While many retailers are in search of alternatives to China as a manufacturing destination, they’re looking for new ways in to take advantage advantage of all the brand conscious shoppers created by an emerging middle class. And the best inlet to those shoppers seems to be provided by e-commerce.
The potential for e-commerce in China has been enticing Western retailers for years. Inditex’s Zara,Coach, Neiman Marcus all established websites in China last year. And Hugo Boss, Cherokee and Kering (the maker of Puma athletic wear) weren’t far behind, looking for cyber-access to the Chinese consumer. Now Gap Inc. has announced plans to follow suit and offer its Old Navy apparel in China sometime in the next year.
Many retailers have been reluctant to move into China by way of the internet, unnerved by the spectacular failures of those who went before them. Ebay, Groupon and Google have all floundered in China. Neiman Marcus was forced to shutter its warehouse on the Chinese mainland, apparently unaware of the many costs and efficiencies attendant upon that approach to distribution. Macy’s had ambitious plans to infiltrate the Chinese market via the web, even acquiring a substantial stake in Chinese online retailer VIPStore, and then tabled the strategy after it realized it had an insufficient understanding of the famously mercurial Chinese consumer.
One thing everyone does know about Chinese shoppers is their expectation of deep discounts, always shopping for high-recognition brands marketed within special promotions. According to a study conducted by Bain this year,more than half of Chinese shoppers listed the hunt for bargains as the principal reason they shop online at all.
Speaking to the Wall Street Journal, Valerie Hoecke, senior vice president of digital for Benefit Cosmetics, said the Chinese consumer’s appetite for low prices can make crunch a retailer’s margins.”It’s not like we are being forced to sell cosmetics at a discount, but Chinese consumers are used to getting products at a discount. We don’t like to do that.…We don’t want to be in a race to the bottom,” she complained.
Still, the allure of China’s growing cyber-market is powerful. Online sales are forecast to top $540 billion by 2015, bypassing the US as the global emporium of online retail, which is expected to hit $345 billion. And the rate of China’s growth has been breakneck, leapfrogging more than 70 percent annually since 2009.
According to Duncan Clark, chairman of the investment firm BDA China, the strength of China’s potential for online is impossible to ignore. “If you’re going to be in China, e-commerce is going to be the first thing you consider, and if you’re already there, you’re scrambling to adapt.”