China's real estate markets only became a stable commodity in 1992, said Henry Cheng, director and CEO of Chongbang Development Ltd. Group, Shanghai, which opened the 2.6 million-square-foot Life Hub at Daning mixed-use project in Shanghai last year.

"It's like a 15-year-old child," Cheng said. "And we know the next 15 years will be very different from the last 15." Growth will be maintained, with first-tier cities staying solid, and a ramping up of development in second-tier cities, Cheng said.

Some retailers are growing extremely rapidly, said Li Ping, chairman and president of Shanghai-based RCS Group Ltd., which has opened Papa John's and Dairy Queen units in the country. In fact, rapid expansion has been the key to his company's success. RCS now operates 75 Dairy Queen units (both kiosks and café-style stores) nationwide, but expect to open 1,000 additional locations by 2015.

"Papa John's and Dairy Queen have created a miracle, changing franchise operations in China," said Li, speaking in Mandarin translated by Cheng. In addition, Li said, he plans to reverse the expansion pattern by creating a Chinese food chain that will open worldwide by 2015.

The big-box phenomenon also has reached the country with the growth of Sport 100, a sports superstore similar to the Sports Authority, which has opened more than 40 stores in 14 major cities since its founding in 2000. Plans call for 13 more stores to open this year, and for a total of 110 stores by 2010.

"By 2009, China will be the second biggest sporting goods market in the world," said Alan Cheung, founder and CEO of Sport 100 International Holdings, Shanghai.

Despite the growth, the country remains problematic, warned Brian Castle, SVP China, of Montreal-based Ivanhoe Cambridge, which opened an office in Shanghai in 2005 to pursue investment and development in centers in China. But it isn't easy. "The pace of development and construction is enormously fast. For the last 18 months, we've been learning about China."

By 2015, the country should overtake Japan as the second largest retail economy in the world. Right now, the nation boasts just four square inches of retail space per capita. Even adjusting for realistic retail markets in the still-poor rural areas, that figure rises to just 2.5 sf per capita.

But that scarcity doesn't automatically mean success. China's Minister of Commerce reports 30% vacancy in the country's malls, and Castle suspected a figure of as much as 40% or more. "The landscape is littered with underleased, underdesigned and poorly maintained centers," Castle noted.

Still, he added, "Chinese consumers want international brands. They want value. And we think the younger generation will not be as thrifty [as their parents]. We cannot take a short-term approach to being in China."

Instant Insights /

Retailers See Expansion, Challenge in China

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