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Opinion and Insight

Time for Retailers in China to Stop Making Excuses & Thrive in The ‘New Normal’

staging.lbbonline.com, 2 years, 5 months ago

OC&C Strategy Consultants publish latest report examining how retailers in China need to evolve in the face of the slowdown in economic growth

Time for Retailers in China to Stop Making Excuses & Thrive in The ‘New Normal’

The realities of a ‘new normaI’ in China mean that the business strategies of many traditional retailers and consumer goods companies need to change quickly. International consumer businesses, in particular, must be more flexible and sophisticated with their offline and online propositions to be competitive, according to a new report by OC&C Strategy Consultants. 
 
The New Normal: Time to stop making excuses and adapt instead sets out a roadmap for retail businesses responding to the change in growth dynamic in China. The report reveals the extent to which the growth of many business have been hit by over-exposure to traditional, offline retail in Tier 1 and 2 cities.  Similarly, those businesses that are under-exposed to well-performing areas of the market, such as online and lower tier cities, have seen their growth rates halved in the past two years.
 
Some of the largest offline operators such as grocers, department stores and electrical stores, have experienced especially difficult times as they have been dependent on extra space to drive growth.  Many foreign consumer goods companies also suffered due to the emergence of domestic online players with their own stores hosted by Tmall, causing many consumers to shift away from established, international brands as they move online.
 
Richard McKenzie, partner, OC&C Strategy Consultants, said: “There is still plenty of growth to be found in China, however companies need to be nimble to benefit from it. Accepting this new normal reality, understanding how to tap into those areas of market growth, and then planning and investing correctly for the future will put retail and consumer goods businesses on a stronger footing.”
 
Despite concerns over slower, and even negative growth for some retailers, China continues to expand far quicker than most other world markets.  With levels of personal disposable income remaining high and consumer confidence still strong, the immediate challenge for retailers and consumer goods companies is to become successful online, as it now accounts for over half of retail market growth. 
 
There are four key actions that consumer businesses in China need to be considering as part of dealing with this change in growth dynamic:
 
1. Be realistic about underlying market and budget appropriately: In order to perform like the overall market, multi-nationals in particular need to adopt a more balanced approach that gives appropriate attention to the growth pillars of online and lower tier cities.

2. Offline is far from dead but does deserve less focus: Although still the biggest channel for most retailers, too much of a focus may hold back the business for embracing the faster moving online market.

3. Look to lower tier cities: More attractive than ever as a source of growth, businesses need to ensure they have access to these consumers in lower tier cities, although the scale of opportunity will be very different for each business and any approach will need to be tailored.

4. Building the right proposition for growth in each channel: The growth and pricing dynamics of each channel are radically different and need to be assessed individually, relative to both a business’s own performance and those of its competitors.