Daily Archives: September 8, 2006

Ailse Warfare in China?

Another very interesting article in the Economist last month was an article on retailing in China entitled Ready for warfare in the aisles that indicated that not only is China a market of unprecedented opportunity for both domestic and foreign retailers, but it is also a battleground where only the strong will surive.

At the same time that China is trying to become an innovation-based knowledge economy, it is also transitioning to a westernized mass-production and mass-consumption society. According to the article, China’s retail sales are set to expand by 13% to the equivalent of $860 billion this year, making the mainland the world’s seventh-largest retail market. Furthermore, there are now over 1,000 foreign retailers in China compared with just 314 two years ago. This is a stark contrast to traditional retailing in China where the majority of stores are tiny, family run outfits. Even today, China’s top 100 chains account for just a tenth of total retail sales. But it appears that local and foreign investors are eager to change all of that.

However, it appears the local competition is not taking it very well. The article points out that Crippling price discounts can be accompanied by dirty tactics: some stores send fake “customers” to rivals’ new stores to snap up all the promotions before genuine customers can get them. Another trick is to jam the doors of the lockers used by shoppers to store their purchases.

Nonetheless, given that suppliers can pay heavily to place their goods on retailers’ shelves, lease space for in-store displays, help pay for promotions, and give rebates, international chains are still eager to enter the market as these conditions can allow them to be profitable in their first year.

So what does this mean for your supply chain? I’d conjecture that it means two things. One: as the China retail market expands, you might find that you’ll be low cost country sourcing in other parts of Asia for your growing China market while volume-based low-cost country sourcing in China for your North American market and Two: when securing partnerships with local retailers, be sure to factor in all of the incidental costs and fees that will be required to successfully promote your products. Beyond that, I’d say it’s hard to tell … the huge influx of foreign retailers is going to drastically change the market, but I’m betting even the economists are having trouble predicting precisely how, and when, everything is going to happen. But it is going to impact your China supply chain, and is worth keeping tabs on.