There’s been a number of post-mortems published on why the Barbie store in Shanghai missed the mark and recently closed down after two years of operations (http://bit.ly/ebn9RO) (http://bit.ly/gmx4MT) (http://bit.ly/dUKDNn) (http://lat.ms/eBVEyR)
While you can point to a number of factors, I would argue that the downfall was largely strategic, and highlights several issues that face all retailers in China.
Why did they close the store? That’s simple. It didn’t make money, and as far as I know, never did during its two-year tenure. This is not shocking to anyone who visited the store – it was a six story, 3,500 square meter store on one of the most expensive retail streets in Shanghai. But oddly, losing money was not the biggest problem the store faced – most flagship stores in Shanghai lose money. The problem was that Mattel expected the store to make money – and therein lies the strategic collapse.
Mattel’s strategy for opening the flagship store was for it to be a profit center – not a marketing expense. This is a tall order on a Shanghai high street. Most retailers in China make money on small, commercial stores that are carefully sited in high traffic malls and department stores. In addition, nearly all retailers operate massive flagship stores to showcase their brand to consumers and (perhaps more importantly) to potential retail franchise operators and landlords. Most flagship stores in China (Apple is a notable exception), don’t make money, and brands consider this part of their “marketing” expenses – not an avenue for direct profit.
The problem was that Mattel didn’t have a defensible strategy for making money in the China retail market. They didn’t have plans for small retail stores, were not seeking out franchise customers to expand the Barbie brand throughout China, and did not have a coherent merchandising and store concept strategy that would have enabled them to expand nationally throughout China. I believe that this lack of scale and a long-term retail business model for China created most of their problems that led to the closure of the store. Some of these problems included:
- Merchandising issues: Because the Shanghai Barbie store was the first of its kind for Barbie worldwide, they had to piece together the merchandising in the store from various global lines from all types of retail outlets. Many of the products had to be imported into China – resulting in high prices from import duties and VAT taxes. And since they only had one store, they didn’t have the scale necessary to build a line dedicated to China. In the end, they had an unfocused, mismatched, expensive collection that didn’t directly address Chinese consumer preferences or needs.
- Location: Running a street-front store in Shanghai is challenging – even on a high profile street like Huaihai lu. Foot traffic is unreliable, as most consumers hit the malls for serious retail therapy, not city streets. Although the rent at the Barbie store must have been steep, I am sure it wasn’t as expensive as some smaller stores at the high profile malls in Shanghai – its just that the location didn’t generate the numbers or the “active shoppers” that it needed to justify the rent.
- The downfall of the “experience” store: Experience stores have worked in the US, Japan and other markets, but I have yet to see an experience store concept work in China. Somehow cafes, spas, hair salons and other activities just don’t mix with retail in China (at least for now). I would attribute the reason for this to two factors: 1.) It’s hard enough to run quality retail in China. Add an F&B or adjacent service business, and everything goes downhill quickly 2.) Consumer shopping preferences in China are extremely difficult to change. Shoppers are used to going to specific streets or shopping areas for certain items – mixing categories just doesn’t seem to work that well.
So what about consumer preferences? Did Barbie miss the mark with consumers in China? I believe that the Barbie brand does resonate with Chinese consumers. I remember when the store opened, I was surprised how many grown women (and men) were going gaga over Barbie.
One of my colleagues explained it well. She said that she never got to fully experience her childhood (she was in her late 20s), and this was her chance to have the childhood experiences she craved when she was young. These middle class consumers have their own children now, and want to shower them with the experiences they never had — or even share these experiences together. These are powerful consumer insights to tap into, and ones that are perfect for the Barbie brand. I believe Mattel can make Barbie successful in China – it just needs a new strategy.
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