01:32 am
11 October 2016

The Future of Retail in China

The Future of Retail in China

Q: China represents one of the largest retail markets in the world. Can brickand-mortar stores compete there with online shopping?

 JT: We all know China’s e-commerce market is big. So big, in fact, that some analysts, including the Boston Consulting Group, believe that it will soon be the world’s largest.

Brick-and-mortar retail are being influenced by e-commerce consumption growth year by year, but they still have their special role in China. When I say influenced, I mean it in a positive light. At Cloud Mall, we believe the Internet is making a smarter consumer — especially in brand awareness, driving consumption both online and in brick-and-mortar retail.

Shopping preferences vary in group age, gender, income, localization and needs. According to iResearch China, a Beijing based research consulting company, “digital goods, books, food, sportswear, apparel and cosmetics are highly purchased online.” Apparel products are very popular in the offline market. Cloud Mall conducted a study in 2013 with men and women age 25-40 from Beijing and Shanghai, and the results showed that most women see offline shopping as entertaining, associating it with  social networking and even physical exercise. In a blind study, traditional shopping will never be 100 percent substituted by e-commerce. However, Chinese men seem to consider traditional shopping boring, time-consuming and tiring. They are more willing to replace physical shopping for a more comfortable way to shop such as online.

Shopping malls are usually located in convenient areas. They offer seasonal discounts, selective brands and additional conveniences to attract people to the mall from hair salons, gyms, and restaurants. To the average Chinese consumer, price sensitivity seems to be most important, unless they find something they really want because of status or need. Then they will purchase on the spot. Typically, the average consumer will take the time and compare online and offline pricing before making a final decision.

It is very popular for Chinese to navigate the web, and pictures have a big influence in online shopping in China. Studies show that many people are compelled toward impulse purchases even though their initial searches were for online leisure activities.

Q: In the United States, different age groups approach shopping differently. Is the same true in China?

 JT: I think the situation is pretty much the same in China. In terms of offline shopping, different age groups seek different shopping experiences. In big cities in China such as Beijing, Shanghai and Guangzhou, there are a lot of luxury and high-end shopping areas but also other segmented shopping locations for specific age groups and income levels. You can find diverse shopping malls distinctly offering electronics or clothing or home supplies, outlet stores, etc. For online shopping, like in any other society, the older generations are less likely to shop online than young people.

Q: Where does the Chinese shopper get their information on fashion and brands?

 JT: As in most societies around the world, China has many different channels: TV, movies, fashion magazines, billboard advertisements and word of mouth. Cloud Mall has found that Internet and social media applications such as Weibo and Weixin are extremely important. Chinese people are also easily influenced by the opinion of friends or family. Mobile platforms with social networking can spread word of discounts, deals and brands quite quickly.

Q: In the United States, shopping centers are increasingly offering luxury amenities like Wi-Fi access, concierge service and high-end dining and entertainment options. Is this a trend in China as well?

 JT: Modern and high-end shopping centers in China offer great services including free Wi-Fi, large food courts, coffee shops, bars, supermarkets, convenience stores. These additional services are premium, comfortable and convenient.

Q: Do shopping malls in China rely on social media and digital marketing to drive retail traffic, or are they more reliant on conventional advertising?

 JT: Both. People in China spend a considerable amount of time every day surfing the Internet and social media direct from PC and mobile platforms. However, basic TV time is always indispensable in an average person’s daily life.

Q: Are global brands facing tax or tariff hurdles to enter the Chinese market?

 JT: In China, there are 15 free trade zones (FTZ); these special zones provide exceptions to the usual customs procedures and allow for preferential tariff and tax treatment. All forms of trade conducted between companies in FTZs and areas in China outside the zones are subject to the usual rules that would apply to imports into China. Importing to China generally involves three types of taxes:

  • Value-added tax
  • Consumption tax
  • Customs duties

Tax rates vary between different types of goods, country of origin or methodology and type of company that is receiving the importation of goods. Cosmetics and watches require a value-added tax plus consumption tax in addition to custom duties.

Q: What is China doing to curb the counterfeit trade, which impacts brand integrity both inside China and globally?

 JT: Counterfeit trade in China is illegal by law. Passing through Chinese customs with counterfeits, the traveler may face a big fine, the detention. Since 2010, the Chinese government has taken different large-scale actions against the counterfeit trade, both online and offline. Many markets originally at the center of the counterfeit trade are increasingly moving away from counterfeit goods, such as Silk Street in Beijing. With the continuous increase of income of Chinese citizens, the trend to purchase counterfeit products is decreasing, due to the quality issue and the image of the person. Both European and American Embassies have Intellectual Property Right (IPR) call-in lines set up in China, and together with the Chinese government are devoting themselves to stamp out counterfeit issues.