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Foreign Brands Continue to Foray into China’s Retail and Consumer Products Sector in the New Normal – Recent Trends and Implications
July 2016
E-commerce is the Key
Establishing an online
store is now a crucial
step for foreign brands
to kick-start business in
China.
Through Malls, Department stores and Buyer Shops
Shopping malls,
department stores and
buyer shops are eager
to introduce new foreign
brands as a way to
differentiate themselves
from their competitors.
Korean Wave
Korean retailers
especially apparel and
cosmetics brands are
making aggressive
push into China.
Experience Matters
Fashion retailers are
adding experiential
elements such as cafés
and restaurants to
enhance their stores
ambiance, enrich
customer experience
and drive more footfall.
Large Flagship Stores
An increasing number
of foreign retailers and
brands are opening
large flagship stores
that offer lifestyle
experience.
Pop-up Stores Prevail
Opening pop-up stores
is now a popular way
for foreign brands to
test the waters in the
China market.
Asia Distribution and Retail
1 Asia Distribution and Retail
China’s retail sector has chronicled with a tide of store closures in
the backdrop of economic slowdown, tough retail environment
and continuous disruptions by e-commerce in the past few
years. Some retailers have been struggling with lackluster sales and
decelerated performance under the “new normal” economy with a
slower growth target at around 6.5%. According to Linkshop, in 2015,
among the 88 listed retail enterprises in China, 47% registered a drop
in sales; 60% registered a drop in revenue; 33% registered falls in both
sales and revenue1.
In spite of the economic slowdown in China, China enjoys huge potential
and remains the most sought-after retail destination for international and
foreign brands to expand their business. The economy is gradually
shifting from an infrastructure investment-driven model to a more
consumption and service-driven one. Moreover, with rapid urbanization,
growing middle class population (upper-middle-class and affluent
households will double to 100 million by 2020, and account for 30%
of all urban households2) coupled with rising household disposable
incomes (the per-household disposable income of urban consumers
will double between 2010 and 2020, from about 26,500 yuan to about
53,000 yuan3), strong demand from lower-tier cities and the loosening
of one-child policy, China is set to become the world’s largest retail
market by 2018, according to a report by PwC4. A study by A.T. Kearney
revealed that China ranks top on the list of “Global Retail Development
Index”5, meaning that it is the most attractive destination for brands’ retail
expansion, and offers the greatest future potential. This article provides
an overview of the recent debuts of foreign brands into China’s retail and
consumer products market and reviews some of the latest trends and
development.
Foreign brands that entered the Chinese scene in 2015 & 1H16
According to a study conducted by soupu.com, a China commercial
real estate service portal, there were more than 100 foreign brands
across different retail, consumer products and food and beverages
(F&B) markets entering China for the first time in 20156. In general, these
brands entered the China market mainly through the following ways: 1)
by setting up physical stores; 2) by setting up Chinese language online
shop; 3) by partnering with China’s third-party e-commerce or mobile-
China is set to become the world’s largest retail market by 2018.
It is the most attractive destination for brands’ retail expansion, and offer the greatest future potential.
2Asia Distribution and Retail
commerce platforms such as Tmall, JD.com, Yihaodian and Mengdian to launch
flagship stores; and 4) by adopting a multi-sales channel approach. Exhibit 1
and 2 show selected examples of foreign brands that rolled out in China for the
first time in 2015 and 2016 (as of July 2016) through online channel and multiple
channels, respectively.
Exhibit 1. Selected examples of foreign brands that entered China for the first time in 2015 and 2016 through
online channel
Brand Sector Origin Online channel Launching Date
Apparel and Sportswear
LOLOten Apparel Korea Chinese-language online store Jun-16
kikiko Apparel Korea Chinese-language online store Jun-16
Good People# Lingerie Korea Handuyishe Jun-16
Chuu Apparel Korea Tmall Jun-16
Cahill+ Sportswear Australia JD.com Jun-16
Viva Ruby Apparel Korea Chinese-language online store May-16
8seconds (by LG) Apparel Korea Tmall; Chinese-language online store May-16
REALCOCO Apparel Korea Mengdian Mar-16
Childrenswear and kids-related category
Pigeon Baby products Japan Tmall Global Jul-16
Group Zannier Apparel France JD Worldwide Jun-16
HEROS Toys Germany Tmall Jun-16
Mikihouse Apparel Japan Kaola.com, Tmall Global May-16
kakkungnorieter Apparel Korea Chinese-language online store May-16
Cosmetics and Skincare
UL·OS Skincare Japan JD.com; moximoxi.net; fengqu.com Jun-16
SANS SOUCIS Skincare Germany Tmall Global May-16
VidiVici Cosmetics Korea VIP.com Nov-15
Food products
Mars China (M&M’s, Snickers, Dove, Pedigree, Royal Canin)
Candies, food, pet food
U.S. Tmall Jul-16
Department store
Macy’s China Mixed retailer U.S. Tmall Global Nov-15
Source: Various websites on the Internet, compiled by Fung Business Intelligence
3 Asia Distribution and Retail
Exhibit 2. Selected examples of foreign brands that entered China for the first time in 2015 and 2016
through multiple channels
Brand Retail
category
Origin Physical store-
Location of first
store in China
Opening
Date
Online channel
Apparel and Accessories
Ben Sherman# Apparel U.K. Shanghai Aug-16
Adidas Football
Flagship*Sportswear Germany Guangzhou Jul-16
Superdry Apparel U.K. Shanghai Jul-16
Chinese-language
online store;
Tmall (launched
in Mar 2015 but
was closed down
already)
Briggs & Riley Luggage U.S. Shanghai Jul-16
Chinese-language
online store ; Tmall;
Amazon.cn
Topman Apparel U.K. Beijing Jun-16 Tmall
G-Cut Apparel Korea Shanghai May-16Chinese-language
online store
Luisa Spagnoli Apparel Italy Beijing May-16
ALLOVE Jewellery Singapore Beijing May-16
CHRIS.CHRISTY Menswear Korea Suzhou May-16
Bora Aksu Apparel U.K. Beijing May-16
Descente Sportswear Japan Shanghai Mar-16
Monte Milano Apparel Korea Shenyang; Tianjin Mar-16Chinese-language
online store
YETTA Accessories Italy Fuzhou Feb-16
Irregular Choice Footwear U.K. Shenzhen Jan-16
Alice McCALL Apparel Australia Dalian Jan-16Chinese-language
online store
Clips Apparel Italy Chengdu Jan-16
CONOMi Apparel Japan Shanghai Jan-16
Self-Portrait Apparel U.K. Beijing Jan-16
Victoria’s Secret Lingerie,
accessories
U.S. Shanghai 2H16
4Asia Distribution and Retail
Brand Retail
category
Origin Physical store-
Location of first
store in China
Opening
Date
Online channel
Naning9 Apparel Korea Shanghai Dec-15 Chinese-language
online store; Tmall
Global
SHEL’TTER Apparel Japan Shanghai Dec-15
FRED Jewellery France Shanghai Dec-15
Chaps
(by Ralph Lauren)
Apparel,
Home
products
U.S. Shanghai Nov-15 Tmall
Tom Tailor Apparel Germany Shanghai Nov-15 JD Worldwide;
Tmall Global
GIORGIO
VISCONTI
Jewellery Italy Shanghai Nov-15
Akris Apparel Switzerland Shanghai Aug-15
Orange Factory Apparel Korea Beijing Aug-15
HELENALLURE Hair
accessories
Singapore Shanghai Aug-15
American Rag Cie Apparel U.S. Shanghai Aug-15
Topshop Apparel U.K. Beijing Aug-15 Tmall
WOLFERS 1812 Jewellery Belgium Shanghai Jun-15
LAP Apparel Korea Chongqing Jun-15
Yecca Vecca Apparel Japan Shanghai Apr-15
Viktor & Rolf Apparel Amesterdam Beijing Mar-15
Glasses COVE Eyewear Korea Nanjing Jan-15
Roots Apparel Canada Beijing Jan-15 Tmall
Marc Rozier# Apparel,
accessories
France Chengdu Jan-15
Childrenswear and kids-related category
NBA Gaming
Centre*
Kids
playground
U.S. Shanghai Jul-16
Hot Toys Toys Hong Kong Shanghai Jun-16
Duda & Dada Kids
playground
Korea Qingdao Jun-16
Joypolis Kids
playground
Japan Shanghai Feb-16
Cocomong
Playground
Kids
playground
Korea Shanghai Dec-15
5 Asia Distribution and Retail
Brand Retail
category
Origin Physical store-
Location of first
store in China
Opening
Date
Online channel
Cocomong
Playground
Kids
playground
Korea Shanghai Dec-15
Legoland Discovery
Centre*
Kids
playground
Denmark Shanghai Oct-15
Disney Store Toys U.S. Shanghai May-15 Tmall
Cosmetics and Skincare
HAPSODE Cosmetics &
skincare
Korea Hangzhou Jul-16 Tmall
Club Clio Cosmetics &
skincare
Korea Guangzhou May-16 Tmall Global
SU:M37 (by LG) Cosmetics &
skincare
Korea Hangzhou May-16 Tmall
peripera Cosmetics Korea Shanghai May-16 Tmall Global
ascara Skincare Switzerland Guangzhou Jan-16
CLUXTA (by
Panasonic)
Beauty
appliances
Japan Shanghai Jun-15
Homeware and furniture
othello Homeware &
Furniture
Germany Guangzhou May-16
Ikea PUP store Homeware &
Furniture
Sweden Wenzhou Apr-16
Good Earth Homeware &
Furniture
India Beijing Jan-16
Lifestyle
Donginbi SPA Spa Korea Guangzhou May-16
Jwell Lifestyle France Beijing &
Changsha
May-16 Tmall, JD.com
The Simpsons Store Lifestyle U.S. Beijing May-16
Roger & Gallet Lifestyle France Chengdu May-16
Walmart Shopping
Centre
Supermarket/
Shopping mall
U.S. Zhuhai May-16
Studio Ghibli -
Donguri Republic
Lifestyle Japan Shanghai May-16
Brookstone Lifestyle U.S. Nanjing Dec-15 Tmall Global
6Asia Distribution and Retail
Brand Retail
category
Origin Physical store-
Location of first
store in China
Opening
Date
Online channel
Harnn Spa Spa Thailand Suzhou Nov-15
Eslite bookstore Lifestyle Taiwan Suzhou Nov-15
Modern House Lifestyle Korea Shanghai May-15
Supermarkets, hypermarkets, convenience stores
My-Mart (by Metro) Convenience
store
Germany Shanghai May-16
Gag Story Convenience
store
Korea China (not
specified)
Jan-16
Sheng Siong Supermarkets Singapore Kunming Mar-16
Costco Supermarkets Canada Wuhan Jan-16
F&B
The Cheesecake
Factory
Restaurant U.S. Shanghai Jun-16
Mercedes Me Restaurant Germany Beijing Jun-16
laCelletta Coffee shop Italy Wuhu Jun-16
REMICONE Ice-cream
shop
Korea Shanghai Apr-16
GACHIYA Ramen eatery Japan Beijing Feb-16
Taco Bell (Yum!
Brands Inc.)
Fast food Mexico Shanghai End of
2016
ARANZI CAFÉ Coffee shop Taiwan Shanghai Dec-15
Café Droptop Coffee shop Korea Shanghai Nov-15
Line Friends Café Coffee shop Korea Shanghai Aug-15
Vapiano Restaurant Germany Shanghai Jun-15
1921 Gucci* Restaurant Italy Shanghai Jun-15
Vivienne Westwood
Café*
Coffee shop U.K. Shanghai Apr-15
Pret A Manger Coffee shop U.K. Shanghai Mar-15
Notes:
#Re-entered the China market
*First concept store of its kind
Source: Various websites on the Internet, compiled by Fung Business Intelligence
7 Asia Distribution and Retail
Key trends and development
In the past, foreign brands established their presence in China mainly
through setting up standalone stores at first-tier cities. The mere presence
of foreign brands would imply successful sales performance as Chinese
consumers perceived products from overseas to be superior and
trustworthy. Nowadays, with the proliferation of different sales channels,
Chinese consumers have more choices than ever. Foreign brands are no
longer equivalent to a guaranteed success in the China market. With the
booming e-commerce development and the changing shopping habits and
consumer preferences, the following trends in market entry are observed
over recent years.
1. E-commerce marketplaces become top option for brands to kick-
start business in the China market
Unlike the past decade, establishing an online store is now a crucial step
for foreign brands to kick-start their business in China. China is the world’s
leader in e-commerce with the largest number of online shoppers, reaching
413 million (60% of Internet population) as of December 20157. According
to the National Bureau of Statistics of China, online retail sales of physical
goods in 1H16 accounted for more than 11.6% of China’s total retail sales of
consumer goods, reaching 2,236.7 billion yuan, an increase of 28.2% yoy8.
A recent survey by Nikkei showed that Chinese consumers are more likely
to shop online compared to their counterparts in Asia. Around 68.6% of the
survey respondents in mainland China shop online at least once a week,
compared with around 49.2% in other Asian countries9.
In particular, third-party marketplaces such as Tmall and JD.com dominate
the Chinese B2C online market landscape. These e-commerce platforms
allow brands to start small and use a test-and-learn approach as they move
forward. They also allow foreign brands to maintain an important presence
in the Chinese market without having to open physical stores.
For instance, instead of opening physical stores, U.S. department store
chain Macy’s chose to enter the China market by establishing an online
presence. In August 2015, it partnered with Fung Retailing Ltd. to form a
joint venture (JV) company, Macy’s China to pilot e-commerce on Alibaba’s
Tmall Global. Such attempt to establish an online presence before opening
Third-party marketplaces allow foreign brands to start small and use a test-and-learn approach as they move forward.
Nowadays, with the proliferation of different sales channels, Chinese consumers have more choices than ever. Foreign brands are no longer equivalent to a guaranteed success in the China market.
8Asia Distribution and Retail
physical stores allows Macy’s China to leverage the marketing and data
capabilities of the e-commerce giant to build brand awareness, drive
engagement with local consumers and test their receptiveness to the
operator’s offerings10.
Apart from launching online stores on third-party marketplaces, some
foreign retailers set up Chinese-language online stores as a move to tap
China’s burgeoning online market. This option allows retailers to have full
control on shopping experience, customer relationship management, and
avoid the need to share transaction and customer data with third-parties.
However, a standalone China online shop requires a far higher up-front
investment.
2. Many new foreign brands are brought into China by shopping malls,
department stores or buyer-shops
Shopping malls, department stores and buyer shops are eager to introduce
new foreign brands in their retail space as a way to differentiate themselves
from their competitors. Very often, shopping mall landlords would offer
prospective tenants with attractive lease terms such as lower rent, longer
rent-free period, better locations within the shopping malls, and subsidies
on marketing expenses. In recent years, some department store operators
have hired buyers to source new and exclusive foreign brands in order to
make them stay unique in the market. Galleries Lafayette in Beijing is a
case in point. Over 50% of its brands were brought into China for the first
time when the department store opened in September 2013. Recently, it
has introduced a number of new foreign brands, including Topshop, Self-
Portrait, Sophie Hulme, Philipp Plein, SmileyWorld, Caudalie and Mind
Bridge. Lane Crawford China has also constantly introduced new foreign
brands into the store, such as TOPMAN from the U.K. in June 2016 and
Briggs & Riley from the U.S in July 2016.
3. Korean brands, particularly apparel and cosmetics brands are
making aggressive debut in China
Chinese consumers’ demand for Korean products is booming rapidly
over recent years due in part to the increasing popularity of South Korean
culture. According to L2 Research, Korean cosmetics brands are edging out
Western rivals in the China market. Western skincare and color cosmetics
Shopping malls, department stores and buyer shops are eager to introduce new foreign brands in their retail space as a way to differentiate themselves from their competitors.
Some foreign retailers set up Chinese-language online stores as a move to tap China’s burgeoning online market.
9 Asia Distribution and Retail
have seen share erosion while interest in Korean beauty products is
skyrocketing. Exports of Korean cosmetics to China surged 250% last year,
and accounted for almost one-fourth of China’s cosmetics import11.
From our research, it is found that Korean retailers especially apparel and
cosmetics brands are making aggressive push into China. More than 20
Korean apparel and cosmetics brands have entered China market for the
first time since 2015. It is observed that these brands mostly adopt the
option of launching flagship stores on e-commerce platforms. Exhibit 3
shows selected examples of Korean apparel and beauty brands entering
the China market in 2015 and 1H16.
Korean retailers mostly adopt the option of launching flagship stores on e-commerce platforms.
Exhibit 3. Selected examples of Korean apparel and beauty brands entering the China market in 2015
and 1H16
Selected examples of
Korean brands
Ways of entering the China market
Physical stores/ counters
Chinese-language online
store
Third-party marketplaces
Apparel
LOLOten √
kikiko √
Viva Ruby √
8seconds √
kakkungnorieter √
Good People √Chuu √8seconds √ √REALCOCO √G-Cut √ √
CHRIS.CHRISTY √
Monte Milano √ √
Naning9 √ √ √Orange Factory √
Glasses COVE √
Beauty
HAPSODE √ √Club Clio √ √SU:M37 √ √peripera √ √VidiVici √
Source: Various websites on the Internet, compiled by Fung Business Intelligence
10Asia Distribution and Retail
Meanwhile, F&B operators from Korea are also setting their sights on China
to capture Chinese people’s appetite for Korean food. A number of popular
F&B operators are speeding up their expansion in China, for instance:
• TERAROSA Coffee – Korea’s homegrown hand-drip coffee brand
announced its China expansion plan in April 2016.
• REMICONE – A popular ice cream chain from Korea opened its first
store in China in Sanlitun Beijing in December 2015. Since then it has
expanded rapidly in China and has six stores in China.
• Café Droptop – A famous café in Korea opened in November 2015
in Shanghai.
4. Experience matters – Luxury brands expand portfolio by opening
cafés
Fashion retailers nowadays are adding experiential elements such as
cafés and restaurants to enhance their stores ambiance, enrich customer
experience and drive more footfall and regular visitors. Recently, an
increasing number of international luxury brands have branched out into
food business and opened cafés and restaurants in China. Selected
examples include:
• Mercedes-Benz – It opened its first Mercedes-Me concept store
in the Mainland China in March 2016 in Beijing Taikoo Li. The store
features two restaurants – “Si Fang San Chuan”, a contemporary
Chinese restaurant featuring a mix of Yunnan, Sichuan, and Guizhou
cuisine, and “Me Café”, which offers Yunnanese coffee and modern
Southeast Asian menu.
• Gucci – The luxury Italian fashion brand opened its first full-fledged
restaurant “1921 Gucci” in IAPM in Shanghai in July 2015.
• Vivienne Westwood – The U.K. fashion label opened its first branded
coffee shop “Vivienne Westwood Café” at Shanghai’s K11 Art Mall in
April 2015.
The idea of integrating food and lifestyle elements into retail stores has gained
massive success and traction. These restaurants aroused overwhelming
popularity and drove huge foot traffic to the stores when they first launched.
Fashion retailers nowadays are adding experiential elements such as cafés and restaurants to enhance their stores ambiance, enrich customer experience and drive more footfall and regular visitors.
11 Asia Distribution and Retail
5. Some foreign retailers open their world’s largest stores in China
In recent years, some foreign retailers have opened large flagship stores
when entering the China market. This is considered as a wise move to arouse
brand awareness as Chinese consumers are now increasingly quality- and
experience-driven. They find greater satisfaction in experience rather than
solely possessing a product. An increasing number of foreign retailers and
brands are opening large flagship stores that offer lifestyle experience. For
example, Lego opened its world’s largest flagship store in Shanghai in June,
2016. Located in Disneytown of Shanghai Disneyland, the LEGO flagship
store spreads over two floors with an area of 1,000 sqm. Lego said in a
statement that the China market was one of the best performing markets in
2015, and the company expects China to become one of the top markets
in the world alongside the U.S. and Germany. The company also opened a
3,000 sqm Legoland Discovery Center in Pudong Shanghai in April 2016.
Other examples include:
• Max Brenner – A worldwide chocolate restaurant and retail brand,
opened its first restaurant in Beijing in May 2016. With an area of 700
sqm, the flagship restaurant, until now, is the largest of its kind in the
world.
• Disney store – Opened in May 2015 in Shanghai, it is the world’s
largest Disney store with a total area of 5,000 sqm. The store was
reportedly forced to close just an hour after it officially opened as
keen Chinese shoppers queued for more than a mile to get inside.
An increasing number of foreign retailers and brands are opening large flagship stores that offer lifestyle experience.
12Asia Distribution and Retail
Retailers faced barriers when it comes to understanding China’s policies, liaising with landlords, and responding to regional differences in customer preferences and marketing channels.
6. Pop-up stores and concept stores as new ways to test the waters
Many forward thinking brands and retailers are embracing new ways to
launch their brands in China. Opening pop-up stores is now a popular
way for foreign brands to test the waters in the China market. Pop-up
stores are indeed an ideal option for retailers who do not want to commit
to an expensive, long-term lease. Another reason that pop-up stores have
become popular is that they create the ambiance and settings that resemble
an art exhibition. U.K. fashion brand Topshop is a case in point. The retailer
experimented with a single outlet in Shenzhen before setting up 30 pop-up
stores across China12, and ultimately opening physical stores. The pop-up
stores enable Topshop to gain a clear understanding of customer needs
before making a bricks-and-mortar investment. They also enable the brand
to establish relationships with local landlords.
Success factors for foreign retailers making their first foray into China
In retrospect, there are many examples of foreign brands that have
successfully launched in China, such as MUJI, ZARA, Uniqlo, Coach,
Michael Kors; but succeeding in the China market is undeniably difficult.
Many foreign retailers failed in their attempts. In general, these retailers
faced barriers when it comes to understanding China’s policies, liaising with
landlords, and responding to regional differences in customer preferences
and marketing channels. In many cases, multinational brands failed to
stay relevant to the China market and were not reacting fast enough to
the changing needs of customers. According to estimates, around 48%
of foreign businesses would fail in China within two years of entering the
market13. In 1H16, there were three big foreign companies quitting the
China market, including ASOS from the U.K., Karicare from New Zealand
and Delivery Hero from Germany. If foreign retailers want to enter and
remain successful in the ever-evolving China market, they should learn from
the experiences of successful brands:
Pop-up stores are an ideal option for retailers who do not want to commit to an expensive, long-term lease.
13 Asia Distribution and Retail
1. Respond fast to evolving trends and changing needs of Chinese
customers
Chinese consumers nowadays are highly connected and are more
sophisticated in their buying habits. They rely heavily on their smartphones
in their daily lives and are very influenced by their friends and family
members. They shop online mostly by mobile devices. They also surf
online to compare products and prices before they make purchases. Social
networking platforms are highly relevant to them. In fact, social media has
become a key purchase influencer for Chinese consumers. In China, 91%
of Chinese online users have a social media account14. It is crucial for
newcomers to adapt to consumer preferences and get visibility on popular
online platforms such as Weibo and WeChat.
2. Deploy digital marketing and the powerful “cewebrities”
Digital marketing, particularly social media marketing, is now an integral
part of brand building. Coca-cola is a pioneer in engaging with customers
via social media platform. Back in 2014, it launched its lyric bottle campaign
in China. Lyrics of popular songs are printed on the bottles. Customers
can scan the QR code and share music video clip, or so-called “musicon”
to their friends on WeChat. The campaign was a very successful social
media campaign – sales of Coca-cola in China were reportedly increased
by 10% just one month after it launched the campaign; it generated over
three billion social impressions over the six-month campaign period.
Besides, Chinese consumers are also more responsive to interactive online
advertisements than their global peers. A research by Mintel15 shows that
60% of Chinese consumers have made a purchase by clicking on the
interactive advertisement on social media platforms, compared to just 9%
of U.S consumers.
Moreover, recently the term “cewebrity economy” is becoming a hot topic
in China. Cewebrity comes from two words – Web and celebrity. It refers to
celebrities on the Internet. A number of famous cewebrities have emerged
recently in China; they are very popular in social media platforms, each
with millions of followers. These cewebrities, or influencers conduct live
broadcasts and talk about different topics. Some of them work closely with
brands to help them create visibility on the Internet. Cewebrities may provide
an alternative, probably cheaper marketing channel for foreign brands.
Cewebrities may provide an alternative, probably cheaper marketing channel for foreign brands.
Digital marketing, particularly social media marketing, is now an integral part of brand building.
It is crucial for newcomers to adapt to consumer preferences and get visibility on popular online platforms such as Weibo and WeChat.
14Asia Distribution and Retail
3. Adapt and reinvent
Global brands that have been successful in China all have one thing in
common: putting effort in localization so that they can resonate with local
culture, preferences and behaviors. According to Forbes’ survey with more
than 300 top executives of consumer brands in China, the vast majority
of foreign brands (63%) indicated that they believe they need to change
their brand attributes for Chinese consumers16. When GAP Inc. entered the
China market in 2010, it adjusted the sizes of their apparel and shoes to
ensure best fit for Chinese customers17.
On the other hand, to succeed in China, foreign companies also need to
constantly reinvent themselves with new concepts and business models.
An example is Starbucks Coffee Company. Recently, Starbucks announced
that it will introduce a brand new format of Starbucks Coffee – its first
international Starbucks Roastery and Reserve Tasting Room to Shanghai
in 201718. The 2,700-sqm-restaurant will bring in immersive experience
that combines coffee roasting, manufacturing, education and retail within a
single facility to Chinese customers. This is considered as a pioneering retail
experience and initiative that can cater to the demand of the sophisticated
Chinese customers who value experience and lifestyle quality. Another
example is the newly opened Adidas football flagship store in Guangzhou.
It is the first flagship store of its kind with football as a major theme. The
store offers customized name printing services on football jerseys to meet
Chinese customers’ growing needs for personalization of products.
To succeed in China, foreign companies also need to constantly reinvent themselves with new concepts and business models.
Global brands that have been successful in China all have one thing in common: putting effort in localization.
15 Asia Distribution and Retail
4. Embrace O2O
Nowadays, online and offline (O2O) concept is highly relevant in China. For
a successful brand launch, foreign brands must embrace O2O strategies.
A prerequisite for deploying O2O strategies is to have in place a digital
platform, both mobile and social. They may consider rolling out O2O
services on these platforms, forming strategic alliance with Internet giants
or third-party shopping apps providers to drive synergies, improving mobile
and e-payment services, etc. Moreover, brands may consider adopting
innovative delivery service, such as crowd sourced delivery in the China
market. This helps companies reduce their logistics costs, especially for
last-mile delivery. For instance, foreign brands could explore the option of
leveraging China’s key crowd sourced delivery platforms such as Dada
(https://www.imdada.cn/) and RenRen (http://www.rrkd.cn/) to provide fast
delivery for customers.
5. Find a strong local partner
Success in China requires working with reliable and strong local partners.
For new brands targeting China, they may consider forming alliance or JV
with local companies. Local companies can contribute valuable resources
such as business networks, government relations, and knowledge of local
market conditions. Macy’s partnership with Fung Retailing Ltd. is a case
in point. Macy’s understands that success in China requires a strong local
partner. By forming a JV company with Fung Retailing Ltd., the retailer can
leverage on the latter’s deep experience and expertise in China’s retail
market to develop significant new learnings on customer preferences and
buying patterns in China19.
6. Understand the China market and regional differences
China is a highly fragmented market with vast regional differences in
terms of topography, development, consumer preferences and behaviors,
etc. Most provinces in the eastern region are relatively more developed;
consumers are more sophisticated compared to other regions. The central
region is currently undergoing rapid development, while the western
region lags behind in both economic and social terms, with low population
density posing a significant hurdle to development. Before setting foot in
China, foreign brands should understand the regional differences, and act
local. They should never assume what works for mature markets will work
for China. The “one-size-fit-all” strategy does not work well in the China
market. Success comes for those who stay relevant to the needs of Chinese
consumers.
Before setting foot in China, foreign brands should understand the regional differences, and act local.
The “one-size-fit-all” strategy does not work well in the China market.
A prerequisite for deploying O2O strategies is to have in place a digital platform, both mobile and social.
Success in China requires working with reliable and strong local partners.
16Asia Distribution and Retail
Conclusion
Despite the slowdown in growth, China’s retail market remains resilient with
solid consumer consumption and steady retail sales growth. It continues
to offer tremendous opportunities for foreign retail brands – the potential in
many second and third tier cities remains largely untapped; the government
has stepped up efforts over the past few years to support the development
of the commercial sector such as reducing import taxes on certain consumer
goods, establishing duty-free shopping zones, relaxation of the one-child
policy. All these initiatives and policies have largely improved local business
environment and stimulated domestic consumption. All in all, China is still
an attractive market for foreign retailers and brands seeking to expand their
global footprint.
Endnotes
1 Linkshop.com.cn. “Rankings of listed companies in terms of sales revenue, 2015”. 8 April 2016.
http://www.linkshop.com.cn/web/archives/2016/347175.shtml
2 BCG & AliResearch. “The New China Playbook”. December 2015.
https://www.bcgperspectives.com/Images/BCG-The-New-China-Playbook-Dec-2015_tcm80-203126.pdf
3 Mckinsey. “Meet the Chinese consumer of 2020”. March 2012.
http://www.mckinsey.com/global-themes/asia-pacific/meet-the-chinese-consumer-of-2020
4 PwC. “China to become world’s largest retail market by 2018”. 12 February 2015.
http://www.pwccn.com/home/eng/pr_120215.html
5 A.T. Kearney. “The 2016 Global Retail Development Index”. June 2016.
https://www.atkearney.com/consumer-products-retail/global-retail-development-index/full-report/-/asset_publisher/oPFrGkbIkz0Q/content/
global-retail-expansion-at-a-crossroads/10192
6 soupu.com. “Report on domestic and foreign brands who enter China for the first time in 2015”. 4 January 2016.
http://www.soupu.com/news/658962
7 China Internet Network Information Center. “Statistical Report on Internet Development in China”. January 2016.
https://www1.cnnic.cn/IDR/ReportDownloads/201604/P020160419390562421055.pdf
8 National Bureau of Statistics of China, 15 July 106.
http://www.stats.gov.cn/tjsj/zxfb/201607/t20160715_1377679.html
9 Nikkei. Online shopping soars among young Asians. 25 May 2016.
http://asia.nikkei.com/Business/Consumers/Online-shopping-soars-among-young-Asians
10 Advertising Age. “Macy’s Teams With Alibaba Group to Test E-commerce In China”. 12 August 2015.
http://adage.com/article/cmo-strategy/macy-s-joins-alibaba-test-e-commerce-china/299937/
11 L2. “Beauty China: The Rise of Korean Brands”. 28 March 2016.
https://www.l2inc.com/research/beauty-china-2015/beauty-china-the-rise-of-korean-brands
12 South China Morning Post. “Topshop sets sights on ‘pop-up’ campaign”. 14 October 2013.
http://www.scmp.com/business/companies/article/1331083/topshop-sets-sights-pop-campaign
13 TOM Group. “These 3 Foreign Brands Quit China in 2016, and Here’s Why”. 14 April 2016.
http://www.tmogroup.asia/these-3-foreign-brands-quit-china-in-2016-and-heres-why/
14 Marketing China. “How to promote your brand on Social media in China”. January 2015.
http://marketingtochina.com/promote-brand-social-media-china-2/
15 Mintel. “China Consumer Trends 2016”. 29 January, 2016
http://www.mintel.com/china-consumer-trends/
16 Forbes. “Marketing to the New Chinese Consumer”. April 2011.
http://images.forbes.com/forbesinsights/StudyPDFs/Marketing_to_the_Chinese_Consumer.pdf
17 WSJ. “Gap Tailors Its Business to Chinese Market”. 6 April 2014.
http://www.wsj.com/articles/SB10001424052702303532704579478282050663184
18 Starbucks Coffee. “Starbucks Roastery Coming to Shanghai in 2017”. 26 May 2016.
https://news.starbucks.com/news/first-starbucks-roastery-coming-to-shanghai
19 Business Wire. “Macy’s Forms Joint Venture with Fung Retailing to Test e-commerce in China”. 12 August 2015.
http://www.businesswire.com/news/home/20150812005604/en/Macy%E2%80%99s-Forms-Joint-Venture-Fung-Retailing-Test
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