The High Cost of China’s Retail Store Strategy

on April 13 2012 | in Retail | by | with No Comments

Luxury sales aren’t all that are rising in China: the costs of manufacturing are soaring as well. Advertising on China’s national broadcaster, CCTV, has risen almost 50 percent since 2007, and the cost of employing white-collar workers has surged approximately 60 percent in the past three years. Warehousing, distribution, and especially retail rents are forcing more and more brands to the web.

Neiman Marcus, the U.S. multi-brand luxury retailer is quietly testing out the Chinese market — digitally. Analysts are somewhat skeptical of the move. Shaun Rein of China Market Research in Shanghai said: “nobody knows who Neiman Marcus is in China.”

Brick-and-mortar stores in China, most experts agree, are a necessary evil. “I don’t think it’s possible for a foreign brand to come in and sell at high prices just online,” Rein said, “Customers really need to be able to see and touch the product and feel the brand heritage in a physical environment.”

If Nemian Marcus ultimately thinks the price of retail space is too high, the brand will be in good company. Sam Mulligan, China Director at Data Driven Marketing Asia, said, “Over the past three years, these costs have started to become prohibitive. When we work with customers on a new market entry, once we get to formulating a retail strategy, the metrics fall out of the window.”

photo credit: bricole urbanism

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