Global Times | August 22, 2011

The income of Chinese retailers increased by 20 percent year-on-year in 2010, showing a recovery from the 2008 financial crisis, but the profit margin reduced by 15 percent due to increased costs, according to a report released Saturday by PricewaterhouseCoopers (PwC) and China Chain Store and Franchise Association.

The year-on-year income of supermarkets grew by 13 percent in 2010 and that of exclusive stores by 23.5 percent, according to PwC's Financial Performance of the Retail Sector 2010, based on a survey of 68 listed retail companies in China.

Increased national consumption and retail industry's expansion into smaller cities and rural areas are the factors driving the sustained development of China's retail industry, Zhou Binhua, associate director of PwC China Mergers, Acquisitions and Private Equity and author of the report, said. 

However, retailers are generally less optimistic about the future, the report said. Gross profit recovered to the pre-financial crisis levels, but fixed costs of retailers have shown an obvious increase to pose a major challenge for retailers.

Data shows that the rental cost for retailers increased by 30 percent on average and labor cost by 15 percent in 2010. High staff turnover also led to increased cost for recruitment and training, the report said.

"The phenomena of rising gross income with little or no profits in China's retail industry has existed for a long time, but it has become more obvious since 2008 as various costs, especially rent and power charges, increased greatly to offset the income, so the profit margin didn't grow in line with the growth in gross income," Wang Xianqing, director of the Institute of Economics at Guangdong University of Business Studies, told the Global Times on Sunday.

The Consumer Confidence Index has dropped and the sales of retail consumer goods have grown at a slower pace since the second half of 2010. The sales of retail consumer goods grew by 16.8 percent in the first half of 2011, 1.4 percentage points higher than the first half of 2010, the report shows.

This reflects the impact of continuing inflation on consumers' confidence, which is a trend that cannot be fundamentally changed under the current investment-driven economic structure, said Yang Qingsong, deputy secretary-general of China Chain Store and Franchise Association.

Zhou believes that department stores and exclusive stores are growing while supermarkets have been sluggish.

"China's supermarket industry would possibly be dominated by several big players, as in foreign countries, in two years. Actually, consolidation of supermarkets has already begun," said Zhou.

"I don't think the supermarket industry can develop so rapidly in China because of regional protectionism, but consolidation is the trend. Big supermarkets are making acquisitions nationwide, and gradually small ones will be closed down," Wang said.

原标题：Retail industry profit declines

Global Times | August 22, 2011

采写：Chen Dujuan 陈杜娟