With China returning to work after welcoming in the Year of the Rooster, CR Retail explores what they believe to be the key retail trends shaping the China market during the next 12 months.
The Connected Consumer
Over 53% of people in China went online during 2016 with 43 million new internet users added during the year. More than 95% of all internet users in China did so on their mobile devices, illustrating how consumers' lives are becoming more dependent on technology. They are not just using technology for work and communication but are now using it increasingly to shop since it has become much easier to make transactions using e-Payments such as AliPay and WeChat Payment. This is an exceptionally convenient tool and with online stores open for business all the time, provides a great way of selling across China.
Many brands have been slow to grasp the potential of selling online, assuming that the consumer will adjust their shopping behaviour for the brand. While there was a time when international brands shaped the China retail landscape, this is no longer the case. It is the consumer who is driving the market forward and brands who fail to recognise this will struggle. Mobile is growing faster than any other form of shopping and is becoming increasingly used throughout the entire shopping journey including product research, purchase and payment. In fact, 82% of all online purchases on Singles Day 2016 were made on a mobile device.
A technology which is going to quickly become a must is Virtual and Augmented Reality (VR & AR). A number of brands are currently experimenting with this and in a market such a China where the consumer quickly adapts to new forms of technology, we believe a number of brands will start to adopt VR and AR as part of their overall experience. In 2016, Alibaba launched ‘Buy+’, a virtual reality shopping experience where consumers felt like they were shopping in an actual store, in this case Macy’s in New York.
Retailers are needing to quickly understand how they can incorporate technology into their strategies. Failure to act will potentially mean the consumer stays away; shopping with brands who understand them and make the purchasing process easier. Some brands are already starting to incorporate digital in their stores, and this will be expected of all brands shortly. This allows the consumer to shop not just what is in the store but everything the brand is selling.
The buzzword over the last few years across the global retail landscape, Omni-Channel, has become an integral part of a retailer’s strategy. Brands in China have been slow to implement this. However as companies start to introduce omni-channel, it is quickly going to become a necessity and those failing to adopt it will lose out - looking old-fashioned and out of touch with the consumer. This is not just to do with both the online and offline stores but also includes social media platforms like WeChat where brands are now starting to include WeChat stores; sometimes in place of the large third-party marketplaces such as Tmall.
While it is expensive to initially implement, it provides both the retailer and consumer with a number of advantages. From as consumer perspective, it provides a greater flexibility in the way they shop. From a retailer perspective, it provides a greater understanding of who their customer is and allows them to offer more relevant content.
In addition to a number of traditional offline retailers ramping up their online capacity, we are starting to see the emergence of a number of traditional online brands moving offline. As Amazon start to open physical stores in the US, we have started to see Alibaba make similar moves by acquiring the Chinese department store and mall operator, Intime Retail. We believe this to be the first of a number of online operators broadening their offering to include bricks-and-mortar stores and will increase the competition for prime retail spaces as everyone battles to be in front of their target customer.
With the consumer now shopping across numerous channels, retailers are able to track all purchases that each individual customer makes. This provides the brand with ‘big data’ giving them a more in-depth understanding of each consumer’s behaviour and a smarter way to engage with them and optimise their experience whether in-store or online. As China’s retail landscape becomes more competitive, it is vital that brands engage with their customers in the appropriate way and only provide them with the relevant product offering ensuring less wastage. Big data allows for this.
The question that a number of retailers are now facing is what are they going to do with this data? It is becoming one of the retailer’s most valuable assets. Consumers are being inundated with brands trying to grab their attention. In order to ensure their content is viewed and that the brand stays current, the use of Artificial Intelligence (AI) can help brands understand at a micro level what consumers want and allows them to customise their marketing for each individual customer. This enables the retailer to forge a stronger relationship with the consumer and by recommending items that compliment previous purchases, can lead to increased sales.
Price is one of the key reasons why a number of brands continue to struggle across greater China. It is no coincidence that Hugo Boss, who adjusted their China prices last year to be more in line with the rest of the world, has seen an increase in sales in the China market. The rise of both the connected and travelling consumer together with cross border eCommerce is making the pricing structure of retailers far more transparent. The Government, in an attempt to boost internal consumption, have lowered the import tariffs for certain goods, but some brands have been slow to adjust their retail prices to reflect this. The Chinese consumer is savvy and understands what goods are actually worth. They are no longer willing to pay these high prices in mainland China.
Brands have been very slow to adjust their prices which have resulted in Chinese consumers holding off making purchases and waiting until they are travelling to cheaper markets. Alternatively, the inflated pricing structure has led to the rise of the “daigou" market or parallel market where people buy goods in cheaper locations before reselling at a price lower than the brand in the China market.
Retailers who adopt a global pricing structure are providing their customers with fewer reasons to shop abroad which in turn should boost their China business. Those who fail to adapt, risk continuing to struggle as consumers chose more forward thinking competition.
Experience & Execution
While the majority of brands have not struggled to open stores, many of those stores were poorly executed with the consumer experience overlooked. The number of stores a retailer has is now not as important as before due to the increased number of channels through which a brand can sell their products and engage with the consumer. However, the brand experience and the way it is executed is critical. How are retailers to stand out from the competition and get the consumer to visit their stores rather than make purchases in the comfort of their own home? The way to stand out and win over customers is by providing a superior experience; unlike anything else they have encountered. This is not just in terms of the store design but also in the way that the brand educates the consumer about the brand and product offering.
A key area in brand experience is the interaction of staff with the consumer. With the ever increasing number of Chinese travelling to other markets, this approach needs to be consistent across the world. Unfortunately for most brands, this is not the case, and there remains a gulf in what the consumer experiences in China compared to other markets. Historically, brands in China have been hesitant in investing in staff due to the low retention levels. However companies like Apple and Lululemon are setting new benchmarks with the level of service expected of their customer facing staff. Other retailers are quickly going to need to adjust their approach or risk losing market share going forward.
With technology playing such a pivotal role in China’s retail landscape, experience should not just be associated with what happens in store but also online. Brands have often been hesitate to invest in technology but with the Chinese growing increasingly accustomed to shopping in this way, it is important that retailers are able to provide a seamless experience across all the brand’s touch-points.