How Can China’s Retail Industry Break Free From Destructive Involutional Competition?
Service consumption represents a blue‑ocean opportunity that merits focused attention in 2026. By 2024, China’s service consumption reached approximately RMB 18 trillion, and as a direct manifestation of structural economic transformation within consumption, this market is expected to exceed RMB 30 trillion over time. Although the sector stands at the outset of a new industry narrative, it remains in an early development phase and has not yet produced clear investment anchors.
Using retail—the core segment of service consumption—as an illustration, policy support has been steadily amplified even as competitive intensity in areas such as food delivery and e‑commerce has escalated. Under these conditions, the retail sector risks being drawn into destructive competition that erodes industry value. The central question, therefore, is how China’s retail industry can escape the “no long bull” dilemma and seize the opportunity for comprehensive renewal under the broader theme of expanding and strengthening service consumption.
Global Patterns And China’s Service Consumption Potential - In the past two years, a sequence of top‑level policies has been introduced to build an integrated support framework for service consumption. The State Council’s July 2024 guidance, Opinions On Promoting High‑Quality Development Of Service Consumption, identified cultural tourism, health, digital and green sectors as priorities while also encouraging expansion of basic consumption, stimulation of improvement‑oriented spending and cultivation of new consumption forms. Policy implementation accelerated in 2025 with a package of 48 measures in January and further detailed initiatives in September, complemented by fiscal and financial support, incentives for social capital participation and protections for rest and vacation rights.
International experience shows that as per‑capita GDP rises, consumption structures naturally shift from goods‑dominated to service‑dominated. The United States completed this transition in the 1970s, with service spending surpassing goods in 1970 and reaching 68% of consumption by 2024. Japan’s transition began in the late 1980s and, despite prolonged economic stagnation, household service spending continued to grow; by 2024 service consumption was 1.4 times goods consumption and accounted for 56% of total spending. Historical patterns indicate that per‑capita GDP around USD 10,000 is a pivotal threshold for consumption upgrading, and when it exceeds USD 15,000 service consumption typically becomes dominant.
China’s estimated per‑capita GDP reached about USD 14,000 in 2025, and service consumption already accounted for 46% of total consumption in 2024, approaching the structural inflection point. Projections by policy research institutions suggest service consumption will exceed 50% by 2030, signaling a transition to a service‑oriented consumption society. This shift is not only a natural outcome of rising incomes but also a strategic lever for overcoming the middle‑income trap and generating substantial employment, making the current policy emphasis timely.
Service Consumption Transformation Presents Retail With A Value‑Reshaping Opportunity - Demand‑side growth for service consumption is highly probable, but the sector’s slow development to date stems primarily from supply‑side constraints. The Fifteenth Five‑Year Plan’s emphasis on expanding high‑quality goods and services supply points the retail industry toward a clear transformation path. Service consumption differs from standardized goods consumption by emphasizing emotional value, personalization and experiential quality. Core service categories include traditional life services such as dining, lodging, housekeeping and education; modern services such as culture, tourism, sports, healthcare and digital offerings; and hybrid services such as instant retail and local lifestyle services. Across many consumption scenarios, service quality and experience still have substantial room for improvement, which constitutes the principal opportunity for retail transformation.
For retail specifically, the rise of service consumption can trigger a comprehensive value reshaping. China’s retail value added as a share of GDP remains lower than in major overseas markets, and supply‑side weaknesses are the principal constraint. By integrating value‑added services—delivery, after‑sales, experiential offerings—retailers can move beyond price competition and build deeper customer stickiness.
The Historical Dilemma In Retail Needs Resolution - Across supermarkets, specialty stores, e‑commerce and instant retail, competition has frequently produced value destruction. Traditional supermarkets face fragile profit models that rely heavily on channel and backend fees, functioning effectively as landlords with limited autonomy over product selection, pricing and supply‑chain management. The combined impact of e‑commerce disruption and rising consumer expectations has magnified these weaknesses. Asset turnover ratios in China’s supermarket sector are generally below two, roughly half that of leading U.S. peers, and sales per square meter lag materially behind international benchmarks.
Specialty retailers attempted to build advantages through category focus but often failed to achieve scale. Chains that once dominated specific categories, such as major appliance retailers, relied excessively on vendor rebates and channel fees without achieving deep supply‑chain integration. Many specialty chains pursued SKU expansion and rapid store growth, increasing operational complexity and undermining single‑SKU economies of scale. By contrast, successful overseas specialty retailers have concentrated on core categories, streamlined SKUs and established supply‑chain barriers.
E‑commerce, while efficient, has been subject to persistent structural turbulence. Since 2015, market shares among platforms have shifted, and the fragmented landscape has forced leading platforms to sustain heavy traffic subsidies, compressing profitability. Category segmentation has emerged, with different platforms dominating distinct product groups. Instant retail, which once represented a blue ocean, turned red in 2025 as food‑delivery competition intensified to the point that regulatory intervention became necessary to restore balance.
Reconstructing Retail From First Principles - Retail evolution depends on continuous deconstruction and reconstruction of the “people, goods and places” equation, with success rooted in lowering transaction costs and improving circulation efficiency. The essence of outstanding retail is the creation and scalable replication of an efficiency model. Walmart’s enduring success illustrates this principle: by prioritizing consumer value—reducing costs, accelerating turnover and optimizing experience—Walmart built an efficiency model that it iteratively refined and replicated across formats and geographies, achieving resilient adaptability across membership warehouse, global and omnichannel strategies.
In the service consumption era, competition shifts from pure product comparison to an integrated contest of product, service and experience. Examples in China show that retailers emphasizing experience and service can achieve superior outcomes. Sam’s Club China has sustained annual growth above 9% with average single‑store sales reaching RMB 1.7 billion, while Pangdonglai’s success is closely tied to an intensive focus on customer experience, offering dozens of complimentary services that span appliance testing, jewelry cleaning and garment alteration. International retailers such as Target and Muji similarly extend in‑store services to lengthen customer dwell time and provide one‑stop lifestyle solutions. These experiential services not only raise satisfaction but also create differentiated competitive advantages that Chinese retailers must cultivate.
Early Signals Of A New Direction - Experience in mature markets demonstrates that service consumption can drive growth, employment and a shift from transactional sales to value creation. China’s retail outlook is moving from channel competition toward a contest of efficiency and service. Firms that align with service consumption trends, preserve retail fundamentals, deepen supply‑chain capabilities, optimize operational efficiency and elevate customer experience are positioned to break the “no long bull” pattern.
The C2M (Consumer‑to‑Manufacturer) model exemplifies supply‑chain reconstruction driven by consumer demand. China’s comprehensive industrial base and concentrated manufacturing clusters—particularly in small appliances, home goods and apparel—enable rapid response from R&D to production and shipment, making the country well suited for C2M. The model compresses intermediaries and reduces costs, delivering high quality at lower prices. Companies such as Xiaomi（01810.HK）and leading beverage and snack chains have leveraged C2M to achieve scale and cost advantages. Leading tea and coffee brands have integrated upstream supply chains to secure raw‑material access, maintain consistent quality and support frequent product innovation at accessible price points. Bulk snack retailers have reengineered channel economics to minimize markups and marketing costs, improving value for consumers and reshaping industry structure.
Brands Bringing Retail Closer To Consumers - In apparel, Uniqlo’s recent outperformance underscores the value of deep supply‑chain integration, SKU rationalization and strict markup control. Uniqlo’s approach—streamlined SKUs with large minimum production runs, a concentrated supplier base and strategic upstream partnerships—has enabled low retail markups and strong per‑store productivity. Domestic apparel brands are pursuing store upgrades and direct‑to‑consumer reforms to address historical supply‑chain and channel inefficiencies.
Home appliance brands have developed competitive strength across product, brand and channel dimensions, but the priority for 2026 is to replicate domestic efficiency models overseas. International expansion requires deliberate investment in brand and channel building; cross‑border e‑commerce penetration offers a practical route. Established cross‑border ecosystems and global platforms such as Amazon, Shopee and Temu provide traffic and logistics infrastructure that have enabled companies like Roborock, Ecovacs and Anker Innovations to accelerate brand globalization before expanding offline channels.
Cross‑Border E‑Commerce As An Extension Of Efficiency Models - Despite tariff headwinds in 2025, China’s cross‑border e‑commerce reached record scale. Compared with traditional trade, cross‑border e‑commerce reduces circulation links and enhances efficiency, particularly under B2C models that deliver products directly to overseas consumers. In Southeast Asia, the combination of content‑driven commerce and efficient logistics illustrates how China’s efficiency model can be exported: short‑form video and livestreaming convert content into traffic and transactions, while large‑scale logistics providers deliver low‑cost, wide‑coverage distribution, creating a competitive advantage over local platforms.
Conclusion
The structural rise of service consumption offers China’s retail sector a rare historical opportunity to escape destructive, involutional competition. Long‑term retail winners will be those that construct robust efficiency models and translate operational advantages into tangible consumer value. These firms will embed efficiency into their core, prioritize experience and service, and possess the capability to replicate successful models and expand globally. As Walmart’s example shows, success is not accidental; China’s future retail champions will emerge from relentless pursuit of efficiency and deep consumer insight.
