China’s retail sales continue to grow at a double-digit pace- most recently they grew 10.8 percent in November. But despite the rapid expansion of the market, some international retailers have struggled to succeed, or even survive in China.
International brands can no longer simply rely on the perceived superiority once associated to a foreign brand name in the Chinese market, according to observers here. Asos, Marks & Spencer and Hong Kong-based Giordano all experienced setbacks in China this year because they misjudged market conditions and/or failed to offer products that resonated with Chinese consumers, according to observers here. All three companies declined to comment for this story.
“In the fashion market, consumers are increasingly more selective towards the brands they buy – they want to shop smart, especially on fast fashion items. Consumers in China are increasingly smart and e-commerce in particular provided far more choices than before and they won’t just buy a brand on the basis of its origin,” noted Jason Yu, general manager of Kantar Worldpanel China.
In April of this year, British online fashion and beauty retailer Asos announced that it was pulling out of China. The company had opened a Shanghai warehouse in 2013 and created a dedicated Chinese website to better serve the Chinese market and avoid the import taxes Chinese consumers had been forced to pay when shipping products from the United Kingdom. According to local press reports, China’s notoriously stringent clothing label rules and Chinese postal service issues made it more attractive for Asos to manage trade from the U.K.
For sure, the e-commerce market for apparel in China is highly competitive. Alibaba and JD.com already dominate the scene and will likely continue to do so as they invest in infrastructure projects to reach millions of new customers in China’s remote, landlocked provinces. The country has also seen a rise in the number of wang hong, or Internet celebrities, turning their popularity into clothing sales through platforms such as Alibaba’s Tmall.
“Alternatives for consumption abound among the different apps and marketplaces, so it is hard to prove to consumers the uniqueness of one’s offering. This particularly applies to Asos, which has an extremely appealing proposition to consumers around the world, being able to gather dozens of fashion brands under a unique umbrella, and yet has a diluted advantage in China, where a Taobao, a Tmall or a JD already serves that kind of purpose,” said Andrea Fenn, founder of Fireworks, a digital consulting agency based in China.
Asos also failed to adequately meet the needs of consumers in different regions and climates, according to Bernhard Wessels, managing director of retail consultants, Kantar Retail North Asia.
“You have to find a way of not just taking the Western brand and putting it into China with Western design, but saying, ‘Well how do I tweak it? How do I give it sort of an authentic flair and make it more relevant for the Chinese consumer?’ Very often, you see the way that [foreign] retailers struggle here. They haven’t quite found a way of being China relevant because you can’t just copy paste in the Chinese market,” Wessels said.
Asos has said it will continue to serve its growing China customer base via its regular website Asos.com. By making this shift, Asos said Chinese customers will be able to access 80,000 products rather than the 6,000 they could buy through the China site.
Another international retailer that came up short in China this year was Marks & Spencer. The iconic department store retailer announced last month that it was closing loss-making shops in 10 international markets, including all stores in Mainland China. While its stores in Hong Kong were profitable, its ten stores in Mainland China were making a loss.
“Customers across China can continue to shop Marks & Spencer products via leading online marketplaces, Tmall.com and JD.com whilst the Group continues to review the best way to retain its online presence in China,” the company said.
Observers here said that Marks & Spencer didn’t localize its product offering enough, similar to the situation at Asos. The retailer did not tailor clothing to Asian body types of turn out styles that were relevant to fashionable consumers in first tier cities, they claim.
“Increasingly, sophisticated consumers are looking for international brands to find cutting edge, alternative, novel ideas, and not to get their fashion staples. For fashion staples, they go to local brands or brands that have had an established presence in the market such as H&M or Uniqlo. Asos and Marks & Spencer lacked the innovative force to make a difference in the market. Had they launched 10 years ago, their reception would have been different, but frankly I don’t see crowds of people queuing up to shop at a newly opened Marks & Spencer in a city like Shanghai or Beijing,” said Fenn.
Marks & Spencer also struggled to make large, costly locations work.
“Marks & Spencer had really large footprints in prime locations; think Nanjing West Road right by the subway entrance,” said Mark Tanner, founder and managing director of marketing and research agency China Skinny. “They weren’t selling anything unique that couldn’t be easily bought on e-commerce for less, and the in store experience was unexciting, so it would be difficult to make those huge rents back with sales.”
Navigating the fine line between online and offline sales in China is becoming increasingly complicated, with omnichannel retailing rapidly becoming the norm.
“Businesses in China are trying to find a balance between an online and offline model. Recent cases seem to suggest that creating lean models that combine a light offline retail presence to an online presence is the way to go. Uniqlo or Muji are top sellers on Tmall despite being retail-driven brands. Marks & Spencer, with its mammoth physical locations, and Asos, an online-only business yet with warehouses and operations in China, don’t seem to qualify as lean businesses,” said Fenn.
Another international retailer that has struggled in top tier Chinese cities is Hong Kong-based mass-market retailer Giordano. This year, the company made the decision to rely more on franchising for its stores in China. It closed down 40 of its directly-owned stores but opened 31 franchised stores in third and fourth tier cities, reducing its total footprint in Mainland China by nine stores. It had 904 stores in Mainland China as of Sept. 30.
“We will provide further professional and operational assistance, as well as marketing and promotional resources to our franchisees. We will continue to work closely with the third party platforms in Mainland China and invest resources to our mobile apps to expand the user base,” said Peter Lau, chairman and chief executive of Giordano.
By pruning operations in highly competitive top tier cities, the company is hoping to save its China business and focus on targeting the under-saturated yet developing markets in lower tier cities, the company said when releasing its third-quarter numbers.
“Giordano has found it hard to compete with the polished global fast fashion brands such as [Hennes & Mauritz], Zara and Uniqlo in the higher tier cities. As these brands are underrepresented in lower tier cities, [Giordano has] seen this as an untapped opportunity. Although lower tier city consumers are less sophisticated, growth is higher and [the] competition is much less. Lower-tier cities are much more numerous than tier one and two and vary wildly, so franchising will reduce their risk and exposure,” Tanner said.
International retailers, particularly those new to the market or with not much presence, might find themselves summing up the risks and rewards of having an offline presence in China. These questions are compounded by the fact that it is easy and convenient to serve Chinese consumers through local e-commerce platforms, following Marks & Spencer’s lead.
“If at this stage you haven’t got a flagship store on Tmall and a flagship store on JD.com, you are quite far behind the curve. Any brand pretty much now has to have a strategy of how to deal with ecommerce in China. If they want to succeed, they really have to drive the strategy away from traditional bricks and mortar,” said Wessels.