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The Future of Chinese Retail

As China's retail market matures, consumers will demand more boutique offerings and custom designs. The Diesel Planet Store in Shanghai, China. Image © Nacasa & Partners Inc.

China’s retail market has entered a period of maturation evidenced by bling’s fall from grace and a newfound emphasis on lifestyle, individual taste, and personal identity. In spite of these changes, many of the trends and market forces currently affecting retailers in western countries are not applicable to the Chinese market. This is because China’s retail landscape and the prevailing mores governing consumption habits are, on account of the country’s history, very different from those found anywhere else in the world. To understand what the future of China’s retail landscape holds, you must first understand how the retail market has evolved in the short time since the nation reformed its economy and introduced consumer culture.

One of the defining attributes of China’s retail market is that it doesn’t possess the infrastructure commonly found in western countries. In the United States, for example, malls, downtown shopping districts, and other commercial centers have been integral parts of cities and suburban communities since the turn of the 20th century. Comparatively speaking, retail in China is a novel phenomenon, dating back to the early 1980s when economic reforms began taking hold. Given the relatively newfound nature of China’s consumer culture, it’s understandable why Chinese cities and communities never had the opportunity to accumulate the critical mass of brick and mortar stores that western shoppers take for granted.

The lack of retail infrastructure is one reason why Chinese consumers tend to value online shopping rather than the in-store experience. Buying online is the default mode because the retail scene has been inherently digital for the past two decades. Online shopping became prevalent at about the same time China’s construction boom commenced, so Chinese consumers have long been accustomed to thinking about brands in terms of their digital presence first and their physical presence second. One advantage of this paradigm is that prominent Chinese brands have not had to worry about translating their messaging and appeal to the online realm. So while western retailers are struggling to shoehorn digital technology into physical stores and to create commanding online presences, Chinese retailers are reverse engineering the in-store experience.

The Diesel Planet Store in Shanghai, China. Image © Nacasa & Partners Inc.

One consequence of China’s “digital first” mentality is that Chinese retail is transactional in nature. The idea of personalized service can actually cause frustration with shoppers who have long preferred quick, efficient sales as opposed to drawn out interactions with store employees. This may change, however, as Chinese consumers begin placing more emphasis on finding brands that complement or enhance their lifestyles and personalities. Whenever a retail market matures, as is the case in China, shoppers begin shunning outward demonstrations of wealth in favor of more nuanced curation on their personal identities. They gravitate towards brands that speak to them and their ways of life, both actual and aspirational, and they look for stores that offer an experience in addition to an inventory.

In recent years, Chinese shoppers have gradually begun this transition. They have become more discerning and less concerned with purchasing ostentatious goods that do little more than serve as shorthand for obvious material aspirations. As this continues, the in-store experience and its ability to attract shoppers through the presentation of a certain image or lifestyle will continue to gain relevance. Stores will have to edit their assortments. Retail in emerging markets revolves around “the trade.” Such countries are oversaturated with market stores that offer every product imaginable. The majority of Chinese customers still find safety in numbers—they flock to warehouse market stores where crowds shop for everything from sweaters to kitchenware. This trend is slowly reversing itself. An emerging class of Chinese consumers wants specialized stores as opposed to one-stop marketplaces. They want to choose brands based on their own tastes rather than have those tastes dictated to them by popular opinion. Individual retailers are beginning to emphasize brand heritage as opposed to convenience, because Chinese shoppers are showing a taste for heritage brands that exude a high level of craftsmanship and personalization.

In response to the changing preferences and shopping habits of Chinese consumers, retail developers are modifying their spaces to reflect the newfound significance of lifestyle. Malls are activating public areas to create mood and enhance the act of shopping. Physical layouts and programming of public spaces can change the cadence of shopping and, when done in an appealing manner promote return visits. Beyond decorating public spaces to honor the four seasons, shops are changing displays every two weeks to highlight the different products and experiences offered.

The Lenovo Flagship Store in Beijing, China. Image © Nacasa & Partners Inc.

To entice more sophisticated consumers, Chinese brands are emulating global luxury brands by foregrounding lifestyle messaging and suggesting their products can change personal identity for the better. China is not a premium luxury market. It is steadfastly mass market on account of the sheer scale and volume of the country’s middle to upper middle class. In the past 18 months, Chinese manufacturers for H&M and the Inditex Group (Zara) have transitioned themselves into fast fashion brands. They’ve begun positioning themselves as lifestyle brands. In the United States and Europe, retail is returning to the mom-and-pop model of the post-World War II variety. China is moving towards organized retail—Chinese shoppers want limited edition and customized products but at scale.

China’s retail market scene still possesses certain characteristics symptomatic of an emerging market. A lack of patent/intellectual property restriction means forgery remains rampant; good forgeries of products, from purses to watches, are almost as valuable as the originals. Forgers take great pride in copying products and do so with an attention to detail that indicates real design talent. Incentivizing these forger craftsmen to stop copying and start developing proprietary products will not be easy, but doing so is crucial to moving the Chinese retail economy towards more proprietary innovation.

The continuing presence of copying proves that change is a time intensive process and evolution occurs slowly in a country as vast and culturally diverse as China. Many Chinese customers still cling to a group mentality: if everyone owns a certain handbag, then it must be a good handbag! But as Chinese consumers become more confident, they will reject such outmoded reasoning and choose products on their own taste. The rise of the Chinese millennials could accelerate this process. China’s retail market is unique on account of circumstances and historical trends unlike those found anywhere else in the world. The brands that understand this and that seek speak to Chinese consumers on understandable terms will be the brands that achieve the most in the coming decade.

Tim Etherington is a true globe-trotter and a brand and retail expert with more than 20 years of experience. As the managing director of Gensler's Shanghai office he cultivates an in-depth and nuanced understanding of cultural differences and how these impact the creative collaboration process. Contact him at tim_etherington@gensler.com.

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