It’s no secret that China has become a “must” market for retailers. But successful expansion into this market presents some serious challenges for foreign brands, and establishing a Chinese presence can be a big undertaking. Some leading China retail experts offered these “words of wisdom” on entering the Chinese market:
1. Get started in Shanghai. Establishing a strong “concept store” or flagship is a crucial step in entering the market. Andrew Wyles Waterman, chairman of China Retail Group, notes, “If you’re not willing to maintain your concept store as a marketing expense without expecting a profit for a couple of years at least, you probably shouldn’t be doing it.”
2. Establish your presence slowly with an eye toward market longevity.
3. Secure all necessary licenses. Getting your business started will require a host of certifications from the Chinese government, especially if your business is related to food or beverage. Even the facade of your business will need to be approved by the government as well as your landlord. Since regulations are often unclear, having a business partner who is part Chinese will be helpful in navigating the country’s bureaucracy and obtaining licenses.
4. Exercise caution in choosing your business partner. “China is big and China can be complicated,” Wyles Waterman notes. “If you have a partner in Shanghai, he will want national rights — but he might be as lost in Chengdu as you are.”
5. Provide your customers with reliable supply and efficient delivery of goods.
6. Chinese consumers often doubt the authenticity of luxury goods purchased in their home country, so most who buy foreign products will buy them offshore if possible. “The fact the luxury goods might be made in China is irrelevant to them”–they’re concerned about quality control in other countries.
7. “Don’t bring all 1200 SKUs here,” says Wyles Waterman. “Pick the 20 SKUs which will do the best. Get yourself positioned so people become aware of your brand and then build your range from there. A big mistake people make is that Chinese will buy what sells in other markets.”
8. Lease terms generally run for three to five years, and usually less than three in smaller shopping centers. Options are not typical; businesses lease empty shells and incentives usually cover only their fitout terms. There are no bank guarantees for rental deposits, which are typically three months plus a management fee in cash.
9. Plan ahead, but understand you will be working blind at the outset. There is no registration of leases in China, and you won’t be able to know traffic or sales performance in a particular mall.
10. Brand presentation and brand awareness are crucial; you should “think international and act local.” Rebecca Tibbott, head of retail leasing, Eastern China with JLL, says, “You need to have a really great brand presentation so you can detail to the landlord what you are doing, what your store will look like, how they look around the world.”
11. China is experiencing “a big shortfall in qualified human resources.” Finding staff will prove to be a challenge.
12. Make sure you register your brand, as “Intellectual Property Rights are a gray area” in China. If your brand name is not protected, you may find that another company has already taken it. Corporations as large as Apple have fallen victim to this kind of theft; the company had to pay $60 million for the rights to sell the iPad in the country because the brand had already been registered by someone else.
image credit: elizabeth phung