US media coverage of China frequently focuses on environmental problems, but rarely investigates how Chinese consumers incorporate environmental concerns, health and nature into their lifestyles.
Chinese consumers crave a sanctuary from daily overdoses of pollution, rampant urbanization, traffic and food safety issues, and are gradually adopting more sustainable lifestyles to cope with the pressure and stress of every day life.
Like Bamboo in the Spring: LOHAS growth bests the West
The convergence of environmental pressures and rising incomes is resulting in a much more rapid ascendance of LOHAS (Lifestyle of Health and Sustainability) in China than occurred in more advanced LOHAS markets such as the United States. 17% of consumers in China’s top five cities — a combined population of more than 60 million — describe themselves as LOHAS-focused, versus 19% of American consumers, despite the significant head start of the US market’s LOHAS consciousness.
And China’s LOHAS consumers are not price sensitive – nine out of ten consumers would be willing to pay 20% more on average for sustainable products, and are looking for increased product choices and availability.
Chinese LOHAS consumers are growing in number, are hungry for sustainable products and willing to pay higher prices – so why aren’t all sustainable brands investing like mad in the China market?
Complications
It’s complicated. For some brands, government product approvals and regulations create barriers, for others the lack of existing distribution channels requires exceedingly high levels of investment. Some are concerned with Intellectual Property issues and product quality, while others are just plain intimidated by the China market.
Are these concerns justified? Are they enough to prevent your brand from pursuing the growing China market opportunity, even as opportunities in other countries are shrinking?
The answer is: it depends – on your industry, your product, your positioning and, most of all, your appetite for adventure. For example:
- The beauty industry is absolutely booming in China, and has a relatively strong distribution channel already in place. However, government regulations and entry requirements can be onerous.
- Luxury is in. LOHAS products are often associated with luxury in China, which is a good thing for a market that is gobbling up luxury products – both home and abroad. Western tastes like wine and chocolate fall into this category and also take advantage of Chinese customs of gifting and “showing face”.
- Food safety is a huge issue in China. High-income urbanites are actively searching for safe food options that ease anxiety and promote health. Distribution is widespread in this sector, but supply chain issues can often be thorny.
- Children are kings. Literally. Given China’s one child policy, China’s children call the shots, happily emptying the six adult wallets available to them. Toys, bottles, apparel, education, and food – you name it, parents (and grandparents) want the best for their children, and will spend to get it. Chinese shopping habits are ingrained, and will play heavily into your distribution strategy in these industries.
If the brand fits…
Yes, China is complicated. It is a big country, with a widely disparate population going through tremendous changes at a breakneck speed. But, if you play it right, it can be very lucrative for your brand, also providing ample opportunity to give back to the country and enable positive change, which is good for China and good for the world.
How do you navigate all these issues? HotPot Consulting, Greennovate and The Wellness Works have teamed up to host a LOHAS China Insight Tour this September 20th and 21st to cover issues related to China Market Entry for Sustainable brands. Content will cover legal issues, LOHAS consumer insights, managing supply chain, distribution channels and more. You will hear from experts in many sectors, learn from businesses operating in the market and meet like-minded local distributors and partners. Visit http://goo.gl/bBKz3 for more information or contact renee@hotpotconsulting.com.
The LOHAS China Insight Tour is timed to coincide with China’s largest ECO tradeshow – EcoLifestyles from September 16th – 18th (www.ecolifestyles.cn) which gives sustainable brands an opportunity to meet more than 6,000 business attendees and more than 12,000 LOHAS minded consumers.
www.hotpotconsulting.com
www.greennovate.net
www.the-wellness-works.com
We are looking forward to the LOHAS Forum next week in Boulder. We will have a China contingent there with a booth for our upcoming China LOHAS Insight Tour in September. Look for Renee from HotPot, Ina from Greennovate (www.greennovate.net) and Shen Li from the Beijing Oriental LOHAS Cultural Communication Center – we’ll be the ones with the China flag 
Do Chinese consumers care about sustainable products? What types of products are they demanding, and where do consumers shop for them?
Sustainable companies are increasingly entering the second largest market in the world, and are finding Chinese consumers who crave the LOHAS (Lifestyle of Health and Sustainability) lifestyle and are already knowledgeable about today’s leading brands.
In order to help sustainable foreign brands enter the China market, HotPot Consulting has teamed up with two of the leading sustainability firms in China – Greennovate and the Wellness Works – to create the China LOHAS Insight Tour. The tour is based in Shanghai and addresses most of the key issues for LOHAS focused companies contemplating entering the China market, such as: “Do I need a Chinese entity to do business in China?”, “How do I protect my product and brand from being copied” and “Does the China consumer even care about sustainability?”. We are also offering to set up a few customized meetings for your company in order to introduce you to potential partners in the market.
The China LOHAS Insight Tour takes place from September 19 – 21st, and is timed to coincide with the Ecolifestyles Trade Show in China (Sept. 16 – 18) (http://www.ecolifestyles.cn/en/zhjj.html) — the largest LOHAS tradeshow in China with more than 6,000 professional visitors and 15,000 target consumers.
The combination of the LOHAS Insight Tour and the Ecolifestyles trade show will allow sustainable companies to visit the market and gain valuable and actionable insights and relationships needed to enter the market.
Once you have finished the week of work, we have also lined up some optional travel tours for those who are interested. Travel choices include a Spa Getaway, an Adventure Tour and the opportunity to work with China focused NGOs in the field.
If you are interested in learning more about the LOHAS Insight Tour, the Ecolifestyle tradeshow or travel options, please email Renee at Renee@hotpotconsulting.com for more information.
Gap Inc. opened an online storefront on China’s leading e-commerce site, Taobao, this week. If you’re unfamiliar with Taobao — think of it as China’s eBay + Amazon + Walmart.com + [insert whatever other leading e-commerce site you can think of in the US] …all rolled into one. Taobao had 370 million users in 2010, and controls 75 percent of China’s online retail market, according to Beijing-based research firm Analysys International. Apparel is the top selling category on Taobao, and also the fastest growing.
According to Taobao:
- 35% of users are between the ages of 16 and 24,
- 48% between 25 and 32,
- 11% between 33 and 40,
- 4% between 40 and 50 and
- 2% over the age of 50.
- Women make up 58% of their overall user base.
- 25 – 32 year olds spend the most money on Taobao, and their average annual spend is 1,300 RMB (around US$200) per year.
[*Note, these are 2009 numbers. **Yes, we are aware that a sexy 'infographic' would look better here, but we just learned what that word means.]
Read my lips: Taobao is rumored to account for around half of all shipments within China by the national mail service, China Post.
I think this is a great move by Gap, and one that other brands such as Uniqlo, Jack Jones and Levi’s have already proven successful. Gap has had its own e-commerce site in China open for months, but I would guess that the Taobao store will outperform their own e-commerce store almost immediately.
Why? It boils down to three issues:
1.) Trust. Trust is the number one obstacle to overcome in the e-commerce business in China. Taobao has done more than any other site to address this issue, and its escrow payment function is the one favored by most Chinese consumers. In fact, when we ran our own online store at eno, consumers used to ask our customer service reps at the eno site if we had a Taobao store, and then would go to the taobao store and buy our products there. Consumers are simply more comfortable and used to shopping on Taobao, and would prefer this to corporate-run sites unless trust is already established between that consumer and the corporate site.
2.) Traffic. Taobao’s traffic is massive already. Why go through all the work to entice consumers to your brand’s site, when they are already going to Taobao? It’s expensive, and a major drain on your resources and mind space unless you are an e-commerce platform at your core and think you can do it better than Taobao (which most brands can not… in China).
3.) Habit. Just like off-line retail, changing consumer shopping habits online (especially in China) is very difficult to do. Consumers are used to Taobao, and more importantly, to buying on Taobao. Rather than fight to change consumer habits, set up your online retail where they already shop and focus your efforts on making your store look good.
More and more e-commerce platforms are vying to give Taobao a run for their money, including Vancl’s V-Jia (http://www.vjia.com/) and Mecox Lane’s M18.com (though both Vancl and Mecox Lane largely promote their own private-label brands), as well as niche sites such as Youth Magazine Yoho’s online mall (http://buy.yoho.cn/). Taobao certainly isn’t the only website with which brands should partner for e-commerce, but they sure are the biggest.
I saw the President of Taobao speak not too long ago, and his advice to brands on how to increase sales on Taobao:
1.) Focus on customer service.
2.) Make your products stand out (Naturally, there is a Taobao University you can attend to learn how).
3.) Buy advertising on Taobao. Taobao has its own version of Adwords and many, many other ways for you to work within the Taobao system to drive traffic to a Taobao storefront.
Simply opening a store on Taobao doesn’t ensure online success, and it will certainly require substantial work and customization, but it is a strong start for any brand’s e-commerce presence in China.
I’m still wondering how Gap’s four brick-and-mortar stores in Beijing and Shanghai are doing…
Consumer insights agency Enovate just released a great video introduction to youth in China today. Totally worthwhile three minutes!
From the Enovate post:
“We all want to be young. But what’s it like being one of 300 million youth in China?
‘We All Want To Be Young in China’ was made in response to the popular youth culture video ‘We All Want To Be Young’, released last year. It’s an inspirational, 3-minute crash course on the most important consumer in the world today: the Chinese youth.”
Although we are by no means China music experts (for the best perspective on the China music industry head over to China Music Radar (www.chinamusicradar.com), HotPot’s recent trip to the South by Southwest conference in Austin got us thinking about the China indie music scene.
The China Indie music industry (which in my mind includes rock, punk, rap and all versions of these genres – basically everything except pop music) has been developing ever since the 1980′s with the emergence of the “Father of Chinese Rock” Cui Jian. The scene has become more and more diverse and gaining a broader following (in China and in the West) in the past five years. This is largely due to increased foreign media attention (especially to media favorites like PK 14) and growing corporate brand support for the independent music scene.
Unlike in the US, corporate sponsorship is typically seen as desirable among most Chinese youth, and helps to further the band’s popularity, rather than brand them as sell-outs. For the masses in China, mainstream is cool, and niche is not. Having a well-known global brand work with a Chinese band only makes them more attractive to the vast majority of Chinese consumers.
And more and more brands have been getting in the game. Perhaps the best executed is Converse’s work with indie bands. Converse brought two Chinese bands to South by Southwest this year (Queen Sea Big Shark and Car Sick Cars) and also did a China roadshow (a rare occurence in China) with PK 14 and other bands a few years ago called Love Noise, with a documentary to go with it. Pepsi created and produced an American Idol-like show called the “Battle of the Bands” a few years ago (though it has since cancelled the show), local apparel brand Meters-Bonwe is working with the Shanghai band the Mushrooms to promote their jeans line and Coca-Cola is having Car Sick Cars play a large mainstream concert in Hangzhou stadium with Chinese pop stars Wang Xiaokun and Wang Luodan. Vans is also getting in on the action by having the Beijing punk band Demerit participate in its US Vans Warped Tour this summer.
Brands are also participating in the music scene by sponsoring and participating in the slew of music festivals that are sprouting up around China. While some festivals are higher quality than others, it is an encouraging sign that China youth are so interested in attending all of these festivals, which shows a demand for independent music, a desire to travel with friends and mostly an interest in sharing a fun experience with their peers.
By supporting China’s burgeoning independent music scene, brands can associate themselves with the attributes that these bands have come to represent: creativity, individualism and a general sense of going against the grain (though not an all-out rebellion). However, what brands CAN’T expect is that the majority of Chinese consumers will know who these bands are, will care who these bands are, and that associations with these bands will result in selling more product (like pop-star or movie star endorsements will). Mainstream pop music is still the music genre of choice among the large majority of China youth today, and it remains to be seen whether the growing local independent music scene will be adopted by more consumers in China.
As someone who has worked directly with many of today’s up and coming Chinese independent bands, I sincerely hope that the industry continues to receive support and grows to highlight China’s creativity and unique cultural attributes — which I believe is ultimately good for China youth, China as a country and for the brands that operate in China. However, brands should be cognizant of what they are trying to achieve by working with the independent music scene and plan their marketing activities accordingly.
A recent post by our friend Dan Harris from the China Law Blog (http://bit.ly/hnumKu) got me thinking about the process of trademarking in China. As someone who has filed more than 50 trademark applications in China over the last five years for just one brand, I can personally attest to the many, many headaches associated with this process.
I am no trademarking expert (see the China Law Blog for the many posts they have written on the subject (http://bit.ly/eiLY5o), but I do know that the China trademark (and patent) authorities have taken to heart all the criticisms about China being an IP wasteland, and have answered back with an extremely literal and hard lined approach to approving trademark applications, resulting in China being one of the most difficult markets in the world to register your trademark.
There are three primary pain points in the system:
1.) The China trademark (and patent) system is a first come, first serve system. Whether you own the trademark in other markets, how long you have been operating with the trademark, or whether the trademark is even yours at all is irrelevant – it only matters who filed it first. As a result, if your factory, or even a fan of your brand, registers your trademark first, you may be out of luck. I believe there are cases in which large brands can overturn these decisions, but if this is the case, it will be a painful and long process nonetheless.
2.) The standard by which the China trademark bureau evaluates whether or not to approve a trademark filing is one that evaluates words as a series of symbols (similar to Chinese characters), rather than as a whole. This results in trademarks often being rejected when words are similar to one another in terms of letters used. For example, in the Chinese system, the words bike, mike, pike, etc.. would all be denied trademarks in the same classes as Nike, as they are only one letter different than the logo Nike. This makes securing your filing even more difficult, and results in many trademarks being rejected right away by the Chinese trademark authorities.
3.) The entire process takes forever. It typically takes around 3 years to get a decision by the trademark bureau, and even longer if you appeal the decision. I have heard (and experienced) that decisions are happening faster lately, especially rejections. Nonetheless, you are looking at a multi-year process to register your trademark, and one that can get drawn out for several years.
As Dan mentioned in his post, I would definitely recommend getting good legal advice on trademark and patent registration in China. Although China is not exactly known for its IP protection, local businesses are becoming more sensitive to IP issues as consumers increasingly demand authenticity, and operating without full protection is getting more and more difficult.
Chinese media platform, Sina, and sports apparel brand, Kappa (DongXiang), recently announced large investments in public Chinese e-commerce player Mecox Lane (http://bit.ly/hz5XCH). Mecox Lane has been hit with accounting scandals after it listed on Nasdaq earlier this year, resulting in a much lower price for the purchase of the shares that buy out Mecox Lane’s Venture Capital investor – Sequoia (who originally bought their shares from long-time Mecox Lane investor Warburg Pincus). Sina and DongXiang collectively invested close to US$100 million to purchase 29% of the shares outstanding of Mecox Lane.
I find the investment by Kappa an interesting development for the China sports brand. Kappa has more than 6,000 stores across China, and recently launched a flagship Kappa store online in the Taobao mall. This investment signifies their further investment in the online area, and an indication of their commitment to e-commerce.
According to the press release, Kappa and Mecox Lane intend to collaborate in order to “work together to launch the online platform sub-channel created solely for sportswear in m18.com as well as to develop a new line of basic style apparel and accessories.”
I’ll be interested to see how Kappa adapts its current product line and pricing strategy to sell online. With such a large offline retail presence via distributors, it will be challenging for them to maintain price parity across channels for in-line product. This is undoubtedly the reason they are working on launching a basic line of apparel and accessories. By creating an online only collection, they can not only charge lower prices, but can differentiate the line from that that is sold in their stores.
Mecox Lane also sells its own apparel brand, EuroModa, both online and offline, so it is not unfamiliar with the challenges Kappa faces online.
The partnership also marks the meeting of Mecox Lane’s success in the casual apparel market with Kappa’s success in the sports apparel market. I expect to see more and more of China’s sports brands expanding into the casual market, as the casual market in China widens and adopts more fashion and lifestyle brands, and China’s sports market decreases as a percent of the overall apparel market in China.
Sage Brennan will be participating in the frenetic mishmash of South by Southwest for the third time. This year he is moderating a panel on China Technology on March 17th at 11am. Participants will include China tech experts such as Marc van der Chijs (founded China companies Tudou, Spil Games and his latest, United Styles), Calvin Chin (founder of online student loan community, Qifang) and others. If you are sxsw-ing, be sure to stop by!
http://schedule.sxsw.com/?day=17&conference=interactive
The following is a re-post of an article I wrote for the China Law Blog a year ago. You can see the original at http://www.chinalawblog.com/2010/02/the_basics_on_china_retail_cre.html. Everything still holds true, and in the wake of Mattel’s recent Barbie retail flameout, it’s worth revisiting the customer acquisition philosophy that they overlooked.
Despite all the attention given to intellectual property copycats and price points, the single biggest challenge for any brand selling into the China market is distribution.
Though distribution is a challenge for any brand in any market, selling products in China not only requires a brand to meet the expectations of customers, in many cases, it actually requires you to create your own customers. In many industries, a retail channel literally does not exist — you will need to create your own retail concept and either run it yourself, or find others to do it for you — adding risk and uncertainty to the picture.
In eno’s business — the branded apparel sector — the vast majority of shops in China selling apparel, footwear and accessories are single-branded stores. This means that stores only sell one brand, such as Nike, Adidas, Columbia, Vans or North Face. Though consumers may assume that the brand owners run these stores, in China, 99% of retail locations are run by third-party operators.
Single-branded Nike, Adidas and Li-Ning stores number over 6,000 each in China. The retail operator model is similar to the typical Western franchise model, except that in China most operators do not pay franchise fees due to the lack of established franchise laws and conventions.
This structure is similar to the retail landscape in Korea, but quite different from Western markets, where multi-brand retailers (i.e., Foot Locker, Urban Outfitters, REI, Target, Walmart) and department stores (i.e., Nordstrom, Macy’s) make up the bulk of most brands’ sales.
The proliferation of single-branded stores in China has several implications for brands:
– your brand must be strong enough to drive people into stores
– you must have a broad enough product line to fill out a store
– you need to create your own unique retail concept
As a result, there are three maxims that I believe every brand selling to the China market should take to heart:
1.) Act like a retailer – whether you want to or not
Operating a brand in China means being good at retailing — whether it is your core competency or not. In practice, this means designing store layouts for your retailers, creating customized fixture units, designing Point of Sale signage, creating merchandising standards, providing retail training materials and building a line that fills out and optimizes an entire store. For brands that are primarily wholesalers in other markets, this can be a painful undertaking, requiring excruciating attention to detail and policing that is not required in other markets. For brands that retail in their home market, this can be an easier transition (although operating your own retail in China is not without its pain points).
As we roll out the eno store concept with retail operators in Tier 2 and 3 cities, our single biggest issue is providing retail marketing support to our retailers. Not only does our store concept need to work for them, in terms of ease of build-out, cost, material availability, and look and feel that differentiates our brand in the marketplace, but we also need to help them maintain the store look once it is open. This ongoing support requires creating product merchandising guidelines, seasonal imagery and signage support, promotional gifts and ongoing training for the retailer and their staff. We also need to work with the retailer to optimize the product mix for their customer base and sales patterns, and support them on the promotions the department stores practically force them to run during holiday and discount periods. This support is all on top of the typical support wholesalers provide to their retailers, such as marketing their brand to the end consumer through advertising, social media, grassroots, sports marketing, PR and other marketing support.
2.) Retailers are not long term investors – make money for them now
I wouldn’t say it is true that retailers in China don’t care about your brand. They do. They know that your brand is key to them making money. They are even willing to invest in your brand — up to a point. But, one thing is certain — they are not long-term investors. China retailers are extremely astute at two things: 1.) how to sell and 2.) how to keep costs low. In short, China retailers know how to make money — today. They know what will sell, and at what price. They (usually) know where to locate your brand, and whether a store will make money. They will not hesitate to discount your goods if it is the difference between them making money or not — no matter the impact on your brand. They will push you to do what they need in order to make money — today.
You may have a tendency to not want to believe them and to attribute their comments (or demands) to them not understanding your brand. You may disagree with them that your unique and innovative product won’t sell. The tough part is that 9 times out of 10 they are usually right. Their knowledge may not help you build your brand in the long-term or differentiate your product or concept, but listening to the retailers will help you determine what will sell and how you will make money for your retailers.
At eno, we are increasingly seeking out feedback and input from our retailers. If a retailer believes in your brand, they will be more than happy to provide input on your product, retail concept, marketing and brand image. Though this feedback is often blunt and to the point, it is immensely useful in both finding ways to make money for your retailer (and hence you) as well as in gaining buy in and support from your key customers. In fact, our retailers are beginning to ask for our help in creating their own brands and products, as they recognize that it is in branding and design where Chinese brands need the most help. By recognizing synergies between our brand, design and marketing skills and our retailers’ sales and distribution skills, we are engaging our retailers early in our brand’s development to ensure long term success for both parties.
Don’t stop creating innovative and brand building product, and don’t stop building your brand for the long term. Just know that this is your burden, not your retailers. This is your long-term investment in your brand. Retailers invest in your brand, but for the short term. As long as you can find ways to provide short and long term payoffs, both you and your retailers will be happy.
3.) Look pretty in Tier 1 cities, make money in Tier 2 and 3
Retail rents in Shanghai and Beijing are expensive on a global scale, and climbing every day. Even staff and other costs, while lower than in most other global cities, are still on the rise. However, efficiency of stores in China is mostly lower on a per square meter basis than stores in other countries, thus making the economics very difficult in Tier 1 cities in China. Given the immaturity of the market and so many new malls coming on line (80 new malls were built in Beijing in 2008), competition for the best retail spots in Tier 1 cities is steep. Since most retail operators come to shop in Tier 1 cities for brands to open in their home-towns, many brands use Tier 1 cities to create flagship or “image” stores in high-street areas, which are a great brand showcase, but typically lose money. These brands treat these image stores as a type of “marketing” expense, and don’t mind losing money on them, as it helps them to open retail stores elsewhere in China where they do make money. Additionally, consumers in Tier 1 cities are spoiled for choice, and therefore not as hungry for new brands as customers in Tier 2 and 3 cities.
At eno, our business development team is spending most of its time in cities like Chengdu, Chongqing, Tianjin, Wuxi, Wenzhou, Hangzhou, Ningbo and other second tier cities, as we work with retail operators to open our concept in their city.
Despite the hassles and costs that come with operating in Tier 1 markets, doing so is necessary for your brand to expand. All retailers train their eyes on Beijing and Shanghai, so looking good in these markets is essential to your ability to sign up retail operators in Tier 2 and 3 cities. If you can break-even or make a small profit running your own retail in Tier 1 cities, you are doing well. For most brands in China, expansion in Tier 2 and Tier 3 cities is where brands really profit.
These maxims hold true for single brand led retail in China. For those whose products have established retailers in the market, such as food, electronics, health and beauty products and others, these rules will not apply 100%. For these companies, issues such as making their products stand out in cluttered aisles, securing shelf space and executing successful promotions are probably bigger issues.
However, regardless of whether you are selling to existing customers or creating your own customers, you can be sure that distributing your product in China will be a challenge that will require you to rethink your brand and your product completely.
