Economy and Trade

From a seller's to a buyer's market

By James A.C. Sinclair (China Daily)
Updated: 2011-06-01 10:13

Looking back on 30 years of retailing, it is difficult to fathom that China would emerge as the face of a global retail revolution. It was a time when China was just shaking off the shackles of a planned economy and the retail sector was strictly regulated. In other words, it was a different time and a different era.

Thirty years ago, commodities were scarce and a ration system was still in place. Coupons were issued not only for food and fuel, but also for bikes and televisions. Each coupon specified an item, quantity and sometimes the retail outlet as well. Meat in particular was scarce, and rationed at 0.25 kilogram per person per month, and many had to survive on vegetarian diets. Coupons ruled everything and even if you had money, you could not make purchases without coupons.

Retail was still controlled by the government and was seen only in the collectively-owned stores. A few agricultural markets continued to exist in the countryside, but they were considered "the tail of capitalism" and soon ceased to exist. The level of protection afforded to retailers, and the lack of competition between them, resulted in poor performance and consumer service. No new retail formats or service innovations were introduced for decades.

Due to the scarcity of products and the planned pricing system, it was the suppliers that really had the upper hand. Although they could not raise prices, they could choose whether to supply or not to supply, and specify the volumes they would supply. It was not uncommon for retail buyers to use backdoor relationships to get much-wanted goods.

Nevertheless, there were still Chinese brands around at the time. One that many of us fondly recollect due to its recent popularity in the West is Huili (Warrior). Back in the 1970s, Huili was the only variety of sports shoes, and in the 1980s became the fashion choice of teenagers. Priced at 36 yuan ($5.5) a pair, the shoes were so popular that wearers had to watch out that they didn't get stolen.

With policy relaxation over the past 30 years, the transformation of the retail sector has been dramatic. It began in the 1980s with the breaking of the stranglehold of the State and collectively-owned stores, leading to an influx of individual retailers and the restoration of agricultural markets. The government also took steps to abolish the procurement and sales system, and reduce the number of consumer goods that were under the purview of planned prices.

The early 1990s saw foreign retailers making their way into China, bringing with them new retail concepts, technologies and know-how. Carrefour was one of the early birds and has since been followed by several others.

While the retail sector has grown, China has also flipped from a seller's to a buyer's market. From having next to no choice, consumers are now spoilt for choice, both in terms of what to buy and where to buy. Competition between retailers has become fierce, spilling out of the big cities and cascading into the smaller cities across the nation. Retailers now have to strive to better understand consumers and satisfy their needs, and thus we are starting to see many of the world's best retail practices being adopted in China.

Though there are very few markets in the world that are as open to new ideas as China, not all retail models can simply be transplanted from the West.

James A.C. Sinclair is managing partner and a consumer & retail specialist at InterChina Consulting.

(China Daily 06/01/2011 page26)