Traditional consumption norms in China are being challenged by evolutions in technology, modern habits and innovative product-experiences that affect how consumers evaluate, select and pay for goods and services. Today, Chinese consumers have higher and higher expectations – they focus on quality and safety, are becoming brand-centric and consume across multiple retailing channels, and pay with cash, credit cards and even virtual currencies.
This is creating enormous opportunity. Bain recently noted that the ongoing transformation in Chinese shopping habits is “opening up vast opportunities for retailers and brands that pay attention to the nuances of massively changing consumer behavior.” Businesses have an opportunity to research, strategize and execute carefully constructed strategies that can now leverage a wider variety of distribution channels, strengthen the quality of revenue, control margins, better manage inventory, and ultimately run brands more efficiently.
Lunar’s businesses have traditionally sold through three retail formats: (1) department stores, which centralize payments for multiple shop-in-shops; (2) shopping malls, which have grown in popularity as social hangouts with friends and family and (3) super- or hyper-markets, which are facing headwinds driven by high operating costs and are probably the most negatively impacted from the migration to e-commerce. Hypermarket operators, department stores and brands are jockeying to position themselves in front of the most digitized consumer in the world – PWC reported in April on a survey of global consumers which indicated that 14% of Chinese shoppers shopped online each day, compared to 5% globally, and more than 60% of Chinese shopped online at least once a week compared to 21% of their global peers.
Examples of strategic adaptation are emerging. RT-Mart launched its e-commerce platform “Feiniu” in December 2013, employing more than 300 people, selling more than 200,000 SKUs, and guaranteeing nationwide 24-hour delivery. Department stores are trying to marry their model to online as well. Intime launched a mobile app called “Go Shopping”, where products are selected, delivered to the customer, tried and tested free of charge, and purchased only once the consumer is satisfied. Additionally, Intime sold a strategic stake to Alibaba, marrying offline to online and seeking out resources to help address challenges.
While Intime and RT-Mart are proactively addressing the changing competitive landscape, other consumer-oriented private enterprises may lack the management skill and insight to respond to change. E-commerce and m-commerce can serve as key distribution channels for strong brands with loyal consumers, but remain challenging ecosystems to navigate due to fragmentation, channel conflicts and the unwillingness of these platforms to subsidize transactions and logistics.
We have found that a majority of mid-market consumer brands are struggling to implement e-commerce strategies and need help. While Bain noted the vast opportunity for retailers and brands opening up, we also believe that many private enterprises will need to bring on board strategic partners, and even sell controlling interests, in order to adapt to new business realities. This will drive future buyout opportunities.
To demonstrate our value, Lunar has established an e-commerce task force to build a system of best practices for our brands that delivers reduced transaction costs, encourages price transparency across product catalogues and provides a unique shopping experience for our customers. We have drawn upon our relationships in the internet community and our early leadership in the mobile sector – many remember that as early as 2000 we predicted that m-commerce would be a key future driver of mobile revenues in China. As a result of this focus and strategy, we have seen significant e-commerce sales growth across the portfolio.
An upcoming test of our efforts will be Singles Day on November 11th, which has become the single largest online shopping day in China. We have worked to position our brands well and look forward to seeing online revenues continuing to grow.
