Booming China retail market evolving

Booming China retail market evolving

Booming China retail market evolving 

Foreign and local companies try different strategies to keep growing

China’s retail market is growing exponentially. Accounting for roughly 14 percent of the economy, how retailing progresses is gravely important to the entire economy, and to China’s growth prospects. It is equally important to China’s trading partners.

No economy can reach fully-developed status, including a robust consumption-based economy, without a fully-developed, modern retail and distribution system. The innovation and productivity of the retailing sector affect the manufacturing, agriculture and services sectors more powerfully than does any other industry, save perhaps banking.

Four important trends have dominated Chinese retailing over the past dozen years. The first is a massive and highly successful influx of sophisticated foreign retailers creating extreme competition. By 2005, more than 35 of the world’s top 50 were in China. Some, such as Ikea, are moving cautiously. But most are racing. Carrefour forecasts 25 new hypermarkets annually and Tesco 10 a year for the foreseeable future. Wal-Mart’s billion-dollar investment in Trust-Mart (35 percent stake) and purchase into Yihaodian – one of China’s leading e-commerce websites – demonstrates its intentions.

Management consultant A.T. Kearney predicts double-digit retail growth for the foreseeable future. Domestic players still dominate. Gome Electrical, for instance, China’s leader in household appliances expanded stores by 20 percent, increasingly in smaller cities. Major international retailers are also expanding rapidly, aiming at smaller cities. Metro Group has plans for 100 total outlets by 2015. With 900 million Chinese yet to move into the ranks of the middle class, China will be a magnet for global retail giants for years to come.

The second trend is the substantial competition-induced efficiency gains. Successful technology applications to reduce costs and improve performance are critical where competition leaves paper-thin margins. Some are simple: new lighting, heating and ventilation technologies to reduce energy costs. Others are more fundamental: regional distribution hubs, computer-based stocking, and cold chains critical to modern food retailing. Food and product safety regulations, and middle-class preferences, require more modern distribution technology. It also makes higher-end Chinese goods more attractive in US and Europe when they more closely meet the destination standards.

Recent studies find that international retailers in China focus primarily on brand image. Chinese firms focus more intently on information and communication technology capability. More than just online sales, this means focusing on computer-based business process efficiencies.Research at the MIT Sloan School of Management finds that every dollar of real estate, plant or ordinary equipment a company owns in the US, on average returns one more dollar of market value. Better computer-enabled business or organizational practices, however, add about $10, a total of $2 trillion in the US. ICT-based business process improvement is serious business.

As firms push to reach the large cities of the western interior – what some call the last great industrial adventure – highly efficient logistics structures and processes are critical. These form the backbone of inventory management. World-class management practices in the large retail sector will have profound value-added effects for China; and inevitable productivity spillover into other sectors.

Increasingly sophisticated local retailers make China a tough market for foreign companies. China Resource Vanguard in Shenzhen and Yonghui in Fujian province, for instance, use local knowledge and savvy management teams to grow rapidly despite the entry of Wal-Mart and Carrefour. Wahaha and Tingyi have grabbed market space from Coca-Cola and Pepsi. Detergent producers Nice Group and Guangzhou Liby Enterprise Group have captured about 35 percent of the detergent market, and Haier, the No 4 refrigerator producer in the world, is dominating its market.

The fruits of this competition include aggressive pricing and customer service, more unconditional refunds, nicer shopping environments, more attention to quality and locality preferences of consumers, and product/service flexibility that have improved the overall consumer experience.

The third is the rise of a coherent regulatory structure. Over the last several years, important regulations on the retail sector have been issued, including new labor laws, strict food safety and quality standards, and environmental protection rules. Since the Sanlu milk powder scandal in 2008, central and local governments have begun to pay much more attention to food safety and quality control.

In response, firms have expanded quality control efforts over their own products and those in their supply chains. Retailers increasingly require suppliers to pass formal certification of food safety and quality improvement systems (such as QS and ISO 9001). Standardized international marketing strategies on quality, value and service have helped Chinese retailers build a stronger brand image. Consumers, who often pay extra for foreign brands to get the quality and safety assurance, can increasingly find that comfort with Chinese brands. These brands will become more attractive to foreign markets as well.

Partly as result of new labor laws and a stronger regulatory environment, wage increases of up to 40 percent, more stringent compliance requirements (particularly in the areas of food security and sustainable development), and higher taxes have led to significantly higher costs. These costs are part of a modern, world-class retail sector.

The fourth is the shift to online retailing, or e-commerce. China is expected to have 700 million Internet users by 2015 – as many as in the US, India, Japan, Russia, and Indonesia combined. Last year, Chinese consumers spent 1.9 billion hours online. Seniors and rural residents are new to the Internet but are rapidly becoming active cyber-citizens.

What are they doing? Increasingly it’s shopping. Shopping is the fourth-most-popular online activity in China, and the fastest growing – 36 percent of Chinese Internet users shop, and this is expected to soon reach 50 percent. The Boston Consulting Group reports that China has 193 million online shoppers – more than the US, and five times that of the UK. By 2015, China’s e-commerce sales should match the US, and could capture 8 percent of total Chinese retail sales.

Simply put, companies cannot have a major presence in China without being online, not just to sell, but also to engage with customers where they spend so much of their time. If they are not buying, they are researching. A quarter of consumers research online before purchasing. Another 29 percent research and buy online.

Taobao’s C2C site, for example, offers more than 500 million products by more than 5 million merchants, with 50,000 sales per minute. Unlike eBay, most products sold online in China are new. Major retailers are moving online, such as Wal-Mart via Yihaodian, Gome through Coo8.com.

Chinese companies appear to be more aggressive than their foreign rivals in embracing Internet channels. As foreign firms focus on brand loyalty, surveys suggest Chinese firms see ICT as the primary tool to win consumers, especially the important 20-40 year olds. More than 40 percent of foreign competitors had no plans to focus on online sales while 93 percent of Chinese firms already are, or soon plan to be, online.

soruce: http://usa.chinadaily.com.cn/weekly/2012-08/03/content_15642064.htm

The small-store owner is too important, nimble and innovative to be bumped off by big-box retailers in India.

Kirana RIP? Not Yet.

The arguments for and against FDI in retail are, at a generic level, valid on both sides. However, since the devil is usually in the detail, the facts about India’s small retailers and suppliers, the conditions stipulated for FDI, and recent experience with the effects of domestic modern retail need to be viewed together before the likely outcome pronounced. The big fight is about whether this new policy will kill small shops, massively destroy livelihoods and take away GenNext’s opportunities. Facts suggest otherwise. Consider the kirana, the one most feared to be at risk. About 5-6 million of the 8 million FMCG-stocking kiranas are in rural India, and are totally safe, as the new ones can only come into the top 53 cities.

R Sriram, founder of Crossword and retail expert, tables two insights. One, in many big cities, kiranas are already not participating in the growth offered by the newer settlements like Gurgaon or Powai, because without their advantage of historically-priced real estate, they are not viable. Two, increasingly, small shopkeepers’ children are getting better educated and want to exit ‘sitting in the shop’ as soon as possible, just as small farmers’ children are exiting farming. Sadly, the country’s retail density has been increasing in recent years, not driven by passion or profit, but because of lack of options — hopefully that will change. It is true that traditional income streams of small shops in the vicinity of a large supermarket plummet; but we have seen that they soon recast their business model, exploiting the inherent advantages they have that the supermarket cannot emulate: free, prompt and no-conditions home delivery, superior and customised customer relationship management, khaata- credit and willingness to stock small quantities of something used by only a few people in their catchment — a classic ‘long-tail’ strategy. Notice two more things: even in upper-class areas in large cities, despite large retail chains in the vicinity, the small vegetable vendor and kirana continue to find a place in the household’s shopping basket. The kirana also continuously morphs, and is already moving to a more specialised and selective portfolio. We will find them variously choosing to become more of a convenience store (7-Eleven-type), or fresh-food store, a home-delivery store, maybe even express-format franchisees of large retail, and so on.

Another reality check: how much consumption capacity do even the top 50 cities have? Seriously, how many more Ikea, Zara, Walmart, Tesco and Best Buy can a Surat, Kanpur or Indore absorb, in addition to more Big Bazaar, Megamart and Croma? Further, foreign specialty retailers targeting the rich consumer will create never-before custom, and not at the expense of existing shops. Two decades ago, we had the same hue and cry that Indian brands would be wiped out; but they got better and bigger than they would have had they been left unchallenged. Now for the suppliers. Large suppliers will lose the pricing power they had with small retailers and nobody on any side of the FDI debate is grieving for them. Small suppliers, even without FDI, are being mercilessly squeezed by middlemen. The hope is that large retail chains, unlike the broker middleman, have more incentive to pay more because they have customer loyalty and a brand to build; in exchange for steady, loyal, consistent quality supply, they will pay more, guarantee offtake, improve product and production efficiency. The FDI norm of at least 30% sourcing from small scale pushes this further. Walmart potentially could kill the small suppliers of anything by importing 70% from China cheaper; but loads of small traders are already doing the same, flooding our markets with Ganesh murtis, chappals, clothes, watches, etc.

The Achilles’ heel for a lot of skilled artisans, specialised producers, grass roots innovators, etc, is market orientation and marketing. Producer collectives have managed to organise themselves on the supply side using government assistance schemes, but they struggle to manage the demand side. That is the missing link that large retailers in vendor development mode can provide, just as the auto industry has done to ancillary suppliers. Both sides agree that customers will gain because large chain retailers can provide better for cheaper, given the discounts they get through buying large quantities and sourcing smartly. Customers will also get a wider range, more innovative products and more comfortable, truthful and informed shopping environment. Poor customers won’t get discriminated against, because the hypermarket is anonymous, transactional, classless and nonjudgemental. They may not get better service because the small Indian retailer is the champion of good service, from atta to electrical, the likes of which we haven’t yet seen any big retailer match, anywhere in the world. That’s another reason why he will always survive.

Before we fight further, consider this. This network of commercially-savvy supplychain linked small retailers is an invaluable asset: as one report said, they are not ‘unorganised’ by any stretch of imagination; we agree and have refrained from using this phrase in this article! It is unlikely that Indian jugaad will let this network disintegrate. Perhaps in rural India, where they would have been more hard hit had the big-box retailers been allowed, they would have been garnered by banks as new extension counters for financial inclusion.

economictimes.com: RAMA BIJAPURKAR INDEPENDENT MARKET STRATEGY CONSULTANT

Successful Brand Marketing

With an increase in trust deficit world over, here is what brand managers need to weed out of their environments to retain their brands’ trust

MARKETING’s greatest invention is the brand. In effect unheard of 100 years ago, brands and branding now march triumphant. Everything and everybody — places and destinations, political parties and social movements, people (first celebrities and politicians, now, it appears, all of us) — are brands.

Yet, aside from a few usual suspects such as Apple, in the branding heartlands, all is not well. Y&R executives John Gerzema and Ed Lebar highlighted the problem in 2008, when they reviewed longitudinal evidence from Y&R’s Brand Asset Valuator research programme. In their book The Brand Bubble, they charted a ‘precipitous’ decline in brand trust since 1993, along with sharp falls in consumer perceptions of quality, brand awareness and ‘brand esteem’.

In 1993, for example, consumers trusted 52% of the brands researchers asked them about. Fifteen years later, the figure had fallen to 25%. Gerzema and Lebar pointed out that stock markets may have been pushing up the value of brand-owning companies, but brands themselves were being ‘hollowed out’.
Then came recession. Halfway through, Promise chief executive Charles Trevail observed that “according to every survey and index on trust in institutions and organisations from around the world, trust is in terminal decline”. Even when the recession was supposed to be lifting, Alterian chief executive David Eldridge commented on his company’s latest research: “Consumer trust is at an all-time low.”

So what’s the problem? How can brands and branding be so successful, yet so sickly at the same time? The answer may lie with the occupational diseases of brand management — diseases that are generated by the daily working lives of brand managers.

MASKING THE PROBLEM
Brand management as ‘mask management’ is the most common of such diseases. Because brands are all about external communication, many brand managers find it hard to resist the temptation to paint ‘lipstick on the gorilla’ — telling customers what the brand manager knows they would like to hear, rather than keeping to the truth of what the organisation can, or actually intends to, deliver.

In reality, the most important part of the brand manager’s job is one of internalisation: bringing customer views and perceptions from outside the organisation inside, so that the organisation understands, responds and resonates to customers’ changing demands. Yet, activity-wise, the minute-by-minute focus of the day job is external communication. When changing the external message is easy (and fun) and changing the organisation inside is hard (and painful), the lures of lipstick-on-the-gorilla mask management can become irresistible. In fact, they can even be dressed up as a new theory. Remember when we were told that punters didn’t buy the beer, but its advertising? Remember George, the Hofmeister bear?

Next on the list is brand hubris. Not long ago, it was fashionable among brand consultants to show their clients a chart depicting the relative prices of different T-shirts. Some sold for a fiver or less, while branded ones were at least £50. “Which T-shirt do you want to be?” the consultants would ask. The difference between being able to charge £5 and £50 lies in “branding”, they would say. “We can help you become experts at ‘branding’.”

Well, they may have been experts at branding, but they were dunces at economics. If you sell 1000 T-shirts for £5 with a £1 margin, you make £1000 profit. If you sell 10 for £50 with a £48 margin, you make £480 profit. By implying that the supply/demand curve could be ‘branded’ away, these consultants were usually doing their clients a real disservice. While they were doing the rounds with their presentations on ‘branding’, full of impressive words such as ‘intangibles’, the brand that romped it on the high street was Primark.

That is not to say that discounting is always the best strategy. Rather, it is to challenge the widespread belief that it’s the ‘extra stuff on top’ — the stuff added by ‘branding’ — that is the source of brands’ margins and profits. The fact is that, apart from some special cases such as luxury goods, if you look at most successful brands — such as Amazon, Apple, Dell, easyJet, Facebook, Google, IKEA, Nike, Starbucks, Tesco, Toyota, Virgin and Wal-Mart — what marks them out is not superb ‘branding’ (sometimes it’s superb, but very often it’s not) but that they deliver outstanding customer value, often via breakthrough innovations, technology and/or underlying business models.
‘Branding’ alone hardly ever makes a business successful. It is businesses, including their culture and ethos, that make brands successful. And as soon as the business drops the ball on innovation, service, quality or price, or forgets its cultural roots, the brand quickly loses its lustre.

CLARITY OF PURPOSE
Brand narcissism is our third, closely related, occupational disease. Brand narcissism works on two levels. At the first, every brand manager desperately wants their target audience to recognise their brand, love it and be loyal to it by, for example, acting as an unpaid yet enthusiastic brand advocate.
There is nothing wrong with these dreams per se. They are natural. What is wrong is when we morph the wish into a ‘strategy’ of ‘success by being popular’ — where getting people to talk about and ‘love’ the brand becomes an end in itself, pretty much divorced from the value it’s supposed to be delivering.

The second level of this brand narcissism, which is even more dangerous, is where the brand manager forgets the underlying purpose of the brand and starts acting as if it’s the job of the customer to add value to the brand (by paying a price premium or being its advocate, for example), rather than the job of the brand to add value to the customer.

An obvious point, perhaps, but it can be difficult to remember in a world where your every passing thought, and key performance indicator, is about how well-remembered you are, how preferred you are, or how many people are talking about you.

Our final occupational disease is toolkit myopia. Brand managers are surrounded by a dizzying array of sophisticated tools and techniques for research, testing, data-gathering and evaluation. They are on an endless quest for the breakthrough insight and the sparkling creativity. It’s difficult to master all these things and the quest easily becomes obsessive. So much so, that it soon seems as if excellence at these diverse technicalities lies at the heart of successful branding — when it is not.

You can, for example, use exactly the same technical toolkit, excellence, to build a brand that perfectly communicates a brand’s unique value.
And to hide the fact that the brand is nothing more than a me-too mediocrity. You can use technical excellence to articulate specialness and hide sameness, but content-wise, they are opposites, having an opposite meaning to the customer.

The one thing that branding as mask management, brand hubris, brand narcissism and toolkit myopia have in common is that they destroy trust. They are potentially catastrophic mistakes, yet they are in the air brand managers breathe, growing naturally in their working environment. So they have to be combated on a daily basis.

How? What’s the antidote? To remember that a brand’s real job is to build trust, and that everything the brand does must be tested against this yardstick. It’s this simple human understanding that successful brand managers never let anyone forget.

IKEA to launch new Family Mobile service on T-Mobile network

U. K. :T-Mobile, a mobile operator in the UK, has announced that IKEA, a home furnishing company, will launch its new Family Mobile service. The service will run on the T-Mobile network.

This marks the latest launch in the UK of a mobile virtual network operator (MVNO) to be supported by T-Mobile.

Under the agreement with Mobile Partners UK, T-Mobile will provide IKEA with pre-pay services that will be available to IKEA Family loyalty programme members in the UK.

Family Mobile will be launched to IKEA Family members on 8 August. Prior to this, IKEA will presented its 9,500 IKEA employees in the UK with a special introduction to the package by giving them a free Family Mobile SIM card with 5 of pre-loaded credit and a mobile phone.
Family Mobile has been designed by Mobile Partners UK to be simple to use with no hidden costs. Members of IKEA FAMILY will only pay for the air time they use with no fixed monthly payments and no minimum spend beyond an initial 10 of airtime purchased. Customers can keep their existing mobile number and can choose to have a household account with a number of SIM cards, allocating spend between registered members, T-Mobile informed.

The Family Mobile package consists of a mobile SIM card which can be ordered free of charge from the website Familymobile.co.uk. Mobile phones will not be sold by IKEA, however IKEA FAMILY members are able to purchase low-cost mobile phones through Mobile Partners UK, it was added.

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