It’s not always the most welcoming of hugs, but major brick-and-mortar retailers operating in China have embraced e-commerce as an essential part of their strategy for reaching the country’s growing ranks of consumers.
While most traditional retailers have mixed feelings about online shopping because of the additional investment and complexity it entails, the enthusiasm China’s consumers haveforbuying goods over the Internet makes it a difficultchannel to ignore, according to retail executives attendinga World Retail Congress event in Singapore on March 24.
Online and brick-and mortar stores are “both equally important,” said Raymond Yeung, vice chairman of greater China for Gap, the global apparel chain. That’s partly because 500 million Chinese—more than 80 percent of the PRC’s total Internet population—are browsing e-shopping websites.
Moreover, with millions of these budding consumers living in smaller, poorer cities where retail infrastructure is limited, e-commerce is the only cost-effective option. Gap, which has an online shop on Tmall.com, China’s largest B2C shopping website, “has no plans to open physical stores in third, fourth and fifth-tier cities,” Yeung said, “so for us, the only way to reach out to these customers is online.” He added that 85% of retailers worldwide have an online strategy.
Yeung and Peter Lau, chairman and CEO of Giordano, noted that e-commerce has a learning curve and introduces new issues that retailers must grapple with. For example, retailers selling both online and offline can run into pricing conflicts that are heightened by the bargain-basement mindset of e-commerce shoppers.
Lau said Giordano also sells on Tmall.com, and “sometimes we are persuaded to sell on Tmall at lower prices than we offer to our wholesalers.” Some 60 percent of Giordano shops are operated by franchisees, who don’t appreciate the online competition from their parent brand. “It’s a problem that we have to deal with,” Lau said.
Lau, who estimated that currently 7 percent of Giordano sales are generated online, stressed that while e-commerce is growing quickly, physical stores continue to have certain advantages, such as offering a better shopping ambiance and more personal customer service. “An advantage that e-shops can never have over physical (stores) is, you can go into a store and pick up a shirt and wear it. You don’t have to wait for it to be delivered.”
“We view offline retail as a very important part of the ecosystem,” Lau added.
Both Giordano and Gap already have large, sophisticated retail operations in China’s biggest cities. To allow smaller foreign retailers to enter the China market, Tmall.comhas launched a newexport modelcalledTmall Global, saidJohn Spelich, vice president of international e-commerce business development for Alibaba Group, Tmall.com’s parent company.
By taking advantage of recent changes in PRC government policyaimed at drivingthe nation’sconsumer spending, Tmall Globalis geared tomakeit easier for overseas retailers to sell directly to China consumers in part by allowingmerchants to use their home-country business registrationsinstead ofhaving to obtain a Chinese business license.
To learn more about Tmall Global, click here
“The idea is, you don’t have to come in and operate a business in China” to sell to consumers, Spelich said. “We’re trying to open up China more broadly to a larger number of companies,” he said. “This is a way you can put your toe in.”
