When Suning Appliance, one of China 's largest home appliance retailers announced intentions to buy rather then rent key sites when expanding their network by 200 stores this year, more than a few eyebrow were raised. "We will strengthen co-operation with developers and buy properties to reduce risk," Suning was reported as telling the Shenzhen Stock Exchange in the South China Morning Post.

Suning opened 175 outlets last year, bringing their total store-count to 632. With a 93.42 percent increase in earnings and a near 100 percent increase in net profit to CNY 757.6 mil, rising retail rents are now being cited as the main barrier to the chain's development.

"Retail store rents and prices always depend on location. Retailers in coming to the end of their tenancy in well located and well managed buildings are seeing increases of over 20 percent," Says Ada Nip, Director of Retail, DTZ China. While Nip says cash-rich local retail chains such as Suning, "May consider buying one or two stores in good locations, and sublet some space," she doesn't believe that the move is the start of a trend. There is significant capital investment required to purchase retail property and many developers are hesitant to divest themselves of prime retail.

Suning may be better placed to follow their strategy in second and third tier cities. Nip says that within these markets local brands have the advantage in terms of operational and logistic infrastructure and while "foreign brands may franchise one or two stores, they are still tentative when it comes to investing in these markets." As a result of these different market conditions, developers may be more willing to sell to retailers. RFP