Is Ecommerce to Blame for Retail Closures in China?
Earlier this month, Marks & Spencer announced that they were closing their remaining ten stores in China. This follows a string of exits from other retailers such as Media Markt, Home Depot, Best Buy, ASOS and the Barbie store. Tesco and B&Q also recently divested their China operations. Similarly well known local retailers such as Semir, Meters/bonwe, Feel100%, Baleno, Giordano and even Wanda are closing stores. With each closure comes the predictable commentary about how difficult it is to compete against ecommerce in China.
Ecommerce is proving to be a formidable competitor for many traditional retailers, yet online competition is just one factor leading to the demise of Marks & Spencer and others in China. A limited understanding of the Chinese market and not adapting quick enough are as much to blame.
M&S was structurally doomed to fail. It had huge stores in locations with sky high rents, but its stores failed to provide a special shopping experience to sway customers from cheaper online alternatives. It did little to maximise opportunities to integrate with digital channels and consideration for the local market was lacking - even the fashion didn't fit Chinese body shapes.
While we often hear about the failures of physical stores in China, ecommerce is not without its challenges. Numerous online storefronts in China get few to no sales, and many others are yet to break even. In most cases, it isn't because ecommerce is a poor channel choice. Many brands don't fully understand online channels, how Chinese consumers use them and how they fit together with everything else. Just last week, Jack Ma himself said 'plain' ecommerce would face huge challenges in China in the near future, and success will require a combination of online, offline, logistics, and data. His company has been buying up a slew of physical assets for that reason.
The most effective brands in China are integrating bricks & mortar with ecommerce channels - complementing rather than competing with each other. Many are busily opening stores to increase their physical presence. Sephora has just opened its 200th store in Shanghai, at a similar time Microsoft announced it would triple its retail presence to 400 stores. Xiaomi realised that its pure play ecommerce strategy is no longer enough and are opening 300 new stores in China. Apple is similarly expanding its physical appearance, opening 25 new stores over the past two years. Adidas plans 3,000 new stores by 2020.
As we have seen, just opening stores isn't the answer. Well considered target cities, locations in those cities, formats, and integrating online experiences are important and are continually shifting. Carrefour recently changed its strategy from large retail stores to a network of smaller convenience stores in China. Many malls and retailers are integrating more food and beverage and experiences to make themselves destinations.
Chinese consumers' inherent lack of trust, among other things, means they do significantly more research than their peers overseas before buying. Chinese seek information and inspiration from 7-10 touch points before purchasing the average product. Real life stores done well, with great service and online integration can provide inspiration like nothing else. Many brands actually treat prime bricks & mortar stores as marketing channels, appreciating that visitors may go on to buy online or when they travel overseas - but they still buy that brand.
Understanding Chinese consumers to determine the right retail experience mix is a good place to start. Agencies such as China Skinny can assist with that.
Here are this week's news and highlights for China:
Chinese Consumers
Real-Life Stores a Hard Sell to China’s Online Shoppers: Changes in China’s retail landscape are a “realignment” driven by the sector’s changing economics.
Sephora China Opens its 200th Store in Shanghai: Sephora's 200 physical stores in China are fully integrated with the independent official website, flagship stores at Tmall and JD.com, the WeChat account and a Sephora app.
China's Slippery Consumers: M&S are closing all of their ten China stores as part of the 53 international and 30 British closures. Outside of none-too-trendy clothes and some bad store locations was a lack of basic understanding of the Chinese consumer. Many of their fashions didn't even fit local body shapes, for example.
Microsoft Plans to Triple Stores in Chinese Mainland: Over the next two years, Microsoft plans to triple the number of its franchised stores in China to 400 in effort to boost sales of its consumer electronics products.
Digital China
Jack Ma says Ecommerce in China Faces Sea Change: Jack Ma says plain electronic commerce platforms will meet huge challenges in less than five years as the success will require a combination of online, offline, logistics, and data.
WeChat Drives Tencent's Q3 Revenue Growth: WeChat now has 846 million active users monthly - 40 million more than the previous quarter. Gaming remains Tencent's main revenue source.
China’s Web Speed Problem: Local Retail Sites Outperform Foreign Players on Singles Day: Chinese retailers are outperforming the global competition, with an average time of 3.4 seconds before their websites can be used by Chinese customers, compared to 7.7 seconds for global retailers. H&M stood out amongst the global retailers; with an average time of just 2.4 seconds.
Chinese Tourists
Chinese Tourists Venture off the Beaten Track: Second-time Chinese travellers are increasing in Australia and are becoming more adventurous where they visit. Regional hotel sales made up the majority of more than $600 million of hotel transactions between July and September, with all but $50 million of sales to Asian buyers.
Food & Beverage
Danone Dumps Chinese Bottled-Water Maker: French food and beverage giant Danone SA has sold its Chinese purified-water business to a local company as it shifts its strategy from fostering domestic brands to importing foreign products favored by local consumers.
Aldi Will Sell Australian Products in Chinese Stores from Next Year: German discount supermarket Aldi is set to enter China, and broader Asia, selling “non-chilled” groceries and wine, mainly from its existing Australian suppliers. The chain will initially sell online, with plans to build physical stores.
TWE Files Complaint to Tmall over 'Fake' Penfolds: Treasury Wines has filed an official complaint to Alibaba after it discovered some of Tmall’s online “wine shops” were selling unauthorised Penfolds on Singles’ Day.
Cars
Alibaba Sold 100,000 Vehicles Online In Just 24 Hours: A month's worth of sales for 1,000 dealerships sold in a day online on Singles' Day. Over 40% were sold on credit, with Alibaba offering financing of up to 36 months at 0% interest. Chery was the best-selling brand on Singles’ Day, shifting about 13,000 compact cars and sedans.
Investments & Finance
Just Spend: Alibaba's virtual credit-card, Huabei (“just spend”), has seen consumers who spend less than ¥1,000 ($146) online a month spend 50% more once they get one. It is contributing to Beijing have a better grasp of credit scores. As of 2014, the People’s Bank of China maintained credit histories for around 350m citizens - about a third of adults - versus 89% in the US.
US-China Ties Are Deeper Than You Might Think: Foreign direct investment flowing both ways between the U.S. and China may be two to four times greater than shown by data from both governments according to Rhodium Group. Chinese companies invested more in the US than American companies did in China for the first time last year, underscoring the evolution of the world’s two largest economies. Chinese overseas investment surged 53% in the first 10 months of 2016 from a year earlier to ¥961.9 billion ($140 billion), with investment to the US soaring 174%.
That's the Skinny for the week! See previous newsletters here. Contact China Skinny for marketing, research and digital advice and implementation.
