U.S. retailers in dire need of growth look to the China market

Discussion
Dec 26, 2017
Franklin Chu

In 2017, a growing number of Western retailers decided to go where they can grow. Toys “R” Us, Starbucks and now Walgreens are among retailers expanding their brick-and-mortar and e-commerce presence in China’s booming retail market.

As Western retail markets contract due to bankruptcies, store closures and acquisitions, retailers are increasingly looking beyond their domestic markets for sustainable growth, and for many the large, lucrative China market is tantalizingly rich with possibility.

Consider the following recent retail investments:

  • Walgreens: This month, Walgreens Boots Alliance announced it would expand its global retail pharmacy operations with a 40 percent stake in China’s leading pharmacy chain, Sinopharm Holding Guoda Drugstores Co. Ltd.
  • Starbucks: The coffee giant made global headlines this month after opening its largest store in the world in Shanghai, China. The massive Starbucks Reserve Roastery store combines artisan excellence and augmented reality (AR) retailtainment to generate excitement and word of mouth.
  • Lululemon: The Canadian yoga apparel retailer has expanded its international business in China. Chinese consumers are driving sales for products related to the health and wellness lifestyle, including fashionable yoga merchandise.
  • Toys “R” Us: Despite bankruptcy in North America, the toy retailer’s Asian business is booming. Toys “R” Us even opened 10 new stores in China in October, mere weeks after announcing woes in its domestic market.
  • H&M: Although the Swedish apparel company overinvested in physical stores in North America, it plans to expand further into the China market using e-commerce to attract young, tech-savvy shoppers.

Even smaller companies are expanding to Asia. L.A.-based baby products retailer Babyhaven launched a cross-border e-commerce website this year to capitalize on favorable market conditions, including China’s elimination of its One Child Policy, which sparked a mini Baby Boom.

As Chinese consumers’ affluence has increased, so has their appetite for foreign products. For instance, popular product categories for cross-border e-commerce shoppers include cosmetics, mom and baby products and nutritional supplements.

DISCUSSION QUESTIONS: What’s the primary hurdle holding U.S. retailers back from expanding into Asia (through physical stores and/or e-commerce)? Do you expect this movement to continue, or do you think the recent foreign expansion is a short-term trend?

Braintrust
"Might [marketing consumer products in China] be a viable option for products that just might be a good fit with the culture?"
"The biggest concern for foreign entities is the Chinese government’s “China first” mentality and actions."
"In fact, rules of engagement and paths to that seemingly vast opportunity change rapidly so few are true experts."

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9 Comments on "U.S. retailers in dire need of growth look to the China market"


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Ian Percy
BrainTrust

I’ve repeatedly come back to this segment this morning hoping to read comments from those who truly understand and/or have experienced the China factor. So far, nothing. Some one jump in please,

What I want to know, specifically, is this: Should the idea of marketing consumer products in China (and surrounds) be limited to retailers “in dire need” or might it be a viable option for products that just might be a good fit with the culture? Seems to me if an attempt at retail invasion is done out of desperation it is doomed to fail. Am I right about that?

Franklin Chu
BrainTrust

Yes, it’s true that not every product is going to succeed in China. It is important to research the popularity of the products you want to sell. Selling less-popular categories or marketing unknown brands in China can be risky. Finding the suitable marketing channel for your category is also key for growth. Also consider fulfillment, price and legal elements, among others, before making your decision. Although China is a market with great potential, it is also complex, so thorough planning is essential for success.

Ken Lonyai
BrainTrust

Clearly, this option is only for large chains with viable global logistics capabilities. Regional chains and certain industries like grocery, have no real opportunities to use Asia as a meaningful growth mechanism.

The biggest concern for foreign entities is the Chinese government’s “China first” mentality and actions. Any foreign entity that gains too much traction is likely to face Chinese competitors that are propped up by government funding or government-backed market restrictions, despite the popularity (for now) of some American brands there. I believe Apple can tell some tales backing me up on this.

A brand can chase a dwindling number of underdeveloped foreign markets, but that won’t ultimately help them if they do not meet customer needs where they make the bulk of their profits — like the US.

Franklin Chu
BrainTrust

Cross-border e-commerce remains one of the fastest growing retail channels in China, as foreign products remain attractive among China’s growing middle class for their better quality and brand prestige. Unlike traditional imports, cross-border e-commerce faces fewer market restrictions, and allows retailers to test the market with less risk and investment.

Top selling categories for cross-border include: nutritional supplements, mom and baby care products, cosmetics and personal care.

Certain grocery categories are also emerging in popularity due to advancements in the supply chain and near-shore warehousing.

Dave Wendland
BrainTrust

Let me be the first to profess, I am not a resident expert on the China market. In fact, rules of engagement and paths to that seemingly vast opportunity change rapidly so few are true experts. One individual with solid experience from the CPG industry recently shared his views on “Rules of the Road.” I found his advice thoughtful and instructive.

Franklin Chu
BrainTrust

Thanks for sharing the article and insights from “Rules of the Road.” You might find this article and insight of interested too – “7 e‑commerce questions to ask before expanding to China.

Craig Sundstrom
Guest

For premium brands, or as in the case of buying existing Chinese brands, I would think it would represent a growth opportunity. But for lesser brands, probably not so much. Legal and cultural barriers, not to mention the rather patronizing (implicit) assumption that China is unable to develop their own retailers.

Franklin Chu
BrainTrust

Among retailers, I always suggest starting with popular brands. Once you have successfully established your market awareness, you can promote some niche brands. While Chinese consumers certainly like domestic retailers (as Singles Day results consistently prove), they also seek the assortment variety and uniqueness of foreign products.

Ed Dunn
Guest
3 months 27 days ago

There are a few the following factors:

  • China has to own 60% of the business, Non-China can hold up to 40%. This should explain Walgreen deal above. It was only a few months ago China adjusted ownership stake to 60% non-Chinese ownership for certain ventures.
  • IP protection has always been a problem where someone bring their designs to China and there are “white-label” versions sold weeks later on the street markets and other countries.
  • WeChat, AliPay and Bank of China have to be consider for payment collection. QR payments are reaching standardization and there are applications and UX interactions that will need to be reconsidered versus the American swipe/insert methods.
wpDiscuz
Braintrust
"Might [marketing consumer products in China] be a viable option for products that just might be a good fit with the culture?"
"The biggest concern for foreign entities is the Chinese government’s “China first” mentality and actions."
"In fact, rules of engagement and paths to that seemingly vast opportunity change rapidly so few are true experts."

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