Why Western fashion brands fail in China, and tips on succeeding in a country where millennial consumers are taking over
A lack of understanding of Chinese consumers and how they shop has cost many international fashion brands dearly as they try to make it in the China market. We look at where they go wrong and what they should do instead
For a growing number of retailers, China presents a major opportunity for expansion as local consumers get richer and demand quality goods and services. Yet there are many high-profile cases in which Western brands have fallen short in their pursuit of the Chinese consumer.
One of the biggest missteps in recent memory was the exit of Marks & Spencer, which announced in January that it would end online sales in China through its store on Tmall. This was after it promised in 2016 that it would continue selling online despite closing all of its loss-making brick and mortar stores throughout the country.
The London-based retailer struggled to make a mark in China’s high-street fashion scene, despite a growing retail market in China and a fondness from consumers towards many other traditional British brands.
“One of their problems is they tried to sell to a middle-class consumer by creating middle-class brand positioning,” says Shaun Rein, managing director of China Market Research and author of The War for China’s Wallet: Profiting from the New World Order. “Most brands that do that in China fail.”
Marks & Spencer failed to cater to consumer tastes by offering styles that were too “middle class, suburban, UK housewife”, Rein says. Sizes for Asian body types were also not considered. Meanwhile, at locations such as Marks & Spencer’s brick and mortar stores in Beijing and Shanghai, Chinese consumers could go right next door to H&M to shop the youthful and more on-trend styles that reflect one of China’s biggest emerging markets: millennials.
Another problem for Marks & Spencer is how Chinese shoppers perceive value. Rein says Chinese consumer behaviour is defined by what he calls the “CMR Hour Glass Shopping Model”, meaning they shop both at the top and the bottom of the spending scale.
“Anything that’s not great value – it doesn’t give them prestige, it doesn’t give them status, it’s not an aspiration – is something that Chinese don’t want unless it’s dirt cheap,” he says. “So they’ll go out and buy very expensive lipstick but they’ll buy the cheapest garbage bags because they don’t want to spend money on garbage bags.
“Things in the middle like Marks & Spencer or Macy’s just sort of die because their products are not cheap, but they’re not good enough value either.”
Retailers like Britian’s Asos.com have also faced headwinds, but on a different end of the spectrum. Asos left China in 2016 – the same year Marks & Spencer shut all its China retail stores – after losing out to Taobao, Alibaba’s Amazon-like e-commerce platform (Alibaba also owns the Post). Asos sold low-priced garments, but with limited products available in the China market, it just could not compete.
“In the West, Asos is mainly aimed at middle-class millennials,” says Don Zhao, co-founder and executive director of Azoya, a Chinese e-commerce consultancy. “But in China, the fashion shopping behaviours from this group are for cost-value products, which typically are under 300 yuan.
“[Asos] were also slow at getting in new products in comparison with the UK market and used European and American models, whose body shapes are different from Chinese, making it difficult for consumers to compare and make decisions. None of these factors suited the needs of shoppers in China, who actively seek the latest fashion products and aren’t willing to wait. In China, you have to act fast to adapt to consumers’ needs.”
Zhao adds that while brands can use e-commerce as an alternative to brick and mortar stores to reach more consumers, there is not a one-size-fits-all solution for every brand.
“If a retailer is thinking about expanding to China, they need to spend more time and research on what they’re looking for and have very clear expectations,” he says, adding that while selling goods through Tmall and JD.com might seem like obvious solutions, “they’re not necessarily the right option for everyone”.
Zhao and his team work with foreign brands on the major challenges they face in China: localisation, marketing to cross-border Chinese shoppers, launching on multiple channels, and supply chain optimisation. Aside from these issues, brands also have to keep local competition in mind.
“Categories that have a low re-purchase rate, no functional features, too many Chinese local alternatives, low market-entry thresholds and unreasonable pricing – over 30 per cent higher than overseas markets – will definitely be challenged by local Chinese competitors,” he explains. “For example, foreign luggage brands are being challenged by Xiaomi’s Youpin and NetEase’s Yanxuan alternatives, who share the same supply chain resources with international big brands.”
Some foreign brands have managed to hold on in China, despite facing an uphill battle. Some have even left and come back. US fashion retailer Forever 21 returned to China with stores in Beijing and Shanghai after first opening one in Changshu city in Jiangsu province, an area that proved too remote.
Macy’s, meanwhile, is still in China in a partnership to sell through Tmall that started in 2015, even though it has been struggling with brand positioning and product assortment and had to cut short its first attempt at launching an online point of sale in 2012.
“It is a great retailer in the US, but the name had no resonance here,” Rein says of Macy’s. “And it was selling Ralph Lauren – but you can buy Ralph Lauren directly here, either online or in stores, so what’s the point of going to Macy’s for Ralph Lauren?”
Marketing and advertising are also critical for a company’s long-term success, Rein says, and he thinks many brands can do a lot better.
“They go to the same five celebrities too often,” he says. “They all go to Jackie Chan, to Zhang Ziyi, to Angelababy, so the problem is you have these guys that are representing 10 or 20 different companies, but consumers don’t know who they’re representing any more. They might affiliate them with one brand and one brand only.”