7 Oct 2015
Wuhan: Profile of a Consumer Market
1. Economic Overview and Development Planning
Wuhan is the provincial capital of Hubei. Located in the eastern part of the province and right at the centre of China, it is the economic, financial, trading, science and information exchange hub of central China, as well as the most affluent provincial capital among the country’s six central provinces. It has booming automotive, electronic information, equipment manufacturing, food and tobacco, energy and environmental protection sectors. In recent years, the concept of ‘Wuhan urban circle’ has been raised in order that closer cooperation in various domains can be forged with the eight neighbouring cities of Huangshi, Xiaogan, Huanggang, Ezhou, Xianning, Xiantao, Qianjiang and Tianmen.
In 2014, Wuhan’s GDP was Rmb1,006.9 billion, a year-on-year growth of 9.7%. It is the first central city with GDP exceeding Rmb1 trillion, ranking 8th among all mainland cities. Calculated in terms of permanent population, the city’s per capita GDP was Rmb97,379 in 2014. Secondary industries accounted for 47.5% of Wuhan’s GDP, while tertiary industries accounted for 49%.
Compared to the coastal regions, the economy of the central region is less dependent on exports and more reliant on domestic demand. The central government’s policy of boosting the rise of the central region has accelerated the spending power here. Provincial capitals are often the major consumption centres in their respective provinces in the central region, with their consumer market share in their respective provinces far outweighing those of other cities. Wuhan, for example, has a 37% share of Hubei’s retail sales. On top of that, it is a regional distribution centre and a gateway to other places within the province and to central China.
In recent years, industrial development in Wuhan has been moving in the direction of ‘boosting multiple industries’ and ‘fostering multiple pillars’. Leading industries in the city include automotive, equipment manufacturing, electronic information, food and tobacco, energy, and environmental protection. The three major districts in the city have become important pivots of economic growth. First, the Wuhan Economic and Technological Development Zone, where great efforts are being made to build a modern automobile city, which is to become the China Wuhan Car Capital. Output value in 2014 was Rmb261.7 billion, an increase of 13.1%. Second, the Donghu Lake New Technology Development Zone, also known as China’s Optics Valley, is developing into an integrated state-level high-tech industrial base and is currently the largest production base for optic fibre cables and optic instruments on the mainland. The production of optic fibre cable here ranks first around the world, taking up a quarter of the global share and 60% of domestic production. Total industrial output value of the two major development zones was Rmb462.9 billion in 2014, an increase of 14.8% compared with the year before. Third, the six new industrial belts in suburban areas surrounding the city, which are designated as bases for industrial relocation from the coastal regions and central urban Wuhan in a move to expedite the pace of industrialisation in those areas.
Wuhan is also pushing for development of its financial sector with a view to establishing a regional financial centre. To this end, it is giving full support to the development of local financial institutions, such as Hankou Bank and Wuhan Rural Commercial Bank and the development of Wuhan Optics Valley United Property Rights Exchange into a regional market for property rights transactions. At the same time, great efforts are being made to attract domestic and foreign financial institutions to set up regional headquarters in the city. Nineteen financial institutions have set up headquarters in Wuhan as at the end of 2014.
Wuhan has been active in promoting tourism in recent years. In 2014, Wuhan received 191.27 million domestic visitors, up 12.4% over the preceding year, and 1.17 million foreign visitors, up 5.79% year-on-year. Its total income from tourism for the whole year reached Rmb194.9 billion, a growth of 15.4%, with domestic visitors being the main source of this income. In a move to strengthen the competitiveness of the local tourism industry, Wuhan has also redoubled its environmental conservation efforts, which include construction of an ‘eco scenic’ area near Donghu Lake, as well as restoration Wuchang Ancient City and historical sites in the former international settlement in Hankou.
Wuhan is devoting great efforts to building the city into a leading advanced manufacturing industry centre, modern services centre, integrated high-tech industrial base, and state-level integrated transport hub in China. Steps are being taken to accelerate the pace of establishing a national independent innovation demonstration zone, and to strengthen and enhance its position and functions as a central city in Central China. In recent years, Wuhan proposed the concept of ‘Great Wuhan’, planning for the future development blueprint of Wuhan -- ‘Wuhan 2049’. After Beijing and Shenzhen, Wuhan is the third mainland city in a long-term urban planning study. According to the Wuhan 2049 Long-term Development Strategic Plan published in 2014, Wuhan will move in phases towards the goal of becoming Asia's world city, committing to the development of core functions of ‘four centres’: namely innovation centre, financial centre, trade centre, as well as high-end manufacturing centre. Wuhan’s GDP is forecast to reach Rmb3 trillion in 2030 and Rmb6 trillion in 2050.
2. Wuhan’s Consumer Market
2.1 Growth in Retail Sales
In 2014, Wuhan’s retail sales of consumer goods grew 12.7% from the previous year to Rmb436.9 billion. This shows that the retail sector of the city is well developed. As to retail sales in enterprises above a designated scale, Chinese and Western medicines grew 27.4% from the previous year, communications equipment rose 25.7%, motor vehicles was up 23.1%, building and decoration materials up 21.5%, cosmetics up 17.1%, furniture rose 17.0%, grains, food and beverages, alcoholic drinks and tobacco grew 16.5%, daily necessities up 14.5%, clothing, footwear, textile products grew 11.0%, petroleum and petroleum products grew 8.5%, household appliances and audio visual equipment increased 7.1%, and gold and silver jewellery rose 0.6%.
A comparison of 2003 and 2013 figures reveals that there had been significant increases in the ownership per 100 households of high-tech consumer electronics, such as computers, mobile phones and air-conditioners. The increase in ownership of mobile phones was particularly significant, jumping from an average of 83.4 phones per 100 households in 2003 to 230.3 phones in 2013, a growth of nearly three folds.
2.2 Per Capita Disposable Income and Consumption Expenditure
Per capita urban household disposable income in Wuhan was Rmb33,270 in 2014 and per capita consumption expenditure was Rmb22,002. According to 2013 figures, for high-income households, per capita disposable income and per capita consumption expenditure stood at Rmb58,126 and Rmb28,913 respectively.
3. Characteristics of Wuhan’s Consumer Market
3.1 Population Structure
The permanent population in Wuhan stood at 10.34 million at the end of 2014. According to China’s sixth population census, in 2010 there were 2.93 million households in the city, with an average of 2.78 members in each household, 0.39 persons fewer than the 3.17 persons in 2000.
Of the city’s population, 51.4% were male, those aged 0-14 accounted for 10% of the total population, 81.9% were 15-64, while the rest were aged 65 and above. 25.2% of Wuhan’s population have received education at college / university level or above, 54.8% have received secondary school education, and the rest have reached primary school level or below.
3.2 Characteristics of Consumers
More than 30% of customers from outside the city
It is estimated that, of the shopper traffic in Wuhan’s shopping centres, approximately 60% come from within Wuhan, 30% from other cities in Hubei province, and the rest from other provinces. Shoppers from other Hubei cities mainly come from Yichang, Ezhou, Xiangfan, Shiyan, Xiaogan and Xiantao.
Shoppers from within the Wuhan urban circle will decide on shopping destinations according to travel convenience. Those who drive their own cars would opt for destinations connecting quickly to Wuhan’s inner and outer ring roads and offering convenient parking. Those coming by intercity public transport can only move along transportation lines and would probably opt for shopping facilities near long-distance bus terminals.
Large shopping centres in favour
It is estimated that Wuhan will have more than 40 shopping malls by 2016, covering various regions of the three parts of Wuhan, and splitting residents’ consumption by region. Research reports show that Wuhan people have a higher demand for convenient transportation, shopping environment, as well as brand grades and positioning in their choice of shopping venues, especially in favour of large-scale shopping malls that offer dining and entertainment under one roof. Wuhan’s current commercial scale has been able to meet consumer demand of the local population. Improving services and the shopping environment, increasing one-stop consumption, improving transport links, increasing parking spaces and the introduction of first-tier brands are areas that would appeal to local consumers.
Metro era changing consumer habits
With the opening of several more metro lines in Wuhan, the original dotted distribution pattern of commercial districts has been linked up to form ‘metro commercial districts. Because of the convenience of the underground railway for avoiding road traffic congestion, it has dramatically improved people's spending enthusiasm. Crowds in the underground are making tremendous impact on major new and old commercial districts alike.
Habit of shopping around
As Wuhan registers gains in overall strength, the consumption of its residents has become increasingly diversified. All major brands have found their way into the city’s shopping malls and department stores. But as Wuhan is divided into three parts by the Yangtze River and the Hanshui River, different locations have formed their own commercial districts and consumers in any one commercial district will mostly limit their activities to within the same commercial district. For this, they become captive customers to different shopping centres.
Currently, the consumer group of government employees, white-collar workers, corporate elites, teachers and research institute staff members in the 25-45 age bracket are increasingly concerned with brand names. Because of the large number of commercial districts in Wuhan, brand homogeneity is obvious and also gives rise to Wuhan consumers’ habit of shopping around.
Consumer behaviour affected by promotion activities
In Wuhan, promotional activities are a main way by which merchants increase their sales and attract shoppers. Such activities include cash discounts with purchase over a certain amount, cash coupons, gifts or, bonus points with purchase, VIP card with purchase over a certain amount, and direct discounts.
During two-day weekends and public holidays, merchants often launch promotional activities under different themes, fitting in with their corporate culture or business strengths. During a major festival or holiday, the promotional activities unveiled by the merchants in print media will get more and more frenetic. Such activities have the most influence on shoppers in the same commercial district or neighbouring commercial districts and may often become consumers determining factor for the choice of shopping destinations.
It is worth noting that brands with strong sales organise fewer discount sales than ordinary brands. Every year, whenever certain well-known brand names launch a once-in-a-while sale, the response is often quite good. But these brand names are mainly those which target mid- to upmarket consumers and have a stable number of VIP customers.
Strong loyalty to world-renowned brands
Wuhan consumers adore famous brands, particularly those which are well recognised among their respective life and work circles. Generally, they get to know about international brand names from various media and information sources and learn about ordinary brands through personal experience or recommendation by friends and relatives.
Most Wuhan consumers would, within their financial means, regularly purchase branded merchandise with which they are familiar. For branded products above their consumption level, they would make purchase only on special occasions or when they receive extra income. Merchants’ promotional activities can affect the loyalty of ordinary consumers for general brands. For instance, when a certain brand offers sweeping discounts, many consumers would be tempted to try out this suitable, though unfamiliar, product.
Different consumers have different degrees of price sensitivity
In Wuhan, consumers from different consumption levels have different price sensitivity. Brand-loyal consumers are more concerned with promotional activities by their preferred brands. These consumers, while wary of any status erosion of their favourite brands due to price slashing promotions, at the same time want more price-cutting activities so that they can stock up. Such a conflicting mentality has made brands with higher market positioning particularly careful with discounting promotions.
For the majority of ordinary mid-market consumers who do not harbour much brand loyalty, but who do have definite spending power, they would be very interested in price-cutting on brands which fit in with their own consumption level and would purchase very quickly. They would pay little attention to with sweeping discounts on products with no brand image or very low brand positioning.
Fast fashion and affordable luxury becoming mainstream
The overall maturity of Wuhan’s luxury market is gradually rising. Wuhan International Plaza, with eight top luxury plus 41 international first- and second-tier famous brands, is currently the shopping facility boasting the most complete luxury brands in the central region, and having the most extensive reach and influence. Wanda Plaza, which opened on Han Street in Wuchang in the third quarter of 2014, carries a host of first-line brands, such as Mont Blanc, Dunhill, Vivian Westwood and Cerruti 1881.
However, the expansion of top luxury brands has been cautious. A number of fast fashion brands, after experiencing rapid growth over the past three years, have also slowed the pace of expansion. Affordable luxury and high-end brands have become the main force of expansion, with Michael Kors, Tory Burch and Karl Lagerfeld, opening their first stores in Wuhan. By the end of 2014, Wuhan’s fast fashion stores reached 37, ranking fifth in the country.
4. Profiles of Wuhan’s Major Commercial Districts
Wuguang is currently the oldest and busiest core commercial district in Wuhan. It is located in the middle section of Jiefang Road in Hankou and encompasses the five large shopping malls of Wuhan Plaza, Wuhan International Plaza, World Trade Plaza, New World Department Store and Wuhan International Convention and Exhibition Center shopping mall. Today, a consumption centre for high-end luxury goods has been formed around Wuhan International Plaza and New World Department Store.
Numerous shopping malls in various business formats are found here, including home appliances chain Wuhan Gongmao, Suning Appliance, Gome Electrical Appliances, Zhongbai Warehouse, Wushang Bulksale Chain Company and RT-Mart. Shopper traffic in this commercial district hits one million, a rare sight in central China. The main consumer groups here consist of elites with spending power, high-income families from prefecture-level cities in Hubei province, as well as domestic and foreign tourists. Currently, luxury brands such as Hermes, Fendi, Cartier, Gucci, and Hugo Boss have set up shops here. Geographically, the Wuguang district is like a bright pendant and the inner ring of Wuhan city is like a gold necklace.
This district is located at the oldest commercial centre of Wuhan on Zhongshan Road in Hankou. Here one can find Jianghan Road pedestrian shopping street, Wuhan Wanda Plaza, New Beauties Fashion Plaza, Zhongxin Department Store, New World Department Store Fashion Square, Grand Ocean Department Store, Wangfujing Department Store and Wal-Mart. Among these, Wanda Plaza, covering a 40,000 sqm lot with a total floor area of about 130,000 sqm, is fringed by Zhongshan Avenue, Minsheng Road, Jiaotong Road, New Beauties Fashion Plaza and Hualou Street. With five anchor stores, two pedestrian shopping streets, two leisure squares and a parking lot for 500 cars, the district is bustling with shopper traffic and brisk business.
Since the latest trends and fashions can be found in this commercial district, young seekers of chic and fad with an average age below 35 make up the bulk of its consumers. Daily shopper traffic in the vicinity of Wanda Plaza and New Beauties Fashion Plaza alone can reach as many as 700,000 to 800,000.
Wuchang - Zhongnan Road
This is one of the most important commercial districts in Wuhan, which first took shape in the early 1990s. Under Wuhan municipal government’s plan to build an economic headquarters district for Wuchang, an area of 3 sq km along Zhongnan Road and Zhongbei Road was set aside for the development of four key industries, namely finance, commerce and trade, new and high-technology, as well as tourism and leisure. The objective is to build Zhongnan Road into the financial and commercial centre of Wuchang.
Currently, in addition to Zhongshang Square, Zhongnan Commercial Building, Intime Department Store, Suning Appliance and Gome Electrical Appliances, a large number of specialty stores selling digital products can also be found in this commercial district. Consumers frequenting this district are usually mid-market shoppers looking for clothing, shoes and electronic products.
Xudong is a commercial district emerging in the last decade or so. It is dominated by supermarkets including Wal-Mart, Metro, Xudong Discount Store (徐東平價) and Wuhan Shopping Mall. With a business area of 220,000 sqm, Wuhan Shopping Mall is home to more than 1,000 specialty stores, brand-name stores, fashion accessory shops and more than 10 restaurants and cinemas. The district’s consumer group consists mainly of residents from the neighbourhood and young people of leisure. Thanks to the availability of 2,000 parking spaces, Wuhan Shopping Mall is also a favourite destination for car owners.
Yuejiazui inside Xudong district is located at the prime intersection of Wuhan’s planned Metro Line 4 and Line 7, forming a rare ‘metro economic belt’, and has arguably become a core commercial zone with the highest concentration of most up-to-date retail formats. Face Mall and Star City have opened for business in the past two years. Japan's largest home brand chain, NITORI, will open flagship stores in the Star City. In addition, H&M Group's high-end fashion brand COS, Japanese creative live store, Tokyu Hands, and famous Japanese anime licensed children’s facilities brand Doraemon theme park will also appear for the first time. Industry commentators believe that the emergence of this project will largely fill the gap in high-end shopping and family consumption in Xudong district.
Lying in the vicinity of higher education institutions such as Wuhan University, Central China Normal University and Wuhan University of Technology, this commercial district is blessed with a regular consumer group consisting of teachers of considerable spending power and college students who are avid followers of fashion. Their main shopping destinations include Chicony Square, New World Department Store Wuchang branch and Asia Trade Plaza. The front of this commercial district is the ‘Electronic Technology Street’ – a retail hub for electronic goods including mobile phones, digital cameras and computers. Computown Information Plaza, Cyber Mart and Wuhan Computer World (電腦大世界) are all found on this street, which has huge shopper traffic.
In future, the business format of Jiedaokou will follow Zhongnan Road in emphasising general merchandise and IT products retail to form a new commercial centre of unique features. Some people predict that the commercial district stretching from Jiedaokou to Guangbutun has a good chance of becoming an electronics-cum-general merchandise enclave like Huaqiangbei in Shenzhen.
Luxiang Optics Valley commercial district took shape in recent years thanks to the building up of Wuhan Optics Valley. In this commercial district there are five-star hotels, hypermarkets, deluxe cinemas and boutique-style department stores. On the trendy Optics Valley pedestrian shopping street one can find, among others, Grand Ocean Department Store, Luxiang Plaza Shopping Center, Carrefour and Zhongbai Warehouse. Because of the numerous tertiary education institutions in the neighbourhood and the continuous entry of new research institutes and high-tech companies, such as Foxconn and ChinaChips, teachers, corporate executives and researchers constitute a steady consumer group in this commercial district.
Under the development plan for Optics Valley, there will be a total area of 31.08 sq km of land for residential purposes in this commercial district, accommodating a combined population of permanent residents and migrants of one million. Optics Valley is now expanding ambitiously eastward for 80 sq km along Wuhan-Huangshi Highway to form a new Wuhan technology township spanning 130 sq km, characterised by a highly educated, highly paid population, ideal both for starting new business and residential living. With the strong presence of institutes of higher learning and high-tech enterprises, this commercial district possesses huge spending potential.
Hanyang - Zhongjiacun
This is the only long-established commercial district in Hanyang. Served by Hanyang Shopping Mall and Tongluowan Square, the district caters to the shopping needs of residents in the neighbourhood. Currently, Hanyang Shopping Mall is building Hanshang Yinzuo (漢商銀座), a large-scale commercial project with a total floor area of 130,000 sqm and financed by the Hanshang Group. Upon completion, it will comprise a high-end department store, a hypermarket, an office tower, a ‘living necessity street’ and underground car park.
In Wuhan’s first development plan for commercial outlets, Zhongjiacun is designated as a city-level commercial centre. According to survey findings, more than 300,000 passers-by and more than 100,000 vehicles use the Zhongjiacun crossroads every day while 48 public transportation routes pass through the tri-city of Wuhan.
Here, 21st Century Shopping Centre, Carrefour, and Wuhan Gongmao home appliance store serve residents in the neighbourhood. Among these, 21st Century Shopping Centre is now undertaking a five-year expansion project, transforming into a complex with a floor area of 25,000 sqm encompassing a shopping mall, a star-grade hotel, a premium office tower as well as a 168-metre high landmark building. Since all traffic from suburban Caidian into Wuhan must pass through here, prospects for this commercial district should be bright. Wuhan Mall is located in the heart of Wangjiawan commercial district in Hanyang. Covering an area of 53,000 sqm, it is the largest commercial complex in Wuhan City, bringing together Grandbuy Department Store, Wal-Mart, Jinyi Cinemas and forming a large-scale commercial cluster of shopping, culture, leisure, catering and entertainment facilities.
Central Cultural Zone
Wuhan Central Cultural Zone is located between Donghu Lake and Shahu Lake in Wuchang at the heart of Wuhan City. Wanda Group has invested Rmb50 billion to build a tourism project with culture as the core, supplemented by tourism, commerce, business and residential functions. Plans for Wuhan Central Cultural District include Han Street, Han Street Wanda Plaza, movie theme park and hotels. The aim is to bring together culture and arts, tourism and leisure, business and entertainment, offices, high-end residential and other functions.
The Central Cultural Zone is located by the Shahu Lake in Wuchang, with the cross-river tunnel linking Donghu Lake and Shahu Lake nearby. Convenient transportation has attracted a lot of consumers from Hankou to come to Han Street to shop.
Like the Central Cultural Zone, Wuhan Tiandi is also a commercial project solely developed by Shui On Properties. Drawing on the successful experience of Shanghai Xintiandi, Wuhan Tiandi aims to turn the tract of land at Yongqing under the Second Yangtze Bridge in Hankou, Wuhan into a landmark for trendiness in the city. At present, restaurants, bars and creative retailing are the mainstay of Wuhan Tiandi, which has become a favourite hangout of white-collar workers and foreigners in Wuhan during weekends and holidays.