The Chinese can be tough customers for American retailers
SHANGHAI When Mattel decided in March to shutter its massive, pink-themed Barbie flagship store on Shanghai’s fashionable Huaihai Road, it seemed simply that young Chinese girls were not quite ready to embrace the iconic blond American and her active, glamorous lifestyle.
But coming just as two other American retail giants, Home Depot and Best Buy, also announced plans to scale back their China ambitions, the demise of the Shanghai Barbie store offers a broader, cautionary tale for U.S. firms looking to profit from China’s rapidly expanding middle class.
Growing consumerism and more sophisticated shopping tastes here offer boundless opportunities for companies looking to cash in, particularly as recession-wary shoppers in the United States and Europe continue to tighten their belts. Many American retailers, such as KFC and Wal-Mart, are growing strongly and expanding rapidly in China.
Despite the potential, some firms have found profits here elusive. Analysts said the most successful American retailers in China are those that recognize the complexity of the market and adapt their products to local tastes and preferences. The Chinese are highly discerning consumers, experts say, and what works on Main Street does not always easily translate.
KFC, for example, relying on a team of Taiwanese managers, has a locally designed menu for Chinese palates congee, sesame-seed cakes, spicy chicken rice that would be largely unrecognizable in the United States. Wal-Mart has succeeded with an expanded grocery business in its China stores, including markets for fresh produce.
Although Home Depot, Best Buy and Barbie each faced distinct challenges, retail analysts and others said the three cases carry some common, and familiar, threads: firms coming relatively late to an already-developed Chinese market, bringing products similar to widely available local brands, and finding it hard to differentiate their products, even though they may be well-known in the United States.
“All three companies didn’t understand the Chinese market,” said Shaun Rein, founder of China Market Research Group, a market intelligence firm in Shanghai. “They brought what worked in the United States and tried to ram it down the throats of Chinese consumers without much localization.”
The key, he and others said, has been to adapt the product to the Chinese market and not try to adapt the market to the product.
Chinese consumers are also extremely price-conscious and are not always ready to pay even a few cents more for an American brand when a similar, less-expensive local model is available.
At several Shanghai department stores, sales staff said the local Kurhn brand doll was generally outselling Barbie, largely because of price. And shoppers agreed.
“Barbie is too expensive,” said Xu Xiaoyun, a 20-year-old college student who has been collecting dolls since she was young. She has one Barbie that she found on sale. “The blond hair and blue eyes are a little different from our standard of beauty,” she said. “It’s true Barbie has a long history, and the design and quality are better. But still, it’s expensive.”
DIY concept fails
Just before Mattel closed the Barbie store, Home Depot announced in January that it was shutting its remaining Beijing outlet, and concentrating on what it called two other “high growth” cities, Tianjin, an eastern port city, and Xi’an, in central Shaanxi province.
Home Depot arrived in China in 2006, buying a local home-improvement chain Home Way, but has struggled to find a foothold for its American-inspired concept of DIY, or “do it yourself.”
In China, labor is cheap, and the notion of DIY is almost nonexistent for urban consumers who grew up with someone else on hand to do everything for them.
“The DIY concept is too advanced for today’s Chinese people Chinese society has not developed into that,” said Chen Can, an analyst for a Shanghai consultancy.
Home Depot seemed to acknowledge as much, with a spokesman noting that relatively cheap labor costs mean Chinese consumers tend to work more with decorating companies or contractors when they renovate their homes. “In that sense, it is more about do-it-for-me rather than DIY,” the spokesman said in a written statement.
Shortly after Home Depot’s announcement, Best Buy said in January that it was closing all of its outlets in China, and concentrating on expanding its wholly owned Chinese subsidiary, the Five Star appliance chain, painting the move as a shift in strategy, to sell its brands through its more profitable partner stores. But retail analysts said Best Buy came late to China, in 2007, and found the Chinese electronics appliance market saturated with local competitors, such as Guomei and Suning, which were well-entrenched.
“The thing that always shocks Americans is the weight of the competition,” said Paul French, a Shanghai-based retail analyst and author. China, he said, “has electronics plazas in every town.”
Lu Buchen, an independent appliance industry analyst, said Best Buy also brought U.S. business practices to a local market, where it found itself undercut by competitors using what he termed “gray area” practices.
For example, Lu said, Chinese chains typically do not pay suppliers until after their products have been sold off the shelves. Best Buy, by contrast, paid suppliers up front, regardless of how the products sold. Also, in Chinese stores, brand suppliers pay sales staff to push their products on consumers, while Best Buy’s staff took a more neutral approach.
Best Buy in the United States also makes a significant amount of revenue from the warranties it sells on its products. But as several industry analysts noted, consumers in China typically do not buy warranties.
No niche for Barbie
The closure of the Shanghai Barbie store was perhaps the most surprising, if only because its arrival in 2009, the doll’s 50th anniversary, was greeted with such fanfare. The three-story, 36,000-square-foot store was a veritable pink shrine to All Things Barbie, with 900 display cases, a cocktail bar, spa, a makeup studio and a runway where young girls could imagine themselves on the catwalk.
Shanghai was chosen as the site of Mattel’s only flagship store because this was seen as the most sophisticated, modern city in the world’s fastest-growing consumer market.
But the Barbie theme never seemed to find a niche among a population where “cute” trumps “sexy,” and where even women in their 20s prefer Hello Kitty to anything too overtly sexual.
“Barbie is an American cultural icon,” said Li Guangdou, a brand analyst in Shanghai. “It is more than a toy. It is also promoting a kind of American culture. Youthfulness, confidence, independence and sex are the selling points of Barbie. But Oriental culture emphasizes more of introversion and introspection.”
He added, “There’s a cultural difference.”
Researcher Wang Juan in Shanghai contributed to this report.
