Many Retailers Struggle to Find the Formula for Success in China

As discussed in this Stores Magazine story, the Chinese economy continues to grow at double-digit rates and has averaged 15% growth for the last five years. The number of people who are now in the middle class or higher has also soared. Moreover, these people are buying more, with one research firm predicting that by 2022 retail spending in China will be double that of the U.S. market.

Many leading U.S. and European retailers have been drawn by the potential of the Chinese market and have been doing business there for several years. For instance, in the last few years Gap,Walmart and Apple have seen enough positive response to their presence in the country that they now plan major expansions. Starbucks is also going strong to the point where customers are willing to pay a high price for the opportunity to not only drink the product but to show others they are doing so as holding a Starbucks branded cup has become something of a status symbol.

While the potential for retailers to open stores in China is extremely tempting, the story says that any company considering this needs to proceed cautiously. The key issues are primarily cultural and governmental. For instance, on the cultural side, there is a thriving counterfeit market for top products, including store brands, which can potentially erode a brand’s image. While governmental issues include the potential for Chinese officials to become involved in ways that can potentially derail a successful business.

Unfortunately, several U.S. retailers, including Best Buy and Home Depot, entered the market without fully understanding what they were getting into. After several years of being unsuccessful, both have departed China with many pointing to their lack of fully adapting to the market as a reason for their failure. Others, such as Walmart, Carrefour and Tesco, found it took much time and money before they found the right strategy.  And Starbucks has not been immune as they have faced criticism from the Chinese media.

For anyone curious about what the retail market is like in China, this is definitely a story worth reading.