Retailers taking long view of China's market
While the mainland has been a draw for global retailers, the chairman of the International Council of Shopping Centres says the slowdown in China is an opportunity to review strategies
Robert Welanetz is a retail expert with 35 years in the industry. The chairman of the International Council of Shopping Centres - the global trade association of the shopping centre industry - is a Blackstone Real Estate Partner's global retail real estate adviser, assisting in sourcing and creating investment strategies and underwriting acquisition targets. Before this assignment with Blackstone, Welanetz was the president and chief executive of Shanghai Kinghill and co-chairman of Chia Tai Real Estate.
I think [the term] global retailers is a big universal bucket. So I would say international retailers that are coming from outside Asia have a choice to make. Whether they want to develop an organic business model or they believe that determining a growth strategy for the region and then executing it as a wholly owned business is one option.
The other option that people have looked at and evaluated is whether, in coming to the region, they are better suited to [join] a joint-venture partner that is an experienced practitioner in the retail field and experienced in the region. Either can work, neither is right nor wrong.
It has a lot to do with, I think, the resources available to the company and its own personal views on the most effective way to grow and manage around the risk profile of executing in the markets.
Regional retailers, which are still global retailers in some respects, are a lot more culturally attuned to executing business in the market and probably have had the most success. A regional player coming from Asia would be a Uniqlo or there are certainly examples coming from Hong Kong as well. So these retailers are culturally attuned to the dynamics.
So if you are H&M or you are Limited Brands: H&M has decided to execute as a wholly owned business in the marketplace in China; Limited Brands will probably select a joint-venture relationship.
I think the answer is simple. Many retailers that came to China five years ago take those learnings of five years to drive their future strategies. They will use that period after five years of entering the market to cull out those stores or business operations that are not producing the right kind of strong growth prognosis and concentrate on those areas where they do show a good growth prognosis.
With the market slowing down, retailers are using this to take a step back and think about what has worked well and what has not, and revise their strategies.
But anybody that comes to China has a long-term view on a sustainable growth over an extended period of time. So while they may be adapting and taking the learnings and vetting into their strategies of moving forward, I would be very surprised if they alter their long-term view of China as being one of the best markets to execute in.
Retailers are not in a rush in this period. They were in a rush five years ago but I think they are taking a different view to use their learning to do a better job of appropriating. There has certainly been a slowdown in the luxury retail market, but it is still one of the most highly prolific segments of the luxury retailers' global business. There is a market slowdown. There is a slowdown in the rush to execute and the level of performance, but it doesn't mean [China] is not at the top of the list.
The issue for retailers is what is the real consumer expenditure power and the degree of traction available as they move into these second and third-tier markets. It has a lot to do with how patient you want to be, how well the grand proposition is going to deliver. I think the people who bypassed the first-tier cities to go second and third-tier cities first are going to be a little bit more challenged because the brand profile has not been developed before they got there. In some cases, consumers just question who and what they are. It is appropriate to go to first-tier cities, plant the flag and expand the visibility of the brand before they migrate to second and third-tier cities. That is a more risk-adjusted way to execute.
The challenge of going international anywhere, and China is no exception, is what are the rules of the road, whether it is discovering legislation, whether it is the business implications of taxes and other things. So there is a lot of discovery and preparation that needs to go on.
And again, I think regional retailers, they have the cultural understandings of the area, [are] probably a lot more adept at coming to the marketplace compared to their western retailers who simply have no experience in Asia.
People will recognise that they need to fully evaluate all the risks and challenges of going to a place like China. Once they make the commitment, I think they, most of the time, try to make a long-term commitment because of the scale, size, sustainability and growth prognosis. I don't see anybody shifting away from China, but it alters their view about how aggressive to be in this moment as the market is adjusting slightly.
