China’s retail exodus: Lessons from 2024’s brand exits

This article will soon be exclusive to Jing Daily Pro* subscribers. The Pro* membership will feature our most focused coverage yet as we double down on our investment in research, trend forecasting, and practical insights for brands and executives doing business in China. Pre-register for a free trial, coming later this summer. - A fortnight ago, British retailer Machine-A announced it would be withdrawing from China, only two years after opening its first and only store in Shanghai. That news came just a few weeks after fellow multi-brand retailer Yoox Net-a-Porter (YNAP) exited the market, closing its Richemont-Alibaba venture Feng Mao. Despite the market continuing to be one of the world’s most lucrative – by 2030, Chinese luxury consumption is expected to reach 35% to 40% of the global total – some Western businesses are failing to build and maintain consumer bases in the country. In the same breath, many Chinese competitors are blossoming. Brand exits From beauty to fast-fashion and luxury houses, the number of Western companies leaving the market, or scaling down their presence, offers valuable lessons to those still managing to maintain a presence. Off-White has just three stores left in the mainland, having departed Beijing altogether in March this year. Zara was rumored to be on the way out, due to recent reports that the Spanish powerhouse has shuttered nine of its mainland stores in the space of just two months — it looks to be drilling down on its online strategy over brick-and-mortar. This year has seen LVMH pulling global household beauty name Benefit Cosmetics off of all Chinese e-commerce platforms, while Shiseido-owned J-beauty favorite Baum is also shuttering its retail outlets in the country. Marc Jacobs Fragrances last month ceased direct retail in mainland China, and is now sold exclusively via Sephora China instead. Between 2022 and May 2024, reportedly over 20 overseas cosmetics brands withdrew from the Chinese market due to poor financial performance, including cult names like Maybelline and E.L.F. Contrast this with C-beauty brands, which have been thriving. Though retail sales and luxury spending growth has slowed in China, the market remains one of the most robust in terms of consumer spending. China-exclusive strategies “Localization is crucial for Western brands, encompassing localized product innovation, marketing strategies, and execution,” says brand consultant and researcher Miro Li. “Partnering with reliable local experts who understand the market and consumer preferences is essential. Another key factor is implementing an omnichannel strategy.” The country’s rapid shift to e-commerce has impacted footfall across China, tripping up some brands. “E-commerce dominates the market,” Li adds. “Many Western and even Chinese brands struggle to integrate their online and offline presence effectively to provide a seamless shopping experience. Physical stores should complement online channels, not compete with them.” On Xiaohongshu, the ultimate platform to connect with fashion-forward consumers and Gen Z, #Machine-A has 2.9 million views and the retailer has 5,507 followers and 17,700 likes – a lower presence in comparison to its competitors, such as Dover Street Market or China-exclusive ENG Concept store. Despite Machine-A engaging digitally through WeChat and Alipay, the timing of its physical store’s opening was challenging due to lockdowns. Plus, some of the collaborations the brand engaged in were small-scale, such as with subculture second-hand store Liquid Vintage, or design collective Bloop Bloop. “Many Western brands lack an effective localization strategy. They often maintain their international image and do not empower their local Chinese teams sufficiently, leading to slower responses in a rapidly changing market,” says Li. “This hampers their ability to keep up with local brands in terms of new product launches and marketing initiatives. As the market becomes more competitive, some Western brands will struggle to differentiate themselves from local players.” Leveling up to local competitors Bershka, Urban Outfitters, Pull&Bear, and Stradivarius shuttered their Tmall stores in recent years, in part due to failing to resonate with local audiences. And in April this year, British online fashion retailer Asos plummeted to a first-half loss for the first time, thanks to competition from China’s Shein. Chinese dominance in fast-fashion is a global phenomenon, one that has attracted much criticism. In the mainland, it is the reign of Taobao that is pushing out foreign names. As of February, the e-commerce giant reported to have over 612 million monthly users. On the high-end side is Tmall’s Luxury Pavilion, which has transformed from simple retail to an entertainment and education hub, deeply engaging consumers, a feat that retailers like YNAP have failed to match. Tmall offers innovative features beyond retail, like exhibitions, and an impressive livestreaming offering, which retailers need to be orchestrating to sustain interest in China. Western brands would do well to consider the areas and platforms that are already booming in the mainland – it is a case of joining them, rather than beating them. “The younger generation of Chinese consumers increasingly favors local brands that offer more cost-effective products with appealing designs. Western brands no longer hold the same allure they did a decade ago,” Li says. As China amps up its presence in fashion, beauty, and retail, competition has heated up. Getting ahead means truly grasping consumers’ behavior and mindsets. Overseas companies need to learn from these brand exits, if they are to avoid the same fate in this crucial market of high-spending consumers.

China’s retail exodus: Lessons from 2024’s brand exits

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Published July 18, 2024

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China’s retail exodus: Lessons from 2024’s brand exits