The Rewards Can Be Staggering, But Don’t Underestimate The Challenges
With uneven growth numbers coming from China in both the luxury and overall consumer apparel and footwear market, many brands are left wondering whether now is the right time for them to enter the China market. And with the Chinese tourist exerting so much influence on the international retail scene, many are questioning whether to skip the mainland China market altogether and simply target Chinese consumers in the brands’ own home markets. The answers to these questions really depend on your brand’s specific situation and can’t be generalized across sectors and brands.
If you find yourself facing this dilemma, here are a few key questions to ask your organization:
Do you have any existing brand awareness in China? You may be surprised at the level of brand awareness that your brand does or does not have in China. Many well-known brands in the West are shocked to discover that most Chinese consumers have never heard of their brand, while brands with niche awareness elsewhere may be well-known in China for their association with relevant celebrities, appearances on popular TV shows in China, or unique brand personalities that resonate with the Chinese consumer.
Are there multi-brand retailers selling your product in China in any volume? For most luxury and fashion companies, the answer to this question is no. Although there are some very interesting new boutiques in Beijing and Shanghai, in China the large majority of branded apparel, footwear, accessories, and hard luxury goods are sold via single-brand stores, even within the department store environment (with the exception of Lane Crawford, which itself still has a relatively limited footprint in China).
Do you have the merchandise range for a single-brand store? Given the predominance of single-brand stores in China, it is imperative for a brand to have a merchandise assortment with enough depth and breadth to support an entire store. For brands that are largely wholesalers in other markets, this can be a challenge; even brands that have a China retail partner need to think like a retailer, not like a wholesaler.
Are you ready to invest significant money or time and resources into the China market? There are many different ways in which to enter the China market: wholly owned retail, licensing, national distribution agreements, investment partnerships, regional distribution, wholly owned e-commerce, e-commerce distribution agreements, and arms-length wholesale deals. While each of these arrangements entail varying levels of financial investment, all of them will require the investment of management time and resources, ranging from product localization to retail design to visual merchandising, brand support, and more. Entry to China is a long-term commitment, and should be treated as such by brand management.
If you answered yes to all of these questions, then your brand might be ready to start the process of entering the market in some form. If you are embarking upon this road, the best advice is to start early. Brands find that it typically takes them at least three years from the decision to enter the market until they start selling at a decent level of volume in China. Finding the right partner is the most important part of the equation, and it takes time–especially if you want to avoid costly and brand-crippling mistakes that many others have made by choosing the wrong partner. Securing your first retail location is no picnic in China’s hyper-competitive retail landscape, and once you open your first store, there will inevitably be several rounds of tweaks to get the concept, pricing, merchandising, and service level right for the market.
If, on the other hand, you answered no to some of these questions, it’s probably best to spend more time evaluating the market in the context of your brand and situation. Make some trips to China, meet the right industry insiders, do a brand audit, discuss your brand and product proposition with consumers and retail professionals, and most importantly, take your company’s temperature on its appetite for the long and inevitably bumpy road ahead.
As for the question about whether you can simply target Chinese tourists–this one is complex too. It is no secret that the brands that are reaping the largest rewards from Chinese tourists are the same ones who have been investing in the mainland market for years to develop their brand image and customer following there. However, there are some instances of brands and retailers who are seeing success not just with Chinese tourists but with e-commerce purchases coming from the mainland or friends who are ordering online and hand-carrying products back to China. Notably, Victoria’s Secret has no mainland China presence, but consistently ranks high among Chinese tourists when visiting the United States. Other brands and retailers have seen success with this demographic, but typically it takes an investment in marketing your brand and actively engaging Chinese tourists or consumers in creative, below-the-line activities and brand building.
Financially speaking, the numbers coming out of China are often staggering, and for brands that get China right, entering the market is a game changer. However, brand management should not underestimate the time, investment, and accompanying headaches needed to get the market right. Additionally, the decision should be based on long-term factors, not short-term market mood swings. The rewards from entering the China market can be tremendous, but it is a long-term decision and investment. Is your brand ready to make the leap?
Renee Hartmann is co-founder of China Luxury Advisors, a boutique consultancy that helps luxury brands and retailers to develop China-related strategies, ranging from market entry to social media to attracting, converting, and retaining Chinese tourists. Renee has been focused on the China market since 2000, with a specialty in understanding and selling to the emerging Chinese consumer. She has worked as a brand owner, retail operator, consumer researcher, public relations specialist and market entry strategist in China. Follow China Luxury Advisors on Facebook and Twitter.
(Opinions expressed by columnists do not necessarily reflect the views of the Jing Daily editorial team.)