New Look’s decision to withdraw from China is indicative of the struggles many UK brands face when trying to crack the lucrative but notoriously difficult market, industry experts have observed.
New Look has been gradually reducing its Chinese store portfolio and intends to close the remaining 120 stores by the end of December. It will also close its head office in Shanghai. Around 730 employees in China will be made redundant as a result of the decision, and “a small number” of UK roles will also be affected.
Alistair McGeorge, executive chairman at New Look, said the decision was taken after reviewing the trading performance of the Chinese business and the “substantial investment” required to run it.
Among the biggest challenges UK retailers face in China are a lack of local knowledge, increased competition from Chinese brands and the sheer size of investment required to make it work, industry experts have said.
“You really have to understand the market [in China] a great deal before you enter it, and understand whether your product is going to work well or not,” Maureen Hinton, group research director at GlobalData, told Drapers. “If it’s slightly different from what you’re selling in the UK, then it’s like you have two different ranges going on. You’re not going to get the volume benefits.”
One brand owner agreed that there are many obstacles in the Chinese market for western brands: “China produces about 40% of the world’s goods, so trying to manufacture outside the country and then sell back in is a challenge. The cultural differences are significant, and many Chinese brands are imitating European brands and doing well – there’s a lot of choice in the market.”
Angela Farrugia, group managing director of Global Brand Management Group, concurred that the rise of “made in China” brands is posing serious competition: “It’s no longer uncool to be made in China. The customer base [there] is more educated and more demanding these days – there’s a lot of time spent on forums to get information about the cheapest products, and home-grown brands are offering things that imports cannot give them.”
New Look’s decision to go it alone in China, rather than teaming up with a franchise or joint venture partner, required substantial investment, the managing director for Asia at one UK retailer observed: “There were a lot of costs up front. They didn’t have a local partner, so the investment was their own, and when you’ve got strong competition from local brands and big global guys you need a lot of fire power,” he said.
However, he added the withdrawal “right and brave”, and would allow New Look to focus on turning the core UK business around.
Hinton agreed: “It was a substantial market for them, but it’s a distraction, costly and not doing as well as they could have hoped for. It is best to retrench and focus on their home market, and get the UK business in a position where its successful again.”