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Making its mark

By Zhou Yan (China Daily)
Updated: 2008-10-27 07:52

As jittery consumers in the West have tightened their belts in the hope of weathering the financial woes, emerging markets like China have become a possible panacea for multinational retailers' faltering businesses.

As such, Britain's largest clothing retailer Marks & Spencer's debut in the mainland in early October is perfectly timed, particularly when the company's latest quarterly financial sheet was reportedly in the red.

The 3,800 sqm flagship store, standing in the premier shopping district of Shanghai, is the retailer's largest in Asia, and apparently highlights the company's upbeat expectations from the market.

"We see China as an exciting long-term opportunity and this new store is our first step into a market that has real potential," says Richard Sweet, managing director of M&S China.

Facing a new and red-hot market, M&S is not coming in unprepared. Coinciding with the company's 20th anniversary in Hong Kong, where it has 10 stores, M&S' mainland move has solid foundations based on its insight into the demands of local customers.

"We've seen a lot of purchases by mainland people in our stores in Hong Kong," Sweet notes, adding that mainland shoppers account for up to 30 percent of some of its Hong Kong outlets' transactions, which indicates there's an appetite in Shanghai for the brand.

The garment giant will benefit from its location in Shanghai, and could "potentially attract up to a million shoppers in its first few days of opening" due to the increasingly popularity for imported foreign products amongst affluent Chinese, according to Planet Retail Ltd, a London-based market research firm.

And M&S will focus on its British tradition to differentiate itself from other department stores in the area.

But the retailer is cautious about its mainland move, saying any expansion will be on a store-by-store basis.

Some analysts say M&S has to beef up its development outside the UK for sustainable growth in response to its stuttering performance at home

"Its compound sales growth in the UK from 2004 to 2007 was around 5.7 percent, while internationally, its growth hit 16 percent," says Li Xiangfeng, an analyst from Tebon Securities Co Ltd.

M&S recently reported its worst quarterly fall in nine years, with UK like-for-like sales down 6.1 percent in the second quarter, compared with a 5.3 percent drop in the first quarter.

The recent move into the mainland suggests that internationalization is back on the agenda for M&S, which scaled back its overseas operations 10 years ago to save its core UK business, says Planet Retail. "The entry into China appears to be amidst a strong push by the retailer to expand operations in emerging markets with high growth potential."

Compared to the faltering retailing industry in Europe and the United States, the retail market in China is much less affected by the credit crunch, says Qiu Yujun, a retail analyst from Planet Retail. "Generally the Chinese economy is slowing down but still growing at a moderate rate. Rising prices in the past two years have been brought under control."

But the company also faces stiff competition from earlier market entrants ranging from up-market department stores, clothing retailers and other retail formats.

According to the UK-based market research firm Euromonitor International, the value sales of department store retailers increased about 13 percent from 2006 to hit 500 billion yuan in 2007. But the retail market is highly fragmented, and "no single brand holds even a 3 percent share in 2007".

In addition, the department store sector is shrinking and losing customers to supermarkets, hypermarkets, and other specialty shops, particularly in small cities, says Qiu. While in big places, mid- to up-market operators will continue to fight for larger market shares in the foreseeable future, when low-end department stores will wane, he notes.

The good news is that when their disposal income increases Chinese shoppers tend to become more brand-oriented than purely price sensitive, and willing to pay a premium for better quality.

"We're a mid-market brand, and our target consumers are a growing number of middle-class Chinese consumers," says Sweet, although he admits that China is a quite complex market to enter.

However, prior to M&S, foreign brands such as Zara under Inditex and H&M have already had great presence in the country, which makes M&S have to work harder when tapping pickier Chinese consumers.

For those international brands eager to expand into China, it is essential to carefully select products, control quality and do appropriate promotions and effective advertising, analysts say.

Chinese consumers are usually impressed with a positive, up-market perception of foreign department stores, therefore, foreign operators can take advantage of this to further set up their brand image, says Qiu.