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House of Fraser’s potential for ecommerce-led China expansion

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It may be the big emerging market of the future but in the meantime, UK retail businesses have found the Chinese market difficult to tackle.

Many, notably Tesco, have opted for joint ventures with local retailers as they tackle the market. Nick Robertson, chief executive of Asos recently commented on the difficulty of moving into the market even as a pureplay that has no need for complex infrastructure. Speaking on the day the online fashion retailer released its half-year results last week, he said that selling in China was a “more onerous” proposition than many realised, thanks to complex regulations and rules. That’s why the pure play was upping its China-related losses for the current year to £9m, from previous guidance of £6m.

So House of Fraser’s acquisition over the weekend by Chinese retail business Sanpower looks set to give it no doubt much-welcomed inside track for a future entry into the market. Conglomerate Sanpower is experienced in the Chinese retail market, as owner of IT and services retail chain Hisap. It also owns China News Week, and has real estate, financial services and information services interests. All of this adds up to inside knowledge of complex Chinese regulations. John King, chief executive of House of Fraser, has been reported as saying that the deal would be an “opportunity to take the brand to China.” The House of Fraser deal is understood to be Sanpower’s first acquisition in the market.

Despite the market expertise of its new parent company, the easiest way to take distinctively British retailer House of Fraser into the Chinese market could well be online. The cost and difficulty of doing so is less than the cost of opening new stores in China. China is also so large that a store, likely to be visited by a tiny fraction of the country’s population, or even a chain of stores, could have much less reach than a website. It’s notable, therefore, that Sanpower’s chairman Yuan Yafei has a track record in speaking up for the gamechanging power of ecommerce.

When Yafei attended the first meeting of the twelfth Chinese People’s Political Consultative Conference as a member for the first time last year, he used the occasion to put forward two proposals. One was that the country use “the ecommerce industry to create new heights for the expansion of China’s domestic demand.” The other was that domestic demand be used to drive the country’s growing urbanisation.

Yafei envisaged a sophisticated role for ecommerce within China. Already, he said, ecommerce had grown fast despite recession and was “a high point in economic growth.” He urged that the “golden development period” of ecommerce be grasped, to promote the formulation of new consumer models and lifestyles, and to cultivate a long-lasting momentum in the growth of domestic demand.”

It makes sense that Sanpower’s acquisition of House of Fraser – and of its in-house commerce and multichannel expertise – could be an opening step in a strategy that focuses on the potential that ecommerce has to change shopping behaviour – and the way we live. We’ll watch with interest to see how a move into China, and beyond, works out.

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