Many UK brands have been making attempts at cracking China over the last few years.
This huge market represents a terrific growth prospect – if only they can get it right. British brands who’ve recently had a go include Argos, B&Q, Tesco and that classic bellwether of the British High Street – Marks and Spencer.
Over the next weeks we’re going to be running a series exploring how some UK brands have tried their luck in China and examining why some have fared well, whilst others have slunk home with their tail between their legs.
A brief history of Marks & Spencer
Established well over a hundred years ago, in its 80’s and 90’s heyday Marks and Spencer was a beacon of British manufacturing, quality and customer service excellence.
In the late nineties, M&S was the first British retailer to make a pre-tax profit of over a billion. Domestically though, the company’s fortunes have fared less well since then.
M&S first ventured overseas in the seventies but not all these expeditions were consistently successful; all its Canadian stores had closed by 1999 and the brand has opened and closed its Paris stores in a dizzyingly schizophrenic way over the years. In 2013 it opened a store in the Netherlands even though it had completely exited this market only a decade previously.
The company presently has stores in over 40 locations worldwide. In the M&S store in Armenia, it’s something of a novelty to be able to shop for men, women and children for goods from cosmetics to clothing under one roof.
In Kazakhstan, the brand has identified a growing demand for its mid-market apparel as household incomes rise. In addition to these emerging markets, it’s now venturing into established markets such as the Scandinavian countries of Finland and Norway.
Marks now aims to open 250 new international stores in the next three years and draw an ambitious 40% of its profits outside the UK. This includes 100 stores in India, with a focus on lingerie and beauty. This emphasis on knickers and face cream is already visible in the Middle East, where it has plans to reach a dozen stores by 2016.
The brand’s been less successful in recent years in its domestic market; it’s no longer seen as the first choice of the middle classes at home, although its food operations continue to do well.
It seems an obvious strategy for the brand to target new middle class spending power in emerging market countries where incomes are on the rise. In some of these emerging markets, the wealthiest households are served by international luxury labels whilst the mid-market consumer isn’t as well served. In essence these emerging markets don’t have a high street to serve their new middle classes.
Targeting the biggest markets
With their emergent middle classes, spending power and size, China and India represent great prospects for M&S.
China in particular has a history of food scares behind it, and Chinese consumers are often more willing to trust food from overseas rather than domestic sources.
There’s evidence too that China’s passion for luxury labels may be waning. A quality clothing brand with heritage could do extremely well here if it plays its cards right. Brands such as Zara and H&M are already popular in Shanghai, which bodes well for other European clothes retailers.
Marks has already been smart enough to acknowledge that it can’t crack China without a local partner and corporate leadership is already on the hunt for a suitable relationship, possibly on a store franchising or joint venture basis.
After first entering the country in 2008, the company is now reorganising its operations by closing and relocating some of its Shanghai stores from outer to inner city locations.
Presently there are 15 stores in China, mostly in the immediate Shanghai area, and the brand plans to enter major cities including Beijing and Guangzhou over the next twelve months. But the brand is cautious about expanding beyond Shanghai, citing the diversity of the country and specific regional challenges.
So far it’s taken a circumspect approach, treating Shanghai as a market in its own right and experimenting with the formula, location of stores and essentially treating the city as a microcosm in which to pilot the brand to the Chinese consumer.
There’s still low brand awareness, which is known in China as Ma Sha Bai Huo (it loosely translates as ‘Marks’ department store’) which visually looks very similar from its stores on the UK high street.
Successes and failures
It hasn’t all been plain sailing even within the limited ambitions of its Shanghai ventures.
In-store sales have been disappointing and there have been serious supply chain issues. Goods have been delayed at customs with the result that the food hall has been left practically empty on occasion.
Marks has gambled on large department stores in China (the opposite of its strategy in India, where it has relatively small ones), and getting the location right is a tricky yet critical decision when you put all your eggs into one massive department store size basket.
Some shoppers complain that sizes are too big and the clothes don’t suit local tastes. Marks are trying to overcome these difficulties using focus groups and other market research before expanding operations further.
On a positive note, Chinese shoppers seem to have taken to the food offered, with products such as baked beans, mushroom soup, and frozen curries selling better than expected (although this could be to homesick expats). Crisps, nuts and frozen fish also do well and there’s evidence a lot of food is purchased as gifts.
Local customers see M&S as a top-end retailer rather than an everyday supermarket, which is perhaps unsurprising when much of the food is sourced from outside the country, including bakery produce which is imported frozen and reheated in store.
That means brands considered fairly unexciting in the UK, such as Campbells Shortbread, tends to be seen as very upmarket in China. That has the effect of reducing volumes sold to each consumer, so basket sizes tend to be relatively small when compared with those in Europe.
The relatively small size of Chinese families, and their living spaces, means that consumers tend not to buy in large quantities anyway. Certainly when it comes to snack packaging, individual sizes are the most common. This contrasts to the success of the M&S ‘treat tubs’ in the UK stores. Chinese consumers tend to associate sturdy packaging with a better quality product, so that also has to be taken into account.
Selling tea to China
Marks has managed to enter the country at a time when Chinese households are eating more like Western ones – such as choosing cereals rather than rice for breakfast.
Porridge oat sells well in M&S Shanghai and tea bags are also increasingly popular as Chinese households move away from loose-leaf. Other products are less popular; like much of the world, Chinese consumers find British Dairy Milk chocolate far too sweet.
The brand has also adapted its offering to the local market by including familiar features of Chinese food shopping to their grocery sections – including live fish, and rice packaged in bulk. But there have been problems with getting the variety of products right and having the right proportion of fresh goods. Customers find the product price to be uncompetitive, and it isn’t clear whether they are willing to pay more for quality. M&S is likely to face a continuing battle to get the pricing right.
It’s in online sales that Marks has really excelled in the PRC, with a 200% rise in sales last year. Selling its clothes through the local giant website Tmall, a subsidiary of Alibaba, has proven to be a great way to reach China’s middle class.
Half of M&S dress sales in China come via the site, and it’s the fastest-growing womenswear brand on there. Not a small feat indeed, when Tmall is responsible for over half of all clothing and footwear sales in China. Despite the less dazzling performance of in-store sales, M&S intends to continue its “bricks and clicks” strategy combining big department stores with online sales.
One other key learning from the brand’s initial cautious foray into the market is that Chinese consumers tend to be quite conceptual, associating whisky with Scotland, wine with France and chocolate with Belgium.
That means the retailer has found itself in a position where it needs to educate customers about other western brands and producers. Some analysts emphasise that PR, customer services and relationships with government and suppliers are going to be absolutely critical to success in this market.
That all takes time to develop and there’s recently been some turnover at the top as M&S rethinks its strategy in the region, the head of the brand’s Asian business having left after fewer than two years in charge.
The overall picture can be assessed differently depending on how generous the observer is feeling towards M&S. Some might argue that M&S is merely repeating the same schizophrenic attitude to international expansion as it did in places like Canada and the Netherlands.
There have been abrupt changes in direction, leadership, and strategy within a very short timespan. A more generous view is that Marks is using a test-and-learn approach, learning from successes such as the Tmall partnership, and quickly moving away from less successful ventures such as weaker-performing stores to minimise losses.
Our conclusion is that there’s much to be learnt from this pragmatic approach, which experiments without overcommitting. Only time will tell whether these approaches prove to be successful for M&S in the long term.