China Consumer

Zara follows the trend

Western fashion retailers seek to crack Chinese online shopping market

Zara follows the trend

Coming to China: Asos

“It is not a question of if but when,” was Nick Robertson’s verdict when asked about entering the China market.

The CEO of online fashion retailer Asos has now answered the ‘when’ part of his own question. The company has added China to the list of places it will ship.

Since January, Chinese internet shoppers have been able to pay with renminbi on the company’s website. And Asos, which is aimed at fashion-hungry twenty-somethings, is now also considering launching a Chinese site with a partner.

The US upmarket retailer Neiman Marcus has also started courting China’s online shoppers. Rumours have been swirling for years about Neiman taking retail space on the Shanghai Bund but the Dallas-based company has instead opted to invest $28 million for a stake in Chinese fashion website Glamour Sales. Neiman told reporters that the goal is to launch its own Chinese site by year-end too, although it has provided few details.

Zara – owned by Spanish company Inditex, and opening more than 30 stores a year in China – is also launching an online store in China this winter.

“Going into China is like beginning again in Europe for us,” says Pablo Isla, the Inditex chairman.

What’s interesting is that foreign brands like Zara and Neiman are choosing between different strategies. The debate is whether to open more bricks-and-mortar stores or instead to focus more on selling on the internet.

Why? For a start, China’s online shopping volumes, excluding business-to-business transactions, jumped to Rmb770 billion ($122 billion) in 2011, up 68% from a year earlier, says market research firm iResearch. By 2015, Chinese internet shoppers will each spend $1,000 a year – about what Americans spend online now, says the Boston Consulting Group. So going online is a critical move for many traditional retailers in preventing the erosion of their customer base as more and more shoppers migrate to the internet.

Moreover, the costs of running bricks-and-mortar stores have been going up. Distribution costs in China have increased 200% over the past five years, says the Financial Times. Warehousing costs were up 23% last year alone and property broker Knight Frank forecasts that rents for retail locations in many Chinese cities will increase by 15% this year alone.

Gome, the country’s second-largest electronics retailer, has been learning this the hard way. The retailer posted a 6% drop in net profit last year. Analysts say the biggest problem is that its business model is increasingly out of synch with buying habits. Despite its rapid store expansion, Gome’s shoppers are shunning physical outlets in favour of shopping online for their electronic products. The company’s own analysis suggests that the proportion of appliances bought from e-commerce sites in China will grow from about one in 10 two years ago to about one in three by 2016.

Small wonder, then, that some companies are shying away from actual stores. For newcomers like Neiman Marcus and Asos – both yet to establish a presence in the country – the e-commerce route allows for potentially less costly market entry. After all, when Neiman announced plans to launch its own brand, Shaun Rein of China Market Research in Shanghai said there was an immediate problem: “Nobody knows who Neiman Marcus is in China.”

But for retailers like Zara, an online platform is also an effective way of filling gaps in its physical store network, especially in third-and-fourth-tier cities. An internet sales strategy also allows it to identify where demand is going to be sufficient to support traditional stores, says CBN Weekly.

In contrast to choosing online as the means to advance, a number of international brands have also elected to open flagship outlets in Hong Kong recently. GAP and Abercrombie & Fitch both fall into this category, trying to supercharge brand awareness among mainland visitors to the city. The stores themselves serve as loss-leading ventures (Abercrombie’s rent is more than $1 million per month). Sometimes bricks-and-mortar is still the way to go, it seems.

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