Franchise agreements remain an option for international retailers, but still others have recourse to concession arrangements. Esprit has 280 concessions to date; it started in the Chinese clothing industry in the 90s. The French retailer, Etam, made an even more impressive move with 2,000 concessions spread over China and sales increasing by 14% in 2005, group profits of US$17.2 as compared to a reported lost of US$68.2m in 2004. In September 2002, Fast Retailing Co, a Tokyo listed company, launched its first Uniglo store in Shanghai. They are now reporting a constant revenue growth and opened two new stores in Beijing in September 2005. The Zara brands, owned by Spain's Inditex set up in Hong Kong in early 2004 and are now considering seriously opening several other outlets in Shanghai and Beijing by end 2006.

The modernization and developments in the retail sector has revamped the overall retail environment, providing shoppers with new experiences. Developers are not hesitant to launch themselves in the development of modern shopping malls. Investors, on their part, are seizing any opportunity to grab their share of retail property investments as real estate and property development business hit high scores. Reputed brands are not insensible to all these happenings and feel the urge to be present in these world-class malls be it in Shanghai or Beijing.

Outlook and opportunities

China's retail industry is expected to continue on its move, increasing the strength of deal activity for the time being and until a particular sector reaches consolidation. New entrants will try to follow the paths of Gome, Wumart and Shanghai Yongle, by staying on the lookout for investors who can provide financial support to their aggressive expansion strategies, including M&A solutions. Foreign-investors investment capabilities and the restructuring of state-owned enterprises will undoubtedly create further opportunities. Pre-IPO operations will be particularly appealing to investors in the private equity category. All these developments in the retail sector also have an impact on the supplier base pushing it towards further consolidation; the real estate business, on its side, is reaping some of the benefits.

Deal activity is increasingly involving foreign retailers as market start to open up and liberalize itself. The need to take over existing stores or to benefit from relaxed business regulations with their own WOFEs is now a reality for foreign investors in the retail business. Joint Ventures are not to be written off, however. Carrefour, for example, was forced into a JV in its beginning, even if the local partners were not appropriate for this venture. It then took benefit of eased regulatory framework to shake-off its partners by acquiring their stakes in the JV. But for new entrants like Tesco, using a JV will still be a suitable solution, as it capitalises on the strength of its Chinese partners and their knowledge of the market. Local businesses are learning the market rules very quickly, and are now in better positions to impose higher valuations on their foreign counterparts entering their market. They are less likely to release control of their businesses, being more aware of their strengths and most importantly, they are aware of other financing options available.

Achieving success in Chinese retail business is not a precisely defined mechanism. Working your way through choice of the appropriate strategies is the best method, as regulations will continue to change under WTO.

The main target of M&A will continue to be transactions involving exclusively domestic companies, in turn transforming these consolidated domestic businesses into attractive acquisition targets. On the other hand, giants emerging from such expansions will obviously have greater ambitions, for example to expand and set up overseas. Gome, specialist retailer in home appliances having six stores in Hong Kong is contemplating possibilities to set up not only in South-East Asian countries, but also Europe and even US! Product overlap in the Asian market might as well give some strength to the partnerships between Chinese retailers and suppliers. The game to snatch market shares from Chinese retailers will soon leave the China playground to be played on the global market playground.