M&S's China shake-up hints at localization woes

By Yu Xi Source:Global Times Published: 2014-4-24 20:53:01

Illustration: Lu Ting/GT



British retailer Marks & Spencer (M&S) came under the spotlight recently thanks to reports that it plans to close several of its Chinese stores due to its declining performance in the country. At the same time, the retail giant said it will continue to "treasure" China as one of its top international markets and relocate a "couple" of its existing stores in first- and second-tier cities, according to a press release sent to the Global Times.

Some experts have taken these statements as an acknowledgment of the company's failure in the Chinese market. Such assessments may be a little premature though, especially since M&S does not disclose sales information pertaining to China. Still, recent financial results from the retailer suggest that the company may be losing its edge. Documents from M&S show pre-tax profits falling 8.9 percent year-on-year during the six months through September 2013. Last month also saw Citi and Normura reportedly cut their annual profit forecast for the company by 2 percent - a downgrade which comes as M&S loses ground in its home market to rival Next Plc, an apparel and house ware retailer which has long been described as a more fashionable, youth-oriented version of its competitor.

The rapid rise of China's middle class has created an enormous consumer market for international brands, many of which are running short of growth opportunities in mature Western markets. But to succeed, international retailers must adhere to one simple principle: outsiders need to adapt to local conditions and demands.

In 2008, M&S opened its first flagship store in Shanghai. Today, the retailer operates 15 stores in China. Aside from the seven stores it operates in Shanghai, the company has worked hard to establish a presence in second-tier cities like Ningbo, Wuhan, Qingdao and Suzhou, where demand for foreign goods is still relatively underdeveloped. But from the start, some local shoppers have been critical of its somewhat dowdy clothing lines as well as its high prices.

Of course, M&S isn't the only overseas retailer which has encountered problems in China. Spanish fashion brand Mango has shuttered several of its local stores thanks largely to declining revenues - reports say that Mango was running 115 stores in China by the end of August, down 42.5 percent year-on-year. The pain isn't confined to apparel though: a host of foreign brands, including Best Buy, Home Depot and Barbie, to name just a few, have all made headlines over recent years owing to their localization struggles in China.

When expanding abroad, international brands have to modify their strategies to suit the needs and expectations of local consumers. For many overseas companies entering China, accomplishing this task typically means securing a local partner. Indeed, M&S said recently that it plans to do just that as it explores ways to drum up revenue. This will surely help the company gain a better understanding of the habits of Chinese shoppers - not to mention Chinese consumer laws and retail market regulations.

Meanwhile, M&S said recently that it has hired Maria Rodal, formerly the human resources director for Asia at Inditex, as its new general manager for the Chinese market. Inditex - a Spanish fashion and textile conglomerate that counts Zara and Massimo Dutti among its many subsidiaries - is well-known for its ability to respond quickly to changing trends and tastes. Perhaps this staffing shake-up will help M&S breathe some fresh life into its styles and make it more appealing to a younger clientele. Tapping into youth demand is particularly important in China, where people in their 20s, 30s and early 40s are far more willing to engage in discretionary spending than older generations.

Similarly, M&S isn't the only overseas company making strategic adjustments to its China operations as competition intensifies under slowing consumer spending growth and the spread of e-commerce. German big-box chain Metro - which first entered China in 1996 - stated Wednesday that it will work to become more of a specialized wholesaler as it shifts away from its older generalist approach.

With the right strategy, M&S can still find fortune in China. For the time being, the company should leverage its current strengths, such as its high-quality customer service and modern facilities (M&S's Nanjing Road West flagship, for instance, is one of the few stores in Shanghai with a nursery room for new mothers), as it works to win favor with local shoppers.

The author is a reporter with the Global Times.

bizopinion@globaltimes.com.cn

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