Drapers brought together a selection of brands and retailers who all had one thing in common: the desire to succeed in the complex yet highly profitable Chinese market.
There is no doubt the increasingly wealthy Chinese market figures highly on the radar of UK businesses, but expansion there is at an embryonic stage for many, and the challenges to overcome are numerous.
Organised in association with Hong Kong-based logistics provider and supply chain specialist OOCL Logistics, Drapers hosted a round table at the Mandarin Oriental Hotel in London on October 2, where retailers including Joy, Agent Provocateur and Debenhams discussed their approaches to Chinese expansion, the online landscape and market potential.
While some are still pondering opportunities in China, Agent Provocateur’s international business development and franchise manager Alison Embling has first-hand experience of the market.
In September 2013, the premium lingerie retailer opened a 560 sq ft store in Beijing’s Parkview Green mall and a 484 sq ft concession in department store Lane Crawford in Shanghai. Another concession followed in Lane Crawford’s Chengdu branch in March, making three directly-owned outlets.
For Agent Provocateur, starting small was the right option. “We did some market visits and spoke to potential franchise partners before we decided to do it ourselves,” said Embling. “Lingerie is a small part of the market, and so it was easier to find which other brands were present, what their pricing was and how many players were international or local.”
A Chinese-language website has been launched, but this links back to the main English-language site for purchasing and then items are delivered to China.
Another approach is to gain an online following first. According to Ken So, director of corporate sales at OOCL Logistics Hong Kong, Chinese consumers prefer to view products in store and buy online, meaning multi-brand online marketplaces like Tmall and ShangPin are seen as good entry points.
Lynn Ritson, ecommerce director at lifestyle business Cath Kidston, sees Tmall as a platform to build the brand story, before launching a transactional website. In her previous role as brand communications director at Karen Millen, Ritson worked on the retailer’s launch on Tmall.
The Cambridge Satchel Company chief marketing officer Mario Muttenthaler has also adjusted his expectations to fit Tmall’s promotion-driven proposition when planning to launch on the site in November. “Full price is such a big deal when building a brand, but you have to realise China is slightly different. It’s about finding ways to drive traffic on Tmall and not lose out as there are continual discounts.”
Muttenthaler argued Tmall is a good first step, although it must be managed carefully. “China feels a bit like the Wild West when you first enter as the rules of engagement are very different. Because the language and market dynamics are so different you have to give up an element of control, and that’s why it’s important to find a trusted partner.”
Having a partner on the ground helps western brands keep up to speed with the lightning-fast Chinese market. When choosing a partner, Ritson advised looking at the other brands they represent (ideally a mixture of western and local brands), as well as obtaining references and visiting fulfilment centres.
The attendees outlined the advantages of working with a local logistics partner to negotiate the world’s fourth-largest country. Mark Rickett, assistant general manager at OOCL Logistics (Europe), said the development of highways and infrastructure improvements are helping to connect its local distribution centres across China, meaning the company can replenish stores in tier one, two, three and four cities. OOCL Logistics’ So noted the importance of opening offices in developing tier three and four cities to guarantee supply chain management and consistent delivery.
The discussion then turned to social media and how bloggers can act as partners in the digital space. “Some bloggers’ social reach is off the scale,” Ritson noted. “Getting those people on side and being part of the brand is so important, but you are not paying them to wear your brand; it has to be authentic.”
Attendees were advised to connect with consumers on micro-blogging sites like Weibo or live chat on WeChat. Sharing lifestyle images and answering questions before purchase was highlighted as an important way of reducing returns, a concern for many British brands looking to sell in China. The round table participants agreed that while average returns of 40% are largely expected in the UK, this early interaction cuts Chinese returns down to just 8% to 10%.
While online is a strong platform for retail growth, those at the round table were warned of an emerging trend for people buying a full-price garment online but then returning a counterfeit product.
Protecting intellectual property is key. Many brands have entered China and found their brand and logo have already been appropriated by a third party.
For Maureen O’Brien, creative director of lifestyle retailer Joy, protecting the brand name is a laborious process. “Galeries Lafayette in Shanghai needs our logo secured, but it is still in the hands of Chinese copyright lawyers after 18 months. It’s got worse as people are travelling and looking at European brands.”
After four years’ work to protect its branding, The Cambridge Satchel Company will launch on Tmall in November. The accessories brand is finding a lot of traction in China due to its association with its university namesake. However, while consumers still hunger for quintessentially British products, this alone cannot guarantee success. Building brand awareness is vital, especially to compete with influential South Korean fashion labels and established domestic brands.
‘Chinese retailers mark up in order to always give a discount. They anticipate selling for 40% less’
Maureen O’Brien, creative director, Joy
Returning to the point of discounting, O’Brien notes: “These Chinese retailers, of which there are thousands, tend to mark up in order to always give a discount. They don’t have a Sale, but always anticipate selling a garment for 40% less.”
So agreed some mid-market labels suffer due to the extremities of Chinese shopping habits. “Consumers either want high-end to show off their personality and status or value fashion for the cheapest price.” However, it appears this is changing with the success of brands like Zara and H&M.
Getting sizing and product mix right across the north/south divide is another issue to contend with. According to O’Brien, northern consumers are taller, compared with the south’s more petite customers.
Even if you can get the online and offline experience right, questions remain over the strength of the Chinese market. “It’s not as good as it was. There is definitely a downturn,” said O’Brien, who had been in China two days previously.
“People are travelling out of the country and buying in higher-end markets like Italy and London. There are also problems with shopping centres. I went to visit quite a few and they’re fairly empty, yet they are still giving huge incentives to build more.”
The round table attendees said in China you cannot afford to make assumptions. Businesses must constantly re-evaluate the market and work with a trusted partner to build a strategy for success.
|Alison Embling, Agent Provocateur|
|Mario Muttenthaler & Verity Macdonald, The Cambridge Satchel Company|
|Joanna Brazier, Debenhams|
|Antony Comyns, Hawes & Curtis and Ghost|
|Sara Schmid & Yanru Shi, Joules|
|Maureen O’Brien, Joy The Store|
|Lynn Ritson, Cath Kidston|
|Douglas Hood, Outside Looking In|
|Rink Bindra, Tower London|
|Ken So, Samantha Sherman & Mark Rickett, OOCL Logistics|
|From Drapers Eric Musgrave, James Knowles, Charlotte Rogers|