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Retailers fail to prepare in China

News, 26 June 2015

SHANGHAI: Many foreign brands have attributed a decline in their sales in China to the government crackdown on corruption when in reality they have simply failed to understand how the market operates, according to an industry expert.

In a new report, "No one said that it would be easy: How to crack the China Retail Market", CR Retail, a Shanghai-based retail consultancy, analysed the strategies adopted by international brands entering the Chinese market.

"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," said managing director James Rogers.

"We see the issues starting a lot earlier with the retailers failing to grasp the complexities and challenges involved with opening there," he told Inside Retail Asia.

Part of the problem is a failure to see beyond the huge numbers that seem to promise success – a total population of 1.4bn and 160 cities with a population of over 1m – and to carry out due diligence.

Many new entrants believed, said Rogers, 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".

He highlighted 15 questions that retailers should be asking themselves, including the basic one of establishing if the brand would actually travel, as well as identifying a target audience and asking whether it was ready.

"When speaking with retailers it is astounding how many new entrants have not thought of some of these issues," said Rogers.

He advised that brands shouldn't think that Chinese consumers would simply adapt their own styles and tastes for the brand. "The brands that have been and will continue to be successful are the brands that understand the consumer and adapt for them," he told Red Luxury.

In addition to opening stores in the right locations, that means picking a way through a complicated ecommerce environment and fully appreciating the role digital plays in China.

Patience and a long-term strategy are essential, Rogers added. "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."

Data sourced from Inside Retail Asia, Red Luxury; additional content by Warc staff