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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


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


Brand Retail

category


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


Brand Retail

category


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


Brand Retail

category


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



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.


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.


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 √



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.


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.


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.


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.


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.


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.


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.

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foreign brands continue to foray into china’s retail and ... · foreign brands continue to foray...

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