It's still not too late for global retailers to enter the
lucrative Chinese consumer market, but they should first understand
the nuances of the market and find the right business models in
order to win, say experts.
China's consumer market, expected to become the world's second
largest after the United States by 2015, according to investment
bank Credit Suisse, presents enticing opportunities for
retailers.
Some early movers such as US retail giant Wal-Mart and French
firm Carrefour have already set up shop in China while many others
are considering joining the fray.
"I would say it is still not too late for other global retailers
to enter the market," said Michael Silverstein, senior partner and
managing director of Boston Consulting Group.
As the economic boom in China's major cities - where most global
companies are concentrated - spreads to second- and third-tier
cities, it is expected to fuel an increasing demand for consumer
goods in those areas, said Hubert Hsu, a senior partner and
managing director of the Hong Kong office of Boston Consulting
Group.
Understanding China's unique landscape and culture, both
Silverstein and Hsu agree, is the first step toward developing a
winning retailing strategy.
Winning in the scramble for China's retail customers will depend
on how quickly a retailer, especially one from outside China,
understands the economic, geographic and cultural landscape of its
market, Hsu said.
"Finding the right local partner is one of the keys to success,"
Silverstein said.
The urban, coastal and inland markets in China, Silverstein
said, are quite different and demands different requirements for
retailers. Local partners, he said, would help foreign players
adapt to local needs. "Missing the nuances is to miss the
opportunities."
Latecomer retailers, Silverstein suggested, may look at the
secondary cities first to avoid the fiercely competitive markets in
top cities such as Beijing and Shanghai.
Most global retailers understand the differences between Western
and Eastern preferences, but there are many nuances that will
continue to affect shoppers' choices within China, Hsu said.
Such diversity often calls for customized products and services
as well as a different product mix from one city to another, Hsu
said. The trick is to find the right balance between uniformity and
customization. Too much uniformity will hurt sales productivity
whereas too much customization will lead to lower margins.
Foreign retailers should also get familiar with the supplier
representative model in China.
Retailers act as landlords in this model, renting floor space to
suppliers who handle customer interfaces such as merchandising,
sales and after-sales services while jointly managing logistics and
promotion with retailers.
Foreign retailers should also push a business model that
combines international and local trade formats, said Patrick
Ducasse, senior partner and managing director of Boston Consulting
Group and the global leader of BCG's Consumer Practice at its Paris
office.
Although modern trade formats such as supermarkets and
hypermarkets are gaining ground in China, traditional trade formats
are still going strong in some sectors such as the home decoration
market.
"They should make sure that they understand the format, the
demographics and find a commercially and economically viable
business model," Ducasse said.
Network expansion and increasing productivity, Ducasse said, are
equally important.
Retailers should ask themselves some of the following questions
before they set out to meet the challenges they will face in China,
Hsu said.
Which format will help us break traditional trades' stronghold
in some sectors?
Do we know how to balance the benefits of customization against
scale advantages in China's fragmented market?
Do we know how to seek opportunities in China's white spaces
without sacrificing same store productivity?
Do we understand the pros and cons of the supplier
representative model for our business?
What capacities do we need to answer these questions?
(China Daily July 11, 2007)
