Don’t blame the graft clampdown for falling retail sales in China, Hong Kong and Macau, says a leading Shanghai retail expert.
With a population of over 1.36 billion and with over 160 cities with a population of over 1 million, the opportunities that China presents retailers with are enormous. That’s why many international retailers now consider it a priority market.
Over the last 24 months, a number of the world’s most renowned brands have announced that they are experiencing a difficult time in China and are either scaling back their operations or closing their China business.
So why are these retailers struggling when others continue to grow a profitable business?
In the report, ‘No one said that it would be easy: How to crack the China Retail Market’, CR Retail’s MD James Rogers, has spent time analysing retailer’s strategies and behaviour, identifying the key reasons behind these failures.
“A number of retailers continually blame the anti-graft measures for the slowdown however it is CR Retail’s view that these are only partly responsible’ says Rogers.
“We see the issues starting a lot earlier with the retailers failing to grasp the complexities and challenges involved with opening there.”
According to the report, CR Retail believe that there are 15 questions that need to be asked prior to entering the market ranging from identifying one’s target audience to determining whether the brand will travel and, whether the consumer is actually ready.
“When speaking with retailers it is astounding how many new entrants have not thought of some of these issues,” adds Rogers.
“They believe the myth that a retailer can just open a store similar to what they operate in other markets and the consumers will come flooding in. Often this couldn’t be further from the truth.”
There have been countless examples of retailers announcing very aggressive expansion plans but very few actually achieve them.
“When retailers announce their expansion plans for the China market, it is very quickly apparent how good an understanding they have of what lies ahead.” says Rogers. “Retailers are often drawn by the numbers and while the market is getting easier to operate in, the competition remains fierce.”
In 2014, China recorded online sales of US$427 billion making it the largest online retail market in the world.
“Whatever your online strategy at home, if establishing yourself in China, you cannot afford to ignore the eCommerce market. It is a key pillar of China’s retail market.” adds Rogers.
As with physical bricks-and-mortar stores, China’s eCommerce market can be equally as complicated. One needs to firstly determine whether you are to launch your own local site or have your products sold via a third party platform. If so, which one? How are you to communicate with the consumer and draw them to where your products are being sold?
“The ways in which a retailer engages with the Chinese consumer are different. A social media presence is key, however there is no Facebook or Twitter. Retailers therefore need to familiarise themselves with the local platforms,” continues Rogers.
With China’s retail market still regarded as immature, Rogers advises retailers should think long-term.
“The US retailers are particularly good at this compared to their European counterparts. They appreciate how long it has taken to build a strong business at home and tend to be more patient. While becoming spoilt for choice, the consumer is still learning. Rome wasn’t built in a day and nor will a retailer’s China business.
“It should be remembered however, establishing a successful presence in China will also drive sales in other international markets. Therefore conceding defeat and retrenching should be a last resort.”
Patience and a long-term strategy are key to succeeding in China. Success will not just help the local market but will also drive sales in retailer’s other international markets.