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China is the next frontier of growth for retailers and mobile holds the key, predicts Demandware

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Official World Bank figures reveal that household consumption expenditure in China has overtaken the UK and Germany, making China the next high-growth market for international retailers according to Demandware, which also expects mobile to play a key role in retailers exploiting this marketing.

As consumer appetite for mobile phones, home appliances, computers and jewellery continues to expand among China’s middle class, retail sales have experienced almost 15 per cent growth in the last four years. This is expected to accelerate further with Conlumino predicting that mobile penetration in China is set to surpass 90%, helping fuel the expansion of online commerce further by 2018.

Andrew Gilboy, Vice President of EMEA for Demandware, explains the opportunity for retailers: “China is the world’s second largest economy and has the largest online population globally. Whilst broadband penetration is still low, most Chinese consumers own mobile phones and are actively using them for online purchases, presenting an enormous opportunity for retailers. For example, CLARINS entered the Chinese market at the end of 2012 after the swift deployment of its own-branded online site in Mainland China. CLARINS’ initial sales exceeded expectations with 500 per cent sales growth within the first 12 months. A key reason part of CLARINS’ success was a deep understanding of consumer purchasing habits, coupled with integration into Chinese social media sites, accepting local payment methods, including Alipay and COD, and offering localised delivery options.”

To tap into the opportunity that China affords, Demandware recommends adopting a multiple-step approach, starting with a local marketing website. Despite being price sensitive, many Chinese consumers are familiar with luxury Western brands and willing to pay a premium for quality, but will research a product carefully before purchasing. An initial web presence gives retailers the opportunity to gauge interest in products and build a team on the ground. It can also be used to direct potential buyers to marketplaces, which dominate online retailing and offer access to an immediate audience and ease of transaction. Developing a direct-to-consumer transactional site is the last online milestone and provides an opportunity to offer customers a rich, branded experience with exclusive offers.

Establishing a local entity or team is also essential to developing an understanding of how to get the most out of the Chinese market in the long-term. Widespread infrastructure developments are set to increase the opportunity that China offers to retailers, as prosperity increases to second and third-tier cities. However, cultural differences combined with the scale of China mean it is also imperative that retailers understand the nuances of each region and demographic. China’s focus on transitioning to a service-driven economy is creating an educated, prosperous population with more than half opting to live in cities as they seek higher paid, skilled work in more attractive working environments.

The combination of changing lifestyles and widening affluence is changing the way the Chinese shop, as shopping centres become destinations for urban families and young people who are open to inspiration and brand influence. In contrast, older generations with fewer family commitments have stayed in their home cities and have experienced the highest increase in per capita spending. Retailers need to understand regional differences and develop operations on the ground that reflect local behaviour. Chinese consumers often expect delivery in a short timeframe and will pay cash on delivery. As a result, retailers expanding into China need to develop relationships with third-party logistics providers, local warehouses and fulfillment centres to build operational models that can meet the demand.

Andrew continues: “Retailers looking to the Far East for future expansion need foreknowledge, patience and speed. By adopting a low-risk approach and focusing on expansion as consumer appetite grows, retailers can benefit from China’s vast consumer base and further central reforms designed to unlock the market to international retailers. In the past, bureaucracy, legislation and a stark difference in consumer behavior meant that many of the UK’s biggest brands have struggled to crack the Chinese market. However, those brands that concentrate on developing a localised approach can achieve mass-market appeal among Chinese consumers.”

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