Selling to China: E-commerce and the Rise of the Single-brand Store

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Selling to China: E-commerce and the Rise of the Single-brand Store

China, with a middle class the size of the entire U.S. population, has often been portrayed as the Promised Land for foreign retailers. But even a cursory look at the track records of some well-known brands shows how the country’s complex environment can be a mixed bag. In the last few years, leading retailers such as Best Buy, the Home Depot, and Neiman-Marcus have all closed their China stores. Yet during this same period, foreign brands such as Nike, Levi’s, and Starbucks have seen strong increases in China sales. How can these two developments take place at the same time?

There’s no universal answer, of course, but the explanation in part lies in the impact that online shopping is having on department stores and multi-brand retailers like Home Depot and Best Buy. This impact has been particularly pronounced in China, where sales at general merchandise stores, while rising in absolute terms, has been falling as a share of all retailing, according to a report from Fung Business Intelligence Centre. “This sector is losing share of retail spend as it confronts heightened competition, including from fast-growing Internet pure plays,” the report states.

That’s another way of saying that the advantage of one-stop-shopping, something that in the bricks-and-mortar era was a strength of multi-brand retailers, is being undermined by the variety of products offered by China’s vibrant e-commerce marketplaces and the convenience of online comparison shopping.

For example, in the U.S. if you want to buy a GoPro camera, a consumer would typically visit a camera store, a sporting goods store or Best Buy. In China, consumers are more likely to go directly to the source and shop on the GoPro flagship e-commerce store, where he can pose questions to a live customer service rep, read product reviews, and compare and purchase almost any GoPro model.

It’s the same story for cosmetics, housewares, and snack products. Chinese consumers tend to visit the L’Oreal, Kohler, or Wrigley flagship e-commerce stores. This removal of intermediaries, like department stories, between producers and consumers not only streamlines the sales process but also provides a marketing environment in which individual brands can shine. Among the advantages:

  • The brand can establish connectivity directly with the consumer without relying on a retailer to generate visibility and traffic.
  • The brand can own its consumer data and establish its own policies with regards to customer service and returns.
  • The brand can set the product slate and decide when to introduce new products.
  • The brand will not be lost in a group of like brands.
  • The brand does not have to share revenue with intermediaries.

The upshot is brands that are typically limited to department store or showroom settings in the U.S. can flourish in China through e-commerce. Kohler products are typically found in a Home Depot setting in the U.S. In China, the Kohler flagship e-commerce store saw 50% growth last year. L’Oreal products are generally found in grocery and beauty stores in America. In China, sales on L’Oreal’s flagship e-commerce site have almost doubled over the past three years. Recognizing how well single-brand stores do in China, L’Oreal also opened a flagship e-commerce store for Lanc√¥me, one of its lines that has generally been limited to U.S. department or beauty stores.

E-commerce poses challenges to multi-brand retailers, but some do quite well online. My company works with The Guitar Center, a U.S. store that sells a range of musical instruments and supplies. The Guitar Center demonstrates that a multi-brand sales structure can be successful online and offline, under certain circumstances. For example, one would not go to a fiction store or a Merlot store, but would go to a bookstore or a wine store, where a variety of options aids decision-making. Like bibliophiles and oenophiles, music fans seem to be happier in a collective setting where they can explore as much as shop. Auto supply stores tell us the same principle applies to the gear-heads.

However, beyond these examples, it seems that Chinese consumers are more comfortable purchasing from single-brand stores because they are able to easily find the precise product they desire. Companies that are willing to make efforts to reach these consumers find that a door is open to shape the China market and engage with hundreds of millions of active buyers. There are initial costs and complexities, but eliminating the intermediate levels of distributors, wholesalers, and retailers can bring increased returns to the foreign brand owner and pave a path to long-term success in the market.

Frank Lavin is the chairman of Export Now, which launches and operates e-commerce stores in China for foreign brands.

BrandingChinese E-CommerceFrank LavinOnline Retail
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