditional
7,000 retailers are making the move
online. According to market
6,000 researcher Kantar Worldpanel, by
July 2012 the proportion of
5,000 Chinese households making
FMCG purchases online increased
4,000 from 16% a year earlier to 22% in
China’s top tier cities.
3,000 • Asia’s current environment of
high inflation and rising prices
2,000 could trigger greater growth in
private label goods as consumers
1,000 seek value for money.
0
2009 2010 2011 2012 2013 2014 2015 2016
Source: Economist Intelligence Unit
Figure 7: Food, beverages and tobacco: Market demand growth (% real change pa)
Territory 2009 2010 2011 2012 2013 2014 2015 2016
China 3.9 1.9 2.6 2.2 2.9 2.8 2.5 2.2
Hong Kong -0.5 5.5 6.7 0.9 -0.2 1.2 1.5 1.3
India 6.5 3.3 1.0 4.7 2.7 3.4 4.7 3.9
Japan -0.6 2.8 0.2 1.4 1.0 1.1 0.9 0.7
Taiwan 0.0 3.0 2.2 0.3 0.9 1.6 2.0 1.7
Source: Economist Intelligence Unit
Figures for 2012 onwards are forecasts. Prior years are actuals or estimates.
10 PwC

13. Section 1: Retail
store model, which will allow it to
Hypermarkets, supermarkets and expand rapidly while limiting
investments11.
convenience stores
Retailers are also targeting customers
more carefully. For example, China’s
CR Vanguard, which has over 4,000
stores across China, is launching a new
high-end chain of boutique
As conditions remain grim in their plans to open 30 new stores in China in supermarkets called V+. It will focus
home countries, major international 2012, up from 20-25 per year recently8 on residential communities, targeting
retailers will continue to expand in and has other plans in addition to middle class consumers in 1st and 2nd
high-performing emerging markets. China. India is now attracting tier cities, while CR Vanguard’s other
India and China place 3rd and 5th considerable interest after its brands will target busy commercial
respectively in AT Kearney’s 2012 government announced in September areas12. Meanwhile, to cater for
Global Retail Development Index, 2012 it would permit foreign direct consumers concerned about China’s
which ranks the attractiveness of investment of up to 51% in multi-brand frequent food safety scandals,
emerging countries to retailers. In a retailing. Despite several restrictive Carrefour is stepping up its organic
November 2011 Economist Intelligence conditions attached, Wal-Mart (US) business. In May 2012, it added 100
Unit global survey of retail managers, has already announced entry plans, new organic products to its list of
two-thirds of the respondents said they while others like Tesco (UK), Carrefour “lowest price” goods13.
were redirecting their focus to and Metro (Germany) could soon
emerging markets, and three-quarters follow9. Retailers are also moving online,
expected these markets to take up the recognising customer preferences for
slack from the slowdown in developed However, retailers are struggling to online shopping. According to market
markets. China remains the emerging manage their large-scale expansions researcher Kantar Worldpanel, the
market of choice, although its economy into Asia, as dipping sales in their proportion of households in China’s
and retail sales growth are slowing6. home markets tighten available top-tier cities making FMCG purchases
According to PwC’s 15th Annual Global investment resources. Some companies online increased to 22% as of July
CEO Survey released in January 2012, are now reshaping their strategies as 2012 from 16% a year earlier. Shoppers
which surveyed 1,258 CEOs in 60 they enter Asian economies amidst were drawn by lower prices, the
countries, 60% of CEOs of consumer slowing growth and fierce competition. convenience of delivery and access to
goods companies believe that more brands14. In August 2012,
emerging markets will be the main Wal-Mart, for example, says it will slow Wal-Mart received government
driver of growth compared with down the launch of new stores in China approval to increase its ownership of
developed economies. in 2012 to focus on operational online supermarket Yihaodian from
efficiency. It was opening more than 40 around 17% to 51.3%. Yihaodian sells
International retailers are still stores annually between 2009 and about 180,000 products, and has a
expanding quickly across Asia. 2011 and is among China’s top nationwide B2C online grocery
Japanese retailer Aeon, which has retailers, but it has been service15. In addition to physical
some 14,000 outlets across 12 Asian underperforming rivals like Carrefour expansion, 7-Eleven also plans to roll
markets, is now expanding into in terms of average revenue per store10. out an online sales platform in China
Vietnam, Malaysia and China’s smaller Meanwhile, Japanese-owned 7-Eleven, in 2013.
cities as part of its ‘Asia Shift’ which has over 100 stores in China, is
expansion strategy7. France’s Carrefour now experimenting with a franchise
2013 Outlook for the Retail and Consumer Products Sector in Asia 11

14. Section 1: Retail
Q&A with Motoya Okada, President, Aeon
You have taken some initiatives to cater and to take leadership at such times. But at
for the needs of elderly consumers. times of emergency, what is more crucial is
What has been your experience with to have “survival and fighting spirit”—not
these initiatives? for yourself but for the benefit of others. For
instance, we had shopping centre managers
The shopping centre that we opened early who made quick decisions to turn their
this year in Chiba, Japan is designed stores into temporary shelters. Only with a
particularly to meet the needs of our senior strong sense of responsibility to serve the
customers. Customers enjoy unique public were they able to exercise such
shopping experiences including access to a leadership and avoid the worst-case
comprehensive range of medical clinics and scenarios.
cultural programmes, as well as financial
services that cater for their lifestyle needs. Was it the case of Aeon’s “customer-
first” principle contributing to risk
The market response has been very good. management?
Established in 1758, Aeon has The Japanese market is a test ground for
our effort to shift to a senior-oriented Yes, and our steadfast corporate mission to
grown to become the largest retailer market, one of our strategic growth areas. benefit our customers is not bound by
in Japan in terms of operating From next spring, we’ll be opening more Japan’s borders. After the recent riots in
revenue. Aeon Group, which stores of this kind in Japan with new China, all our Chinese employees worked
formats and services to further meet the hard to restore the stores as they believed
comprises 200 companies, recently
interests of our senior customers. opening the stores as early as possible
established a new management would benefit their customers. Not a single
system based on separate How are you benefitting from group employee thought about leaving. I was
synergies? extremely moved to see the scene in China,
headquarters for Japan, China and
which was exactly what I saw in Tohoku
ASEAN and is looking to repeat the Our financial services, for instance, allow after the disaster. I think the outcome
success in other Asian markets. us to identify individual (retail) customers. would be very different depending on the
By combining our credit card and retail organisation. You can physically repair
businesses, we have recently completed a buildings but you cannot restore the stores
test in Japan to operate a high-level if your employees do not return.
customer relationship management system
that would allow us to personalise Last but not least, what do you identify
promotion efforts. The card business also as the ultimate value that Aeon is
helps in the running of loyalty bringing to Asia outside Japan?
programmes. We seek to become the
What are your expectations for growth number one player in the credit card Making products and services available
in Asian markets? business for the new middle class in Asia. that can help to improve people’s quality of
So we believe these synergies will be highly life is important. The paramount issue,
At the moment, we earn around 80% of our relevant to the success of our retail business however, is trust—customers need to
total retail revenue from the Japanese in Asian markets. believe you will never lie to them. In the
market. We have a plan to secure Japanese term, it’s about “establishing
exponential growth in the Chinese and You have been very successful in Japan Noren” (curtain-like cloths that are
ASEAN markets, with the aim to bring with Topvalu, your private label. How do traditionally hung over the entrance of
earnings from these markets to the same you plan to take this success abroad? Japanese stores). This can be translated as
level as those in Japan by around 2020. building a brand but “Noren” in fact carries
We’ll need around 13-15% annual growth Until recently, we have been bringing the more meaning—it’s the trust itself, built
in Asian markets to meet this goal. At the Topvalu products that we sell in Japan to between customers and the retailer.
moment, we are still largely focused on the Chinese market. But of course it makes
making the necessary up-front more sense to develop and sell products I’m talking about the old Japanese ethics of
investments. according to local preferences. We are thus commerce, the origins of Japan’s customer-
advancing our localisation effort in China oriented services—which include practices
What do you identify as Aeon’s and other Asian markets, and making which emerged during the Edo Period, such
competitive edge that would allow it to progress towards designing, producing and as making small units available according
experience such high growth in Asia? selling locally. Localisation efforts by to customers’ needs, and fixing and listing
region within respective countries also will set prices (versus selling with variable
One of the biggest changes in Asia is the be important for products such as food as prices). I would say these are expressions of
rapid growth of the middle class. And the people’s tastes tend to vary by region. democracy and justice. And there isn’t a
middle class is the consumer group that we
customer anywhere in the world who does
have always served—for 250 years, since Can you share your lessons learnt from not enjoy being treated fairly and with
we started as a trader of Kimono fabrics in last year’s crisis in Japan? goodwill—these are universally
the Edo Period. We have deep experience in
appreciated values.
servicing this consumer group, as well as It’s important to be able to gather
growing alongside them, as they grow. information and make decisions quickly,
12 PwC

15. Section 1: Retail
In Hong Kong, demand for food,
Food, beverages and tobacco beverages and tobacco is forecast to
grow by a nominal 0.9% in 2012, lower
than an earlier forecast of 2.8%, partly
due to the high base effect created by
2011’s strong growth of 6.7%, and
Asia’s large populations and growing In India, the market demand for food, partly because of the high prices of
incomes mean that the region will beverages and tobacco will rise 4.7% in food imports, which dominate the
remain the world’s largest food market, 2012. Although inflation and prices sector. Demand will contract by 0.2%
worth US$4.24 trillion in 2012 and set remain high they are easing from the in 2013 and grow moderately during
to grow to US$6.92 trillion by 2016. In alarming heights seen in 2011. the rest of the forecast period.
China, market demand for food, Demand growth will remain positive Imported food products with strong
beverages and tobacco will grow at through the forecast period, ranging quality credentials will see rapid
2.2% during 2012, given high inflation between 2.7% and 4.7%. Rising growth in sales in 2012-16, as
and rising food prices. Demand growth household incomes, increasing consumer fears regarding the quality
will recover to 2.9% in 2013, and then urbanisation and changing lifestyles of food imports from mainland China
range between 2.2% and 2.8% for the will aid demand for packaged food, will increase the pressure on retailers
rest of the forecast period. Quality which has been growing strongly. As and restaurants to source more
control is a major problem for the India has South Asia’s lowest spending products from other countries20.
sector. Despite government efforts, per head on packaged food, the sector
there is likely to be little progress in holds strong growth potential in In Taiwan, market demand for food,
addressing this complex problem 2012-16 as incomes increase18. India’s beverages and tobacco will grow at
during the forecast period. More wellness products market also offers only 0.3% in 2012, as the island’s
sophisticated first-tier markets will see considerable potential. According to an trade-dependent economy slows on
a rapid rise in consumption of August 2012 report19, it grew 20% in weakening global demand. Growth
imported foreign food products in 2011, to Rs590 billion (US$12.6 will remain sluggish at 0.9% in 2013
2012-16, as consumers try new billion), but still represents under 4% and will pick up only moderately to
cuisines and seek safer food16. of overall consumer expenditure. The between 1.6% and 2.0% for the rest of
report forecasts this market to grow at the forecast period.
Japan is the world’s third-largest food a compound annual growth rate
market after the US and China, with (CAGR) of 18-20% over the next three
retail food sales estimated at US$523 years, reaching Rs950 billion (US$18.7
billion in 2011. However, the market’s billion) by 2014, driven by a number of
maturity, deflationary pressures in the factors, including increasing health
sector and strong competition will awareness, interest in preventive care,
keep sales growth weak. Demand in increased interest from male customers
the food, beverages and tobacco and the growing aspirations of
category will grow at only 1.4% in consumers in smaller towns.
2012, given Japan’s troubled economy,
cautious buying sentiment and
concerns about food safety following
last year’s major earthquake and
nuclear crisis. Demand growth will
slow further in 2013, to 1.0%, and will
remain weak through the forecast
period. Japan’s ageing population will
boost the health food (or functional
food) segment in the medium term.
Japan is the world’s second-largest
market for functional food after the
US, and its range of functional foods is
probably the world’s largest and most
innovative17.
2013 Outlook for the Retail and Consumer Products Sector in Asia 13

16. Section 1: Retail
Private label
Private-label sales continue to chart Indian retailers have been quick to between 16% and 42%28. After an
slow growth across Asia. According to latch on to the private-label strategy, initial blitz of own-label products,
London-based L.E.K. Consulting, even though the sector was opened to India’s retailers are now consolidating
private labels have a much lower share modern retailers only a few years ago. their portfolios and aiming to increase
of supermarket sales in Asia than in In developed countries, private labels market share. Aditya Birla Retail’s
developed countries, ranging from less took decades to take off and were More chain launched only 15 products
than 1% in Indonesia to between 1.5% introduced only after the retail sector last year, down from 25 in 2009. It
and 30% in Thailand, Malaysia, South was well-developed. Big domestic discontinued several brands, and
Korea, Singapore and Taiwan, and retailers including the Future Group, instead used just one brand across all
approximately 6% in Hong Kong21. Bharti Wal-Mart Retail (a joint venture products. It also removed high-
Separate data from Euromonitor show with Wal-Mart), Aditya Birla Retail, investment personal care products
the share of private-label goods in Reliance Retail, Spencer’s Retail and from its portfolio29.
India at 11% and at 4% in China22. As Dubai-based Landmark Group’s Spar
Asia’s current environment of high Hypermarket, all developed their own Asia’s players may even be able to
inflation and rising prices drives private-label brands about five years up-end some conventional wisdom
customers to seek value, private labels ago, as they began building their retail about the private-label business. For
have new opportunities to increase networks. The Future Group, India’s example, while private labels usually
their share (they are cheaper than largest retailer, says that since India is succeed better in products with low
other brands because less is spent on under-branded and under-penetrated differentiation, India’s Croma chain of
marketing, distribution and in many categories, it makes sense to multi-brand electronics stores sells its
advertising; retailers push their own build own-brands while categories are own brand of durables from
brands with excellent in-store themselves developing25. refrigerators to hair dryers. The
placements and promotions). To retailer expects to almost double its
overcome Asian consumers’ suspicions In-house brands now account for revenues from its own brands to Rs2.5
about the quality and safety of private 12-15% of sales and over 20-25% of billion (US$48.4 million) in FY13. The
labels, retailers are upgrading their profits for most Indian retailers26. brand also benefits from the excellent
packaging and promoting their Retailers have focused on good reputation of its parent, the Tata
international backing where possible. packaging, attractive pricing and Group30.
strategic in-store placement to attract
For example, the UK’s Tesco sells its consumers. According to market
Tesco private-label products at its 660 researcher Nielsen, Indian shoppers
Tesco Lotus stores across Thailand and spend over US$100 million on private-
in other Asian countries23, while label items per year and this is set to
France’s Carrefour and the US’s rise to US$500 million by 201527.
Wal-Mart do the same at their stores
across Asia. Many of Asia’s local At the networks of big retailers, these
players have also developed successful products now outsell several national
own-brands in recent years, including brands in some categories. According
some of China’s largest retailers. to data from Nielsen for July-
Retailer Lianhua Supermarket September 2011, at the Future Group’s
Holdings, which by end -2011 had Big Bazaar and Bharti Retail’s Easy Day
5,233 hypermarkets, supermarkets outlets, these retailers’ own private-
and convenience stores in 19 provinces label floor cleaners account for over
in China, has also developed its own 50% of all floor cleaner sales, while
private-label business24. their packaged wheat flour, rice, tea,
spices and salty snacks take shares of
14 PwC

17. Section 1: Retail
Fashion and apparel
Asia’s fashion and apparel market clothing spend will rise throughout
growth will continue to lead global 2012-16, driven by growing personal Key findings
growth through 2012-16. In 2012, disposable income and higher interest • The gap in demand for fashion
nominal clothing market demand in in fashion apparel. Online apparel and apparel between Asia and
Asia and Australasia, at US$199.49 retailing will become an important the West will widen
billion, will continue to surpass market segment during the forecast substantially, with demand in
demand in both Western Europe and period31. Asia growing 3.8% in 2013.
North America and that gap will widen
substantially during the forecast • India will be the star performer,
In Hong Kong, demand in 2012 will
period (see Fig 9). In 2012, demand in growing by 9.4% in 2012, with
grow at 2.8%, on the higher base of
Asia will rise 4.4%. That is lower than sales driven by the expanding
8.5% in 2011. Robust demand will
an earlier forecast of 5.1%, partly population of young people,
continue during the forecast period,
because of a higher base created by rising awareness of
with sales rising steadily through to
2011’s demand growth of 5.3% (higher international fashion and an
2016. Despite very high rents, foreign
than earlier projections of 4.8%) and influx of foreign brands. China
players will continue to enter the local
partly a result of slower economic will follow behind with 7.9%
apparel retailing market, both to tap
growth in the region. growth.
increasing local demand and to
capitalise on the rising number • Fast fashion brands are
Demand in China is forecast to grow at mainland-Chinese tourists shopping in expanding rapidly in Asia but
7.9% in 2012, lower than a previously Hong Kong32. face stiff local competition.
expected 8.4%, given the slowing
economy, high inflation and high
prices. Still, consumer demand and
Figure 8: Clothing: Market demand growth (% real change pa)
Territory 2009 2010 2011 2012 2013 2014 2015 2016
Asia and Australasia 1.9 5.3 5.3 4.4 3.8 4.5 4.8 5.1
China 10.5 8.5 7.8 7.9 7.5 8.8 8.4 8.1
Hong Kong -1.4 6.3 8.5 2.8 1.7 2.6 3.0 2.9
India 7.8 6.2 5.1 9.4 7.2 7.7 9.0 1.3
Japan -1.3 2.3 -0.2 1.0 0.6 0.9 0.7 0.7
Taiwan 0.4 3.6 3.0 1.1 1.8 2.6 3.1 3.0
Source: Economist Intelligence Unit
Figures for 2012 onwards are forecasts. Prior years are actuals or estimates.
2013 Outlook for the Retail and Consumer Products Sector in Asia 15

18. Section 1: Retail
In India, demand for apparel in 2012 is In Japan, clothing demand will grow
forecast to grow at 9.4%, against an only 1.0% in 2012, lower than an
earlier estimate of 8.7%. Although high earlier forecast of 1.5%. Although
inflation, rising prices and a slowing reconstruction spending will support
economy may persist in the short term, limited economic growth in 2012,
clothing sales will nevertheless rise sluggish wage growth will depress
rapidly during the forecast period, consumer sentiment in 2012 and
from US$7.38 billion in 2011, to through the forecast period. During
US$13.52 billion in 2016, driven by a 2012-16, private consumption is
growing population of young people, expected to rise by less than 1% a year
rising awareness of international on average. However, clothing sales
fashion, and an influx of foreign will continue to be the most important
brands. Disposable income will treble category of retail sales (excluding food
from US$1 billion in 2012 to US$3 and beverages) in 2012-16, despite
billion in 2016. However, the market negligible growth in yen terms35.
will remain extremely competitive, on
proliferation of ready-to-wear apparel
shops and as more foreign companies
enter the Indian market33. Figure 9: Clothing: Market demand (nominal US$ million)
Taiwan’s clothing market is performing 300,000
moderately. Demand growth is forecast
at 1.1% in 2012, lower than an earlier
projection of 3.9%. The global 250,000
economic slowdown in 2012 is
expected to drag down the export-
dependent island’s real GDP growth to 200,000
1.3% this year. However, demand will
improve during the rest of the forecast Asia and
period as GDP growth rebounds, 150,000 Australasia
private consumption expands steadily
and the inflow of Chinese tourists North
100,000 America
grows34.
Western
50,000 Europe
0
2009 2010 2011 2012 2013 2014 2015 2016
Source: Economist Intelligence Unit
Figure 10: Clothing: Market demand (nominal US$ million)
Territory 2009 2010 2011 2012 2013 2014 2015 2016
China 35,370 41,173 48,893 56,444 64,333 74,563 85,480 98,038
Hong Kong 37,913 40,596 45,726 48,732 51,710 55,129 58,852 62,782
India 5,397 6,603 7,376 7,755 9,210 10,879 12,602 13,529
Japan 24,118 25,861 28,079 28,005 26,788 25,468 25,001 24,395
Taiwan 3,274 3,568 3,977 4,035 4,186 4,400 4,669 4,917
Source: Economist Intelligence Unit
Figures for 2012 onwards are forecasts. Prior years are actuals or estimates.
16 PwC

19. Section 1: Retail
Fast fashion expands
aggressively
Under pressure from poor performance
in Western markets and rising input
costs, numerous international fast
fashion brands are hoping to cash in on
Asia’s young demographic and rising
affluence. The fast fashion industry
relies on bulk production to bring
affordably-priced fashion to market in
quick cycles. Fast fashion’s ‘cheap chic’
approach plays well with Asia’s young,
upwardly mobile customers who have
fast-changing tastes and a hunger for
brands but an eye on affordability.
The world’s largest fast fashion retailer,
Spain’s Inditex, owner of the Zara
brand, and many of its competitors,
such as Uniqlo of Japan and H&M of
Sweden, have established themselves
in Asia and are expanding aggressively. clothing retailer, has one store in Japan China, too, has strong home-grown
Inditex has 5,527 stores around the and opened its first China store in May apparel brands. For example,
world including 300 in China, where 2012. US retailer Forever 21 also Metersbonwe has over 3,000
it’s one of the most successful foreign opened its first stores in Hong Kong branches42 and a presence in the
retailers. It expects to have 425 stores and Beijing in 201240. smallest of Chinese cities. According to
across 50 Chinese cities by end-201236. Euromonitor, it is China’s third-largest
However, these companies will face apparel brand behind Nike and local
Japan’s Fast Retailing, which owns formidable competition from local sportswear brand Anta. Metersbonwe
Uniqlo, already has 136 stores in players, who have the advantage of now plans to expand into London,
Greater China and 181 in the rest of Asia’s long-standing strength in Paris, New York and Milan43. Anta had
Asia. It now plans to add 1,000 new textiles, an understanding of local 7,807 Anta stores in China as of June
stores in each of those markets over the tastes, years of local experience, 2012 and says it will continue to
next 10 years, seeing great potential in established distribution networks and expand, though at a ‘slower’ pace of
middle class consumers in China, an existing real estate bank. Hong 100 new stores in 201244. China’s
Taiwan, Hong Kong, the ASEAN Kong, for example, has a strong set of Trendy International Group has 300
nations and India37. US fashion brand local apparel brands such as Giordano, directly owned stores and hundreds of
Tommy Hilfiger plans to open 500 Baleno, Bossini, I.T and Esprit. These franchises for its four brands, including
stores in India over the next five years companies will expand strongly on the its largest, Ochirly. JNBY, established
through a local joint venture; it already Chinese mainland and in Southeast in 1994, runs more than 600
has 58 franchise stores and over 60 Asia in 2012-16, and in some cases also franchised stores across China45.
shops-in-shops38. American retailer in EU markets. Hong Kong’s Li & Fung,
Gap is targeting 20 new stores in Hong among the world’s biggest supply-chain
Kong and mainland China by February management companies, is moving
2013, raising its store count there to into apparel retailing and has bought
4539. New companies are also joining several Western clothing retailers,
the rush. Topshop, owned by the marketers and brands to market to
Arcadia group, the UK’s largest Chinese customers41.
2013 Outlook for the Retail and Consumer Products Sector in Asia 17

20. Section 1: Retail
Online retailing
Key findings
• Asia will lead the world in business-to-consumer e-commerce sales from
2013 onwards, accounting for a 41.4% share of the business by 2016.
• Recognising the strategic importance of online retailing as a new
distribution channel, traditional retailers are expanding their own online
presence in Asia.
• Luxury companies are overcoming their fears that online sales will
compromise their high-end image. Luxury accessory maker Coach (US)
launched its first official online store in China on Taobao Mall in December
2011.
Online retailing will grow rapidly in Infrastructure growth will aid a swift
Asia during 2012-16, aided by rise in Asian online retailing.
increased broadband and mobile- According to industry intelligence
phone penetration, the spread of provider eMarketer, in 2012 the
smartphones and tablet computers, Asia-Pacific region will account for
and improvements in payments and 31.1% of B2C e-commerce sales
logistics infrastructure. Asian globally, second only to North
countries are frantically increasing America’s 33.4% and higher than
access to the internet and mobile Western Europe’s 26.2%. From 2013
phones. In 2011, China added 30 onwards, Asia will lead the world in
million fixed-broadband subscriptions, such sales, with a 41.4% share by
half the total subscriptions added 2016, when China’s slice of the pie will
worldwide, while Singapore and the rise to 23.4%, from 9.9% in 201248.
Republic of Korea had more mobile-
broadband subscriptions than In 2012, the internet penetration rate
inhabitants46. As of December 2011, in China is forecast to be 42.8 per 100
26.2% of Asia’s population had people49. According to Chinese
internet access, accounting for 44.8% research firm Analysys International,
of the world’s internet users47.
18 PwC

21. Section 1: Retail
China’s B2C e-commerce transactions India’s internet penetration is forecast Taiwan’s high internet penetration of
grew 73% to RMB81.87 billion to be a low 10.6 subscribers per 100 80.4 subscribers per 100 people60 and
(US$13 billion) in the first quarter of people in 2012, but its 129 million high smartphone usage will aid growth
2012, and are expected to reach users will represent the second-highest of its e-commerce market, which the
RMB450 billion (US$72 billion) for all online population in Asia57. Swift Institute for Information Industry
of 201250. US-based Boston Consulting growth in internet access, broadband expects to grow by 20% in 2012, after
Group estimates that e-commerce sales services and mobile internet access growing by an estimated 25% in
in China will account for 7.4% of total could rapidly change India’s online 201161. However, given Taiwan’s small
retail sales by 201551. retail landscape. Meanwhile, online population, online sales growth will
retailers in India are adopting concepts likely slow down as the market
Hong Kong’s current high internet such as cash-on-delivery to overcome approaches saturation in the latter part
penetration of 78 subscribers per 100 obstacles such as low usage of credit of the forecast period62. An obvious
people in 201252, its densely packed cards. Overall, online retail revenues growth market for Taiwan’s
population (which makes delivery of in India are projected to increase by e-commerce businesses is mainland
goods more efficient) and the quick more than five times in the next four China, but many regulatory
spread of smartphones make it a years, from an estimated US$1.6 restrictions on the integration of the
promising prospect for online retail. billion in 2012 to US$8.8 billion in two markets remain in place.
According to a survey from online 2016, according to Forrester
payments firm Paypal, Hong Kong’s Research58. M-commerce may grow
online shopping value reached US$1.9 strongly since mobile-phone usage is
billion in 2011 and is expected to touch rising quicker than fixed internet
US$2.5 billion by 201553. Offline access, while innovative offerings like
retailers will still thrive since Hong mobile wallet payment services are
Kong’s shoppers continue to enjoy also increasing. India had 893.84
physical shopping and searching for million mobile subscribers at end-
good deals. December 2011, including 292 million
in rural India, and a wireless
Japan offers huge potential for online penetration of 74.15%. According to
and mobile shopping. In 2012 it is the Internet and Mobile Association of
forecast to have 82.8 internet India, India’s overall e-commerce
connections per 100 people54 and a market grew 47% to around Rs460
dynamic mobile-telecommunications billion (US$9.2 billion) in 201159. The
sector. In 2011 roughly 20% of online government’s recent announcement
retailers’ sales were made on that it would further open the retail
smartphones and m-commerce will sector to foreign investment did not
continue to grow. While the largest include e-commerce.
online retailers in Japan are general
shopping sites like Rakuten, a local
firm, and Amazon.jp, the local
subsidiary of US-based Amazon,
specialised online retailers are
increasing in number and growing
quickly. For example locondo.jp sells
shoes and handbags55. According to
Forrester Research, e-commerce sales
in Japan will grow from US$63.9
billion in 2012 to US$97.6 billion in
201656.
2013 Outlook for the Retail and Consumer Products Sector in Asia 19

22. Section 1: Retail
Q&A with John Lo, CFO & Senior Vice President, Tencent
Platform, Online Games, etc.), Wireless users shopping information while mobile
Value-added Services, Online Advertising payment facilitates the completion of the
and e-Commerce transactions. The payment procedure on site. We have
user-paid revenue model and high partnered with various offline merchants
cash-generative nature of our internet and retailers to experiment with O2O
business enabled us to weather the marketing opportunities. Recently, we have
economic downturn in 2008/09 and also launched “QQ Buy” apps for iPhone
maintain steady growth in both operating and Android phones to offer e-commerce
and financial performance. We aim to services on mobile devices. As 3G
further diversify our revenue base and infrastructure becomes more well-
achieve long-term sustainable growth established and smartphone penetration
through investment in our platforms, R&D increases further, we believe there is a huge
and new initiatives. We are now in the early growth potential in mobile commerce.
stage of developing our e-Commerce
business, which accounted for 8% of our Tencent’s internet platforms have
total revenue in Q2 of 2012. brought together the largest internet
Established in 1998, Tencent community in China. What has been the
provides a comprehensive range Our primary goal for e-commerce is to biggest factor in your success?
build a consumer-oriented platform which
of Internet and wireless value- delivers quality services and a Tencent has built a strong social
added services. Through its various differentiated user experience to meet the infrastructure in China which offers a
online platforms, including Instant changing needs and growing demands of diversified range of products from QQ IM
our customers for rapid delivery, (instant messaging) to QQ Mail (email),
Messaging QQ, QQ.com, the QQ competitive prices, better product choices social networks Qzone and Pengyou, social
Game Platform, social networking and better after-sales services. These are media Tencent Microblog and smartphone-
service Qzone and wireless portal, also the challenges that e-commerce based social communication platform
companies have to address. We will Weixin. We believe our success stems from
Tencent services the largest online continue to leverage our multiple platform our focus on user experience. Leveraging
community in China and fulfills the advantages and deep understanding of our on our huge QQ IM user base (784 million
user’s needs for communication, users’ needs to customise a differentiated monthly active user accounts as of Q3 of
online shopping experience for customers. 2012), we are able to create a strong
information, entertainment and community effect for our users. All these
e-Commerce on the Internet. Tencent’s e-commerce site PaiPai has social communications services are closely
numerous categories ranging from integrated with each other with one single
There is a lot of concern about the sports to moms and babies to red login ID. Users can share their own social
economic slowdown in China. What are packets. Which areas are seeing the graph and synchronise comments and
your expectations for growth in the fastest growth? photo uploads across these platforms. Users
coming year? can also enjoy unified experience across PC
We are building a new e-commerce platform, and mobile terminals.
The macroeconomic environment in China buy.qq.com, to host our B2C and small- and
is challenging but we remain optimistic on medium-sized enterprise-to-consumer What impact is online communication
the growth of the e-commerce market. (SME2C) marketplaces, lifestyle services (e.g. (interactive communities such as
Currently, online shopping sales account hotel booking and ticketing) and offline-to- QQ.com, and social networking
for around 5% of total retail spending in online (O2O) services. Paipai will focus on the services) having on consumer buying
China, representing much room for growth consumer-to-consumer marketplace under decisions in China? Are consumer goods
compared to other developed markets like the umbrella of buy.qq.com. We see strong companies prepared for this?
the United States. In fact, the US has been growth in our overall e-commerce business
across all product categories like 3C products From a merchant perspective, social
experiencing a faster rate of growth for its
(ComputerCommunicationsConsumer networks are a good platform to access
online retail sales than offline sales during
Electronic), and believe B2C business models potential customers and to enable precise
the past decade. According to iResearch,
can better address the increasing demands of user targeting and CRM (customer
the average growth rate of China’s online
online shoppers. Hence, in addition to the relationship management). At the same
shopping market is expected to be around
development of Paipai.com, we will focus on time, users are highly engaged in social
30% in the next 3-5 years.
expanding our principal business and B2C networks and can share virally their
The China e-commerce market is open platforms in order to capture the reviews on products and shopping
growing exponentially. What is the growing demands in this area. experiences with their friends. Nowadays,
biggest challenge for Tencent in keeping both online and offline retailers are
up with this growth? How are you What are Tencent’s expectations for increasingly using social networking
dealing with this challenge? growth in the mobile commerce market services (SNS) to build brand awareness
in China? and user loyalty. Leveraging the success of
Tencent has a diversified business model our SNS platforms, Tencent is also
which is built upon our huge instant Mobile commerce is not only a natural partnering with brand advertisers and
messaging user base and traffic. We extension from the desktop, it actually merchant partners to broaden access to
generate revenue from four major presents more potential in terms of target customers for brand building and
businesses, namely internet value-added business models and monetisation. For user loyalty campaigns.
service (including Community and Open example, location-based services offer
20 PwC

23. Section 1: Retail
Traditional retailers move Foreign offline retailers are also recently launched Minitiao.com, an
online reconsidering their past disregard for e-commerce website for Japanese and
Recognising the strategic importance online Asian sales. In China, Wal-Mart South Korean goods including
of online retailing as a new upped its stake in online grocery store cosmetics and apparel brands, as well
distribution channel, traditional Yihaodian to a majority holding in as toys and dry goods67.
retailers are expanding their own February 201265. In May 2012, American
online presence in Asia. China’s largest retail giant Macy’s announced an Even luxury companies are overcoming
domestic appliance retailer and alliance with local e-tailer VIP Stores, their fears that online sales will
leading multi-channel retailer, Suning, owner of Jiapin.com and Omei.com, compromise their high-end image.
derived around 4% of its 2011 both multi-brand luxury e-tailers. It is They have been alerted by the Asian
revenues from Suning Yigou, its planning a dedicated section on Omei. success of online luxury stores,
e-commerce business63. Many com in 2013. Macy’s has been selling including the US Gilt Groupe and
traditional retailers across Asia are online to mainland Chinese consumers Brands4friends.jp in Japan, Hong
now partnering with e-tailers in since June 2011, using fulfilment Kong’s Glamour Sales (operating in
symbiotic relationships, increasing services from FiftyOne, a US company China and Japan), and excluzen.com
sales without investing in a separate that helps retailers serve clients in and 99labels.com in India, which offer
online business. For example, India’s foreign markets without investing in heavily-discounted luxury goods68.
naaptol.com was set up in 2008 as a infrastructure66. Others, such as Luxury accessory-maker Coach (US)
comparison website, but after 18 Banana Republic and Marks & Spencer, launched its first official online store in
months without revenues, it tied up will now begin to deliver to Hong Kong China on Taobao Mall in a one-month
with suppliers to advertise their (and some other Asian countries) from trial in December 201169, which
products. It now generates business their home markets. recorded 3.5 million visitors but only
worth Rs20 million (US$376,000) a limited sales. Coach is now reportedly
day, earning commissions of 2-20% of Scores of Japanese and South Korean planning to launch its own Chinese
sales from sellers. Amazon has also retailers, whose brands are extremely e-commerce platform by end-2012. In
opened in India in its traditional popular in China, already use Chinese- March 2012, US-based luxury retailer
format — as a portal through which to owned portals to sell directly to Neiman Marcus Group invested US$28
buy goods from numerous retailers mainland consumers. 360Buy, among million for a stake in Glamour Sales, its
— called junglee.com64. China’s three largest online retailers, first international foray, and hopes to
launch an online shopping website by
end-2012 to enter the Chinese luxury
market70.
2013 Outlook for the Retail and Consumer Products Sector in Asia 21

24. Section 2: Consumer goods
Section 2:
Consumer goods
Across Asia, economic growth is slowing, while food inflation remains worryingly
high. These trends, coupled with high interest rates on consumer loans, mean that
consumers are allocating their budgets more carefully and looking for value across
categories. But underlying fundamentals—rising incomes and relatively strong
growth—remain in place. Private consumption will continue to rise, feeding
demand for everything from shampoo to luxury watches. As companies of all
stripes continue their headlong expansions, modern retail infrastructure is
improving quickly in many countries.
For consumer goods companies, the good news is tempered by numerous
challenges, from cut-throat competition to the need to serve widely different
categories of customers to the daunting task of managing their enormous
expansions. In response, companies are planning their expansions more
judiciously, partnering with local players, better targeting customer groups, and
exploring online sales and private labels to provide value.
22 PwC