For many Western brands, especially those of the retail orientation, China represents a potential gold mine. However, more often than not, companies opt for expansion strategies that are not adequately tailored to the local Chinese market. The result? In the quest to win over the cash-rich and consumption-hungry Chinese shopper, the foreign entity often ends up spending more than they gain. For instance, Britain’s massive e-tailer ASOS closed its China operations this year at the hefty price tag of 10 million pounds. So, the question remains, what makes or breaks a Western brand’s success in China?
To analyze this question, let’s consider two brands, Sephora and Marks & Spencer. LVMH owned Sephora, which sells affordably priced beauty products with a trendy edge, entered China in 2005, and just recently opened its 200th brick and mortar store in Shanghai on October 30th, 2016. Sephora represents the best a Western brand can do in terms of operational strategy and appropriate localization to the Chinese market. To contrast, London based Marks & Spencer (also known as M&S), which specializes in clothing, luxury and home goods, recently shuttered its entire China operation, announcing the closure of all 10 of its Mainland brick and mortar locations. From Marks & Spencer, one can glean what not to do when attempting to enter and remain in the China market.
In order to fully comprehend why Sephora has been so able to thrive in China’s unique economy, I will briefly mention a few key points that have contributed to the beauty brand’s success.
- Beyond just traditional brick and mortar stores, Sephora has built up its digital omnichannel distribution system, including an effectively localized independent official website (pictured above), flagship stores on Alibaba’s Tmall and JD.com, official WeChat and Weibo accounts and a Sephora app.
- After expanding to first tier Chinese cities such as Beijing, Guangzhou and Shanghai, Sephora pivoted its strategy to focus on second and their tier cities approximately midway through its current Chinese expansion. Around 2011 or so, Sephora became quite active in tier two cities such as Chengdu, Chongqing, Wuhan and Changsha. Venturing into these less-glamorous-at-the-time metropolitan centers allowed Sephora to diversify its revenue stream, increase its overall brand visibility and differentiate itself from the competition in an overly saturated first tier market.
- By joining officially sanctioned platforms such as Tmall and JD.com, Sephora has been able to combat the threat of fake merchandise which has a tendency to flood the Chinese market, especially on sites such as Taobao and Jumei. Combined with Sephora’s excellently tailored, translated and localized .cn site, allowing a bevy of omnichannel shopping choices that all come with a 100% guarantee of authentic quality has allowed Sephora to rise above the fake epidemic and win over the trust of the Chinese consumer class.
- In August 2010, Sephora launched its own Chinese reality TV show, called “Beauty Academy 美丽学院.” The winner would be crowned Sephora’s next brand ambassador. Over 25 million people voted for their favorite contestant. The show proved a new and innovative way to engage Chinese audiences and generate buzz around the brand. For the second season of “Beauty Academy 美丽学院,” Sephora partnered with Youku, the Chinese equivalent of Youtube.
- As influencers, or key opinion leaders (KOLs as they are known in China) increasingly take priority in advertising budgets, Sephora has worked with some of the most notable beauty bloggers in China to reach shoppers in a more organic, native fashion. Notables include Chinese actor Chris Lee, Korean superstar beauty blogger Pony Makeup and the Chinese version of Perez Hilton, but with more fashion gravitas, Gogoboi.
Now, let’s take a look at Marks & Spencer’s China strategy.
- Ultimately, the main flaw of Marks & Spencer was the brand’s inability to fully comprehend the preferences of the Chinese consumer. As Hong Kong strategist Hanna Li Wai-han noted, “Unclear branding positioning” is the primary reason that caused the store’s closure, in addition to incomplete localization.
- Marks & Spencer did not opt for an independent e-commerce experience, instead, solely relying on its brick and mortar sales channel as its distribution channel. Though Marks & Spencer did have official flagship stores on Tmall and JD.com, not having its own .cn domain and lack of localization proved operationally fatal. Additionally, it was widely noted that Marks & Spencer’s brick and mortar locations were far from ideal – with high rent and little appeal to potential shoppers.
- Reportedly, many of the clothing and styles housed within Marks & Spencer China apparently did not fit the average body type of a Chinese shopper. This is a prime example of ineffectively tailoring a product to target consumer preferences.
- Though Marks & Spencer did have an official WeChat and Weibo channel, the number of followers and engagement rates were low, specifically, almost 95% below the average rate of fan interaction on Sephora’s official channels.
In terms of main takeaways, having an innovative omnichannel O2O experience that is completely localized is requisite for success in China. Additionally, having a strong digital presence replete with fresh and original content can only help in the quest to win over the Chinese consumers’ pocket book. As the above illustrates, Sephora has done a stellar job adapting its business model and brand story to the Chinese market, while Marks & Spencer, unfortunately, did not localize its branding or offerings enough to succeed in the Middle Kingdom.
What are your thoughts on Western brands expanding into China? Feel free to leave a comment in the section below.