We recently worked with the Swedish Trade Council to introduce eight Swedish brands to various Chinese partners and investors. The event was very successful, and we hope to see these brands entering China soon. The brands were:
We even got some recognition in Sweden - for all you Swedish speakers!
AmCham - Blatant Self Promotion
Next Tuesday June 12th, I will be presenting a panel for AmCham at the Portman Ritz-Carlton called Retail in the Real China: Expanding To China's Lower Tiers. Joining me (Corbett Wall) will be Tom Brown from adidas, and Alex Coidan from Tesco. Come and join us if you can sneak out of work. Here's the official blurb:
As retailers expand their China footprint, new opportunities abound in lower tier cities. In this discussion, the panelists will share with you their retail experiences of visiting hundreds of lower tiers cities, and provide you practical insights on the challenges and opportunities retailers face doing business in China.
About the Panelists:
Corbett Wall has lived and worked in Greater China since 1988. As Managing Partner at +CW Associates, Wall works closely with property developers, retailers, fashion brands and operational teams on their lower tier China expansion initiatives. He is an expert in 3-wheeled taxi dodging.
Tom Brown has spent the last 10 years in Asia working in retail development. Currently, as Retail Expansion Director for Adidas China, Brown oversees a network of 7,000+ stores dotted across the country from Tier-1 to Tier-7 cities. Understanding where all these stores are is just the start of his challenge to shape the footprint planning of the business.
Alex Coidan is Senior Site Research Manager for East China at Tesco, and has spent the last three and a half years visiting over 150 Chinese cities, mostly lower tier, to understand where customers shop and where Tesco should be located. He has most recently been spotted in the hinterlands of Hefei.
08:00 Registration & Networking
09:30 Event Ends
Zhumadian New Mart Rings Up RMB 10 Million On Opening Day
The Dashang Group's latest New Mart Center hit record sales of RMB 10 million on opening day in Zhumadian, Henan. The 80,000 sqm center is the largest in the city, and includes a hypermarket, electronics stores, a cinema, KTV, food courts, boutiques, and a game world.
Henan is on a lot of retailer's radar, and Zhumadian is no exception. This "horse resting stop" half way between Wuhan and Zhengzhou is a tier 4 city of 7.7 million.
The new New Mart Zhumadian is the largest shopping mall in the area. There are nine floors in total, including car-parking, a large New Mart hypermarket, and seven floors of retail. We're sure the people of Zhumadian are now glad to have something to do other than drive two hours to Zhengzhou to do something.
The Bureau of Commerce people are certainly pleased. There's a lot of love flowing. "In the past, selling over a million in one day was impossible, even now it is still incredible!" said a happy Bureau of Commerce official. "Zhumadian people can now get international level shopping right here in town, maybe that's our secret."
Decatholon Announces 15 Stores in Guangzhou Area
Decathlon, the world's largest sporting goods retailer, recently entered the Dongguan market with a new 4000 sqm Hongfu Mall location. The company announced plans for 15 stores in the area within 10 years.
Decathlon is a very interesting company. They've tracked closely with China growth, but only recently have been upping their retail expansion here.
Here's a quick brief: Decathlon started exporting product out of China in 1992, a few years later they opened a factory outlet store in Shanghai, and a few years after that relocated their Asia headquarters to Shanghai. Their first China store opened in 2003, and now Decathlon operates 40 stores in China. With their recent openings in Shenyang, Shanghai, Suzhou, and Nantong, they are moving quickly towards their 100 store target by 2015.
But that's not the real reason why Decathlon is interesting.
The fact that the company, designs, manufactures, and retails athletic apparel and gear for 70 or so sports is kind of interesting. The weird French rapper style brand names they give their private label products is also kind of interesting:
B'TWIN - Cycle sports
DOMYOS - Fitness, dance, martial arts and contact sports
FOUGANZA - Horse riding
KALENJI - Running
NABAIJI - Swimming
OXELO - Roller, skate and ice sports
QUECHUA - Mountain sports
SOLOGNAC - Hunting
WED'ZE - Ski, snowboarding
But that's still not the real reason why Decathlon is so interesting. The real reason is because Decathlon is owned by a secretive French family who operates out of a small town in Northern France, and has built one of the largest retail groups in the world. The family's holdings comprise over twenty companies, 7,000+ stores, with annual sales of around $100 billion.
The Mulliez family is one of the wealthiest families in France, and their diverse businesses range from sporting goods to car repair to electronics stores to hypermarkets. They also control the Auchan Group, the global hypermarket chain who has 1375 stores in 12 countries, which last year generated $55 billion in revenues. In China, Auchan is the leading and most profitable operator after their recent merger with RT-Mart, and their subsequent $1 billion IPO in HK.
The patriarch of this très intéressant family is Gérard Paul Louis Marie-Joseph Mulliez, whonever graduated high school, and worked in the family textile business before deciding to go out on his own. At 29 he opened a grocery store in a small town neighborhood called haut champs. Pronounced 'oh-cham,' this store was the beginning of his retail empire.
The multi-billion dollar Mulliez business network is now controlled by about 600 family members who can trade shares among themselves via an internal family stock exchange, but cannot sell to non-relatives. Gérard Mulliez is no longer active in operations, but his immediate family manages most of the businesses which are still headquartered in the small French town of Roubaix where Mulliez opened his first Auchan store in 1961. As the second richest person in France, Mulliez is just a small chateau or two behind Bernard Arnault, the richest Frenchman, who heads the LVMH Group.
In many ways Gérard Mulliez is a lot like Walmart's Sam Walton. A frugal small town guy opens a store, then builds it into a global retail empire. The Mulliez family fortune is currently estimated to be over $22 billion and growing strong, but no one outside the family really knows how much they are really worth.
Now is that interesting or what? So the next time you step into a Decathlon for a pair of NABAIJI swim shorts or a B'TWIN bike pump, take a long look around and say, "Mon Dieu!"
Happy Family Is Happy To Be In Dashiqiao
Liaoning Happy Family Group signed a new 310,000 sqm shopping mall project in Dashiqiao, Liaoning. The project will be located in the Dashiqiao central business district.
If you've spent much time in Shenyang, chances are you've gotten lost in a Happy Family mall. The Happy Family Group is the largest private retail business group in Liaoning Province, and owns and operates department stores, hypermarkets, electronics stores, catering, and hotels.
We were asked a while back to create a brand map for Shenyang. This included cataloging every brand and shop in the malls of Shenyang. After spending way too much time in shopping centers you get to know them by their merchandise "personalities." Just like people, each center has distinguishing traits. Some are fashionable, some are boring. Some have low self esteem, others are arrogant. After three days in a Happy Family, though, the trait that comes to mind is confused. You'd turn right, and end up left. You thought you were in the Men's section, but actually it was Children's. Luggage turned into F&B. Jewelry flowed into Sportswear. It was a weird Willy Wonka retail experience. Still, last year Happy Family recorded annual sales of over RMB 12 billion.
The group currently has 23 shopping centers, department stores, and supermarkets across 15 cities in Northeast China. With another 14 centers and department stores under construction, a lot more people can be expected to get lost in Happy Family centers in the future.
We've been quite busy here at +CW, between retail and distributor analysis in dozens of lower tier cities, to consulting brands on their China entry strategies, to discussing public private partnerships at conferences. We've also been in the press in the US. The May edition of Shopping Centers Today came out, and it was nice to see us quoted in there several times. If you are interested in what SCT has to say about China, check out the article below. A lot of useful information for any brand interested in entering China.
Caught this one in Wuhan while in a mid-tier center.
It's funny for a lot of reasons. In Chinese New Balance is 新百伦 xin bai lun, and the crossover keeps the meaning of "New" (xin = new) while phonetically getting close to Balance with bai lun.
This fake goes for the full phonetic copy with 纽巴伦 niu ba lun. Niu is the same as in New York (纽约) which everyone knows is "New." Then they took that extra step and messed it up with Barlun. So it's both cheesy and funny, and actually very international at the same time. Why? niu is "New" from New York, and ba without the 'r' is the first character for Paris, and lun is the first character for London. So you could also think of these shoes as a combination of New York, Paris, and London. They had their own booth too.
Medici Opens Home Museum of Art In Qingdao
Qingdao Medici, a distributor of high-end Italian furniture brands, has opened their first Medici Home Museum of Art on Nanjing Road in Qingdao, with RMB120 million in funding from Fengniao Investments. Medici Home Museum of Art is a concept furniture store showcasing a variety of European living environments to display their thirty high-end Italian brands. Medici has also created the MediciInterior Design Studio, providing custom interior design service by veteran Italian designers. Mr. Cui, CEO of Fengniao Investments, stated that over the next fewyears Medici will open Home Museums of Art in five first tier cities.
First, we're trying to figure out what the "five first tier cities" are after Beijing, Shanghai, Guangzhou, and Shenzhen. Second, we think Medici will have their expansion work cut out for them, especially considering how Beijing Boloni has already done the exact same thing all across China in over 200 locations, and with Morgan Stanley and the Legend Group as investors. Third, didn't anyone at Midici watch the news this past summer when DaVinci, an expensive Italian furniture brand which is actually from Singapore, was exposed on CCTV for selling furniture that consumers were told was Italian made, but actually made in China? Their furniture was apparently shipped to a bonded zone before being stored in a Shanghai warehouse allowing it to be classified as imported. DiVinci really pooped in the pool on this one, closing down several of their own stores and creating a branding nightmare for all the other Italian furniture brands selling in China.
As 70% of Midici's brands are new to China, and after all the recent bad press, will consumers actually believe Medici's "100% guarantee on the origin of the packing listand customs declaration." We don't think so. And if all that is not enough, DaVinci just recently came out saying how they were blackmailed by the CCTV reporter for over $150,000. Here's a good NPR report on it.
Jinan Woman Learns That Online Crime Doesn't Pay
A Jinan woman was arrested for stealing branded clothing from department stores and selling them online via her Taobao shop. After questioning, police discovered the woman had committed over a hundred acts of shoplifting to stock her online store, with damages totaling an estimated RMB 200,000. Police responded to a call from a local Jinan adidas store reporting a theft of RMB 800 in stock. Police officers then discovered a photo on Taobao closely resembling the stolen merchandise, advertised as "genuine stock." They found that the store in question sold mostly brand-name clothing at half the retail price. Police then purchased an adidas item from the suspected store, and found a mall tag inside. Curiously, the seller's location was given as Qingdao, but the shipping documents showed a Jinan address. Police then tracked down the logistics company and identified the suspect's shipping address. Upon arresting the woman, police discovered over 400 pieces of stolen brand name clothing at her residence. The woman confessed that since 2009, she regularly visited large shopping malls to "stock" her Taobao store.
We're surprised that more of this type of sticky finger activity is not reported. As an avid Taobao user we often wonder about the prices of some of the items and where they came from. Also, what were the Jinan police doing on Taobao? Regardless, kudos to the eagle-eyed police office who spotted the item which led to the arrest.
Better Life Having A Better Year
Better Life Commercial Chain Share Co., recently announced their 2012 expansion strategy, with a plan to open over 40 new hypermarket centers across county-level cities in Hunan. Better Life's Chairman, Wang Tian, stated that the company will focus on increasing county-level market share and introducing e-commerce into smaller towns. "During the Spring Festival spending season, do you know which stores had the best sales? Not Changsha, but the smaller cities such as Yongzhou, Chenzhou, Zhuzhou, Huarong, Yueyang, Shaoyang, and Changde," Wang said.
Better Life currently has stores in 90% of the county-level cities in Hunan province. However, this is clearly not enough, Wang emphasized. For 2012, Better Life has plans to open new centers in Zhangjiajie, Hengyang, Leiyang, and Yichun in Jiangxi Province, with a total retail size of over 250,000 sqm. In 2013, new centers will be opened in Chenzhou, Huaihua, and Ganzhou in Jiangxi province.
You may not have heard of Better Life Commercial Chain Share Co., but you probably have one of their DVD players in your living room. Better Life, better known as Bubugao in Chinese, is synonymous with DVD players that will play anything you put in them.
Better Life is certainly doing well. Established in 2003, the group now has a dozen subsidiaries, over 100 supermarkets, and 17 department stores. In 2011, Better Life's hypermarket sales increased 10%, department store sales increased over 20%, and their home appliance sales have reached nearly RMB 1 billion, with group sales topping RMB 13 billion.
They've also recently announced a cooperation with President Chain Store Corporation, who operates over 4,800 7-Elevens in Taiwan, for a hypermarket joint venture in Sichuan. The Taiwanese have proven themselves adept at the end game. In Better Life's circle, just look at RT-Mart and Trustmart. RT-Mart is roaring along after their recently IPO, while Trustmart is two thirds the way of being fully acquired by Wal-Mart. We think this Sichuan venture is something the international players should definitely keep their eyes on.
Nemow - A Chinese Love Story
Nemow (南梦) is a women's leisure brand catering to office women 25-35 years old, which was started by Hu Hong Zhi (胡红智), a Sichuan native who wanted to build a brand with a flair for "neo-romanticism." The story behind Nemow is just that.
Hu graduated from China-West Medical University, and took a teaching position there where he met Ms. Wei, a TCM doctor six years his senior. After a short romance they married and left the university to volunteer together in Tibet. Two years later, the couple decided to move to Hainan where with RMB 150,000 investment from a classmate, they started the Nemow brand. The Hu's small fashion brand launched in 1992, and their business finally began to take off in 1999. Hu felt he needed a professional designer, so began interviewing candidates, and found a young, bright, and talented designer, whom he promptly fell in love. She was twelve years younger than Hu, and things soon got complicated.
Hu divorced his doctor wife/partner, and focused his attentions on his new designer girlfriend. The couple soon married, but Hu had to reconcile his growing business with his ex-wife, Ms. Wei, and his new wife, Ms. Wang. Hu resolved this by giving a 50% share of Nemow to his first wife, and launching another brand for his second wife. After a few years of multi-branding, Hu realized he needed Ms. Wang's help to support the Nemow brand. Hu was struck by her new designs, which introduced a younger, more colorful, European fashion sense to Nemow, which originally was designed by Ms. Wei, and targeting middle aged women. Customers responded well to the new youthful style, and sales were up, so Hu promoted Ms. Wang to head up the design department which was once led by Ms. Wei.
This complicated love triangle has seemingly turned out well for Hu. With it's romantic sensibility and a price point of around RMB 500, Nemow currently has grown to more than 200 stores across China with sales of approximately RMB 200 million annually.
With all it's convenience, quirkiness, and college town laid backed-ness, Taipei has always been one of my favorite cities to live in Asia. People in China are always asking me what is it about Taipei, and it's hard to put into specifics. But here's an article that came out recently in Next Magazine that compares the various take out coffee options in town. This is something you might read in Portland, Oregon, but in Asia - with enough attention to garner a three page spread in a major publication? Here's one more reason I like Taipei.
USA Today recently came out with a good article on Chinese luxury gift giving. They were originally going to run the story around Christmas, but opted to run it before the Chinese New Year - which makes more sense as it's about Chinese gift giving. The article gives a good idea of business gifting and how important it is culturally. We're quoted a couple times as well. Happy Dragon Year!
This article I wrote for the China Economic Review was recently published. I talk a bit about middle class Chinese brands and how their future looks bright.
I had a recent chat with China Luxury Network about luxury retailing in lower tier cities, and the interview was printed on their blog. Our firm is part of their Advisor Network.
Here's the transcript:
We caught up with CLN advisor Corbett Wall to discuss retail location strategy in China for luxury brands. Corbett runs +CW Associates, a firm that advises brands on retail location strategy and other key issues related to running retail in China. Corbett spends much of his time travelling to second, third and fourth tier cities walking malls and talking with retail landlords and operators, and has countless stories of brand successes and failures in both first and lower tier markets.
Q: Given the competitive retail landscape and high operating costs in Shanghai and Beijing, do you recommend that luxury brands enter the market in the first tier cities, or should they just go straight to second tier cities?
A: Entering Beijing and Shanghai is really a branding and marketing decision. It is almost a given that brands will not make money on stores in Beijing and Shanghai. There are so few good retail locations in each market, and every luxury brand is lining up to get the same few spots. On top of that, rents are high and most consumers in Beijing and Shanghai are relatively spoiled for choice. It's really difficult to build brand loyalty in Shanghai and Beijing -- all the same people go to all the parties, but once your event is over, they don't really care anymore. However, from a branding standpoint, brands may feel that they need to be in Shanghai and Beijing.
More creative approaches to retail location for market entry are starting to take hold. We are seeing many luxury brands first locate in Hong Kong as their initial entry point to Mainland China, particularly given the difference in luxury taxes between Hong Kong and the Mainland.
I think luxury brands going straight to second tier markets for their entry to Mainland China is a great idea. If you were to go to a prominent retail location in a second tier city and tell them "I don't like Shanghai and Beijing. I would rather locate here first", they would love you and would give you an amazing location.
In general, it always takes much longer to open stores in China than expected. It typically takes at least a year to open a store, sometimes even longer if you are waiting for the perfect spot in Shanghai and Beijing. It may make sense to go to a second tier city first, demonstrate the performance of your store and then go back to Shanghai and Beijing to renegotiate with more leverage.
Q: Do brands that are part of a group (like a Richemont, LVMH, etc..) typically get better retail locations than stand alone brands?
A: Many of the brand groups retail location strategy is being driven by their Hong Kong offices, and they typically negotiate a block of retail space that they divide among their brands. This is both good and bad for them. Due to the large block of space and range of brands, groups have more negotiating leverage than a single brand would have. However, retail landlords will often bundle the best locations with the worst locations, so the brands with the biggest China business get great locations, and the ones that are newer to the market typically get saddled with the less than optimal locations.
Q: What is the biggest challenge for brands operating retail in second and third tier cities?
A: Next to retail location, service is the single biggest issue that retailers face in China, especially in second and third tier cities. There is no retail tradition in China and no veterans to train the young group of service professionals. Many brands are sending foreigners to train and run stores, but there are issues around language and local customs. The hardest thing to teach is the intangibles. Kentucky Fried Chicken has done the best job at training staff in China - they have set up Universities and invested heavily in training.
Retailers are paying high salaries for retail staff in second tier cities (often up to 8,000 to 10,000 RMB per month - on par with corporate staff in large cities), but just paying higher salaries doesn't necessarily translate to better service.
Q: What trends are you seeing for luxury brands running their own China operations versus working with a national distributor or partner to operate for them?
A: We are seeing many of the luxury brands taking their business back from distributors and opting to run it themselves. There are still a number of distributors running brands in the market though - ranging from large scale operators to smaller, more niche players. In general, we are seeing the distributors acting like venture capitalists - they pick ten brands to represent, knowing that only one may make it big. They are hedging their bets and taking a portfolio approach for the most part.
An issue for both self-run operations and distributor run is the choice of local franchise partners in second and third tier cities. Due to the high cost of product to fill a luxury store, the nature of most local partners is that they are "connected in complicated ways", so if you enter into an agreement with a partner that later turns sour, things can get very messy.
Q: Which luxury brands have the best retail location strategy?
A: Each of the brands is following a slightly different strategy, depending upon their customer base and brand positioning. Luis Vuitton for example has spread out very wide across China, and is in most tier 2 cities and a few tier 3 cities. Cartier, on the other hand, has gone to a smaller number of cities, but has gone deep into tier 3 and tier 4 cities. Many of the luxury brands are seeing a single store in a second or third tier city being their best performing store in the world.
In general, I tell brands to go where the money is, so long as you can handle it.
Corbett is part is CLN's Advisor network and is available to provide consultation to CLN members as part of CLN membership. He is also available for in depth projects and advisory.
HK New World Department Store Announces Yantai Store
Hong Kong New World Department Store recently announced an agreement with Xianglong Wanxiang Plaza in Yantai's Laishan District to open a 55,000 sqm department store and manage an additional 46,000 sqm of shopping mall. The 101,000 sqm project is expected to open in 2014, making it one of New World's largest to date. Total investment is estimated at $250 million. The entire Xianglong Wanxiang Plaza complex will be approximately 1.63 million sqm in size, with a retail area of 350,000 sqm, and a total investment of $1.28 billion.
NWDS is really on a roll. Last year's revenues increased 46.8%. They now have 37 stores under the "New World" and "Ba Li Chun Tian" brands across 17 cities in China, a total GFA of 1.27 million sqm, zero debt, and $540 million in cash. If any mall owners out there are listening - department stores are killing it.
NWDS is smart and serious. They've quickly expanded from 1st and 2nd tier cities to where the action is - lower tier cities. They see what's happening in the LTCs and are making a move to increase market share by adding another 25 self-owned stores by 2016.
A quick revenue analysis shows some interesting things. NWDS tenant's gross sales are up 66.2%, and rental income is up 77.6%. So while the brands are really selling, NWDS is still making another 11% on top of that bump. This is most likely due to their deliberate rebranding and renovation activities. They've brought in newer brands, improved their F&B and entertainment offerings, and focused more attention on female services, all of which keep people in their stores longer. In store traffic is up 8% as a result.
On top of all this, what we find most impressive is what NWDS has done with their loyalty programs. VIP club members have grown 118%. NWDS now has 2.16 million VIP members. These members contributed to an astounding 46% of their sales.
So maybe NWDS is onto something, that the customer is king.
Five-Star Public Toilets For Karamay
The sanitation bureau of Karamay, Xinjiang recently announced that twelve 5-star mobile public toilets are being installed around the city, including Black Oil Hill, and in crowded downtown areas. The 5-star toilets come equipped with a mirror, coat hook, paper towels, ashtray, diaper changing area, exhaust fan, emergency button, and stainless steel sink and countertop. Soothing music will be played while the door is closed, and all lighting, exhaust, and flushing are automated.
According to Karamay sanitation bureau director Ms. Zhang Huixia, "People's happiness is not measured only by food, clothing, and shelter, but also convenience and a sense of dignity."
First, we had to actually look this place up on the map. Sorry, but we haven't done any retail analysis here yet. From what we know, there are around 300k people, and a hill that oozes oil.
Second, we have to marvel at how the fiscal stimulus money from a few years ago has now trickled down to even the sanitation bureau of Karamay. The fact that there's any money left is remarkable let alone that it's being spent on toilets. As any informed corporate or socialist bureaucrat knows, you need to use it or lose it when it comes to your annual budget.
Third, "crowded downtown areas?"
Dongguan Gets Italian Luxury Mattresses
Italian mattress brand Dorelan recently entered the China market, selecting Dongguan for their first store. CEO Cristian Bergamaschi indicated the importance of the China market at a press conference held in the first floor lobby of Xinghe Furniture City.
We had to giggle when we heard this because selling mattresses in a city with the highest concentration of brothels in China is kind of funny. Selling luxury mattresses is even funnier because we have to assume there is also a huge ernai population in Dongguan requiring that suitors provide the best mattresses money can buy for their mistresses.
Entering China is a complicated affair. A brand needs to decide on the right city, the right partners, and fully understand the local market in order to be successful. Many foreign brand entry stories begin in Shanghai or Beijing and result in an unhappy ending. In this particular China entry case, we think Dorelan has chosen the perfect market - a city that appreciates a good mattress, with the high probability of a happy ending.
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- Swedish Brands Come to China
- The Lower Tier Times - Vol 6
- Shopping Centers Today discusses China
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- The Lower Tier Times - Vol 5
- Another reason to like Taipei: Take out coffee comparison
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- The Lower Tier Times - Vol 4