What you need to know if you want to establish a retail business in China

The numbers speak for themselves. China’s economy is worth nearly $11 trillion 1. That’s nearly three times the value of India’s economy 2. With it has come greater purchasing power for China’s middle class whose population will reach 340 million by 2016 3. Small wonder then that at last year’s Chinese Cyber Monday 11.11 Shopping Festival, it record $9.3 billion4 in online sales.

Despite the headlines of a slowdown in the country, China re mains the world’s number one luxury force. This year retail sales increased by 10.5%5 in real terms and Chinese consumers make up over 30% of global luxury spending 6. However, tapping the Chinese market remains only on the wish list for many retailers. Adapting to local conditions, identifying markets and establishing a reliable intercontinental communications network are just some of challenges facing retailers. So, what strat egy should ambitious retailers adopt to bring to fruition their dreams of making it in China?

Know your customer

Let’s start with the customer base. China’s working age population – between 16 and 59 – is around 915 million 7 . That’s larger than America and Europe’s combined working age populations. A recent report from Goldman Sachs8 declares that there is no such thing as the “average Chinese consumer”. It identifies four tiers:

The crème de la crème: According to the investment bank, there are around 1.4 million movers and shakers with an annual income per capita of around $500,000.

The urban – ‘narrow’ –class: 1 in 2 could be on the public payroll. This tier has a population of 146 million people with an annual income per capita just over $11,000.

The Urban mass: It consists of 236 million blue-collar and migrant workers with annual income per capita just over $5,500. They could see the highest rise in income and as such could broaden their spending beyond the usual consumer staples.

Rural workers: With a population of 387 million, they have an annual income per capita just over $2,000 and their spending is concentrated on food and housing.

Each of these segments has different drivers and requirements. Put simply, no retailer can afford to pigeonhole – or generalise – Chinese consumers when it comes to engaging and targeting them. Along with the multi-tiered customer base, retailers should also be aware of the differences and sensitivities between age groups. This can be culturally more significant than in most other parts of the world. For example9, those in their fifties and forties are likely to have experienced more poverty and austerity. Those in their thirties and the millennials may not have experienced hardship and could be second-generation rich.

Social Media

Engaging them via China’s fragmented – and regulated – media market requires good local insight10. Along with regional and national print and broadcast media, retailers should be well versed with the country’s online landscape. It is estimated that half a billion Chinese are online and 80% access the web via a smartphone. They spend an average of 25 hours a week on social media11. There is no Google, Facebook, Youtube, Twitter or WhatsApp12. Instead, it is Baidu, Youku, Weibo and WeChat. And retailers who have mastered the art of Chinese social media have been reaping the rewards.

Using Weibo to highlight key fashion shows, Tommy Hilfiger raised engagement by a whopping 1900 % and saw sales at its Beijing stores increase by 21 %13. Angela Ahrendts, as former CEO, spearheaded Burberry’s use of Chinese social media channels14. The brand used the likes of Weibo Youku to secure hundreds of thousands of followers and fans15 – and ultimately boosted sales to turn Burberry into a multibillion Dollar success story16.

Physical vs Online

One key consideration for any retailer is whether to opt for a physical –store presence – or to opt for an online only strategy. To take advantage of China’s online grocery market, which IGD estimates to be worth over $180bn by 2020 17 , Sainsbury’s recently launched with Alibaba’s Tmall18. Grocery chains with physical stores such as Walmart and Carrefour have observed a change in tastes and trends along with an increase in online competition19. Following a spate of high profile food scandals, Chinese consumers are placing greater emphasis on food provenance. These are all key considerations for retailers looking to expand to China.

Retail technology

With nearly 800,000 smartphones in use 20 , retailers must maximise the use of mobile technology to drive revenues. Slowly, but surely, an increasing number of retailers have started to introduce free instore WiFi. With the consent of the shopper, WiFi can provide retailers with valuable insight to identify popular offers and deliver advertising or even exclusive “WiFi only” promotions and discounts.

Chinese shoppers, like their global counterparts, love showrooming, that’s when shoppers browse goods at a store and then purchase it at another retailer – usually online. Research from McKinsey found that only 16% of consumers, who did their research on a mobile, actually bought the product at the store21. Yes, that is a threat. But forward looking retailers need to see this as an opportunity to provide Chinese shoppers with an immersive retail experience.

New retail technology such as beacons, which serve location-aware coupons and offers, can provide a far more engaging shopping experience – and are delivering results22. Chinese

jewellery retail outfit Chow Tai Fook has used beacon-supported location and proximity marketing with WeChat to generate sales of more than $16 million23. Other technologies that could bring the retail experience to life include augmented reality24 , self-service apps25 , instore navigation26 and automated kiosks27. While it might sound clichéd – the possibilities are endless to revolutionise the shopping experience.

The Information Silk Route

Ultimately, these retail technologies are as good as the network they run on. Similar to how ambitious foreign retailers are partnering with Chinese firms for local insight, retailers looking to expand into China need a secure, reliable and robust service provider.

China Telecom Europe (CTE) is the owner, builder and operator with a dedicated China – Europe optical fibre network. Retailers can benefit from a network that can transport any combination of voice, data, video and IP at lightning fast speeds. A growing number of international businesses have come to rely on China Telecom Europe for a number of services including data centre connectivity, Content Delivery Networks (CDNs) and Virtual Private Networks (VPNs).

China Telecom Europe has six ultra-reliable fibre optic cable routes spanning across continents with interconnected Points of Presence (PoP). To provide peace of mind and a 24/7/365 network, it also has as hoc and submarine cable resources as back up.

To help retailer stay connected with consumers, China Telecom Europe has implemented social media integration. Recently it worked with a large international sports retailer to incorporate WeChat and EasyChat into marketing campaigns and drive sales.

China Telecom Europe can provide local insight and experience. For example, what regulation to be mindful of when offering free in-store WiFi. Put simply, no other service provider can match its technical capabilities and local expertise in China.

To find out how China Telecom Europe can support your retail business: Please contact: EMEA.Marketing@chinatelecomglobal.com

Or visit: www.cteurope.net