Lured by the dizzying promise of more
than a billion consumers, American companies are leading a
Western invasion into retail's final frontier. By J.
Illustration by Brian Stauffer.
Inside Wal-Mart's Asian headquarters in Shenzhen, China,
exists a very different kind of people's army: research teams that
are assembled and trained to go door-to-door in search of new
customers. Each knock brings a new glimpse into the spending habits
of a Chinese family: what they eat, what they buy. And it offers
one more small piece of a giant puzzle of a corporation that wants
to assemble a clear picture of the Chinese consumer it's selling
to.
Lacking the same kind of detailed demographic data that's readily
available in the
United States, the world's largest retailer is
patiently gathering all its own business intelligence, street by
street, as it plots a marketing blitzkrieg in the largely
unexplored territory of the vast Chinese market.
"It just never ceases to amaze me, the tremendous growth," says
Mitch Slape, Wal-Mart's head of global real estate development,
after a trip to mainland China. "Shenzhen, 25 years ago, had
50,000 people. Today, unofficially, it's 10 million people. Even if
you've got good census data, just keeping track of that growth is a
tremendous challenge."
It's one that Wal-Mart, among many other companies, has been
anxious to tackle.
Over the past 10 years, Wal-Mart has gradually built 49 new stores
in 23 cities on the mainland. But that methodical development pace
set under rigid central-government control is about to switch over
to the fast lane. Last December,
China initiated a sea change in
the retail landscape, lifting the last chains on retailers by
allowing foreign merchants to expand beyond the largest cities into
every profitable nook and cranny that can be staked and claimed. In
most cases, the
Chinese government has also suspended old rules
requiring foreign operators to partner up with a Chinese firm.
For the
Bentonville,
Arkansas, crowd, the new rules have triggered
a surge in new construction plans. The Simon Group has just agreed
to build a string of new malls with Wal-Mart as an anchor tenant.
Hangzhou, near
Shanghai, is slated for the first new mall, one of
12 projects planned that will cover a total of eight million square
feet. Other retailers are jostling their way into the market as
well, anxious to create a name in the most populous country on
earth - which is set to hit 1.6 billion people by 2030.
Carrefour, the French food and retail giant, has already made a
name for itself in China. Fast-food purveyors like McDonald's have
made American takeout an enormous success, with hundreds of KFCs
feeding a new appetite for fried chicken. Even Hooters has been
welcomed. And inspired by the invasion of Western shops and
salesmen, Playboy has begun suiting up its first cotton-tailed
bunnies in 18 years, with plans to open a new, members-only club in
Shanghai.
Befitting its size, China has already built four malls that are
each bigger than the
Mall of America, which is seven and a half
acres of retail heaven in
Minnesota. By 2010, retail analysts say
that China will be host to six of the 10 biggest malls in the
world.
Their arrival is working a new Chinese cultural revolution - in
retail. For decades, China had been a bustling hive of small stores
operated by some of the surliest clerks that ever stuck their hand
out for payment. Now the spit is gone, and polished service has
taken its place. And in the process, Chinese consumers have adopted
Western shopaholic standards with relish.
"Modern retail formats will outperform a traditional retail format,
typified by hypermarkets cannibalizing street markets across the
country," remarks David Hand, managing director of Jones Lang
LaSalle
Beijing, a real estate services and management group. The
Chinese, he adds, have taken quickly to the new style: hygienic
sales environments, large merchandise selections, overseas
products, discounted bulk purchasing, strong global branding, and
high-quality sales staff. And key growth categories include foreign
hypermarket concepts, with all fashion categories - shoes, jewelry,
watches, cars, and more - leading the retail invasion.
The Emergence Of China
Over the past few years, China's export economy has become a
near-obsession in the United States and in economic circles around
the globe. Changes in long-standing trade rules have opened the
floodgate for textile imports in the States, threatening to wipe
out what remains of the American apparel industry. The United
States, meanwhile, has been applying all the high-level power it
can muster to persuade the Chinese to let their currency float to
a higher level, making its exports more expensive.
But while Chinese exports receive the lion's share of the world's
attention and dread, retailers have been studying Chinese
consumers. And what they see is a world of new opportunities.
Just ask any economist.
Since 1980, the Chinese economy has been growing at an average rate
of over nine percent a year, a bullish, generation-long economic
expansion the likes of which the globe has never seen. Twenty-five
years ago, Chinese workers earned a living on par with the people
of Chad, in
Africa. Today, income in China is five times what it
was, and it's continuing in an upward spiral. With economic reform
has come a new class of the well-educated elite. The average income
of the top 20 percent of wage earners in Beijing is $3,600 a year -
four times that of the city's poorest residents.
Any comparisons with Chad are ancient economic history.
"There's so much concern about the negatives, people often lose
sight of the fact that it is one of the most dynamic, rapidly
growing markets in the world," says Kristin Forbes, associate
professor at
MIT's Sloan
School of Management, who recently
completed a two-year stint on the Council of Economic Advisers.
But in a country that has some 5,000 years of collective history,
including more than 50 years of Communist rule, the American
retailers who are lured onto China's welcome mat aren't facing any
kind of slam dunk.
Wal-Mart, for example, had to figure out how to pay local
taxes.
"Figuring out what they had to pay in taxes was actually a big
hurdle," says Forbes (who's no relation to the famous publishing
dynasty). "It took local governments some time to figure out what
it should pay."
"This market is very different and needs thorough market research
among consumers," observes Hand, of Jones Lang LaSalle. "A U.S.
retailer might be very successful in both markets, but for very
different reasons, such as different consumer groups, expenditure
patterns, age groups. Fashion is an interesting example. Many
Chinese developers try to lure famous U.S. department stores, often
by offering very sweet deals, to China. However, very little
thought is given to the different shopping preferences, clothing
styles, body shapes, between these two countries. A success in the
United States will not automatically be a success in China without
appropriate merchandise adjustment or positioning."
Local retailers are scrambling, too.
"A classic thrust-and-parry scenario is already emerging and is
likely to remain in place for the next three to five years," adds
Hand. "International retailers are thrusting into this hugely
promising market, whereas domestic retailers are frantically
consolidating in an effort to parry a defense. There is a race for
space under way among many categories - big-box retailers,
high-street banks, petrol filling stations, etc."
China Luxury
Forget any lingering black-and-white images you may have of the old
Communist legacy of Mao. These days, businessmen are being embraced
by the
Communist Party leadership. For them, long marches,
self-criticism, and drab proletarian clothing are out. Way out.
Gucci,
Louis Vuitton, and self-indulgence are in.
European brands have done well here, notes Radha Chadha, a
luxury-marketing consultant based in
Hong Kong. But General Motors
has made inroads as well, selling a growing number of cars even as
the congestion slows Beijing traffic to a bicycle-like 7.5 miles an
hour.
From the broad perspective, it's China's bustling population of 1.3
billion people that attracts the attention of mass retail outfits
like Wal-Mart. That's a huge market for televisions, stereos, and
fresh food. Beyond that, a new generation of affluent Chinese has
even more money to spend. If you need proof, say retail analysts,
just pick up Vogue China, which made its debut in September 2005
with an issue that clocked in at an encyclopedic 430 pages.
The economic reports coming out of China also no longer concern
themselves with five-year central planning reports on steel and
wheat production.
According to a recent report by Merrill Lynch/Capgemini, China is
home to 236,000 millionaires. That's up a red-hot 12 percent in one
year, just a step short of the U.S.'s 14 percent swell in the
gilded crowd.
"The percentage of wealthy people is tiny, but the numbers are so
vast," says Paul Husband, who's helping with the leasing of the
Yintai Centre, 3.8 million square feet of luxury space - including
300,000 square feet reserved for retail - on Chang'an Avenue,
Beijing's version of Fifth Avenue, which will start opening doors
to Western retailers in spring 2007.
"The key locations are growing quite rapidly," says Husband, from
his Hong Kong office. "In the last two years there's been, in many
of the cities, a strong level of year-on-year growth of 20 percent
or more."
"Almost any major luxury brand you care to name - Louis Vuitton,
Gucci, Chanel - is in China, and most have been in China for
several years already," says Husband.
What's new is their rapidly spreading cachet, says Chadha. These
luxury brands have burst out of the confines of Beijing and
Shanghai and spread rapidly to major cities throughout the
country.
"A lot of people have made a lot of money in manufacturing," says
Chadha. And they want to display their newfound wealth. Buying
luxury brands, she says, "is a new way of showing status."
But for these high-end retailers, there's more than just the money
to be made from China's nouveaux riches on an afternoon shopping
spree. They're mentally ringing up sales from the Chinese as they
indulge in a growing number of trips abroad that have been
facilitated by easier access to exit visas.
"The real opportunity in the very near term is in the outbound
market," says Husband.
"There's a real possibility that in 10 years, China could rival the
Japan of the '80s and '90s as the world's largest market, if you
add the spending of people traveling overseas and domestic
sales."
Right now, though, Wal-Mart is more interested in produce than in
fashion chic.
"I think the Chinese consumers are still interested primarily in
the fresh-product offering," says Slape. "They want a good
assortment of fresh produce, meats, fish, deli products. That is
really the driver of the customer traffic."
But forget the sprawling 15 to 20 acres devoted to Wal-Mart Supercenters in
America. Slape’s Chinese associates are designing multilevel stores in packed urban areas, going for immediate access to a group of consumers that live a very different life from their SUV-driving brethren in the States.
“In China, you have most of the customers that arrive coming by foot, by bicycle, motorcycle, public transportation,” says Slape. “The name of the game is really convenience. You have to stay close to the customer base.”
And retailers are getting closer every day.
has written several pieces for american way on emerging asian markets. he is editor of fiercebiotech.com and has contributed to time, the dallas morning news, and the
houston press.
american airlines will offer nonstop 777 service from chicago o’hare to shanghai, china, beginning april 2, 2006.