Adapting Retail to China’s New Normal

The retail and consumer goods sectors have been significantly impacted by changes in China, namely in the economy, consumer behavior and private consumption. Domestic companies have been quick to adjust, while some multinational corporations (MNCs) are struggling to identify the best course of action.

When MNCs reassess their offerings in China, it is crucial that they consider a few essential elements. Some of these business practices may appear basic or even mundane, but they are frequently disregarded when headquarters make decisions about initiatives in the country.

Why Are We Here – and for Whom?

Adapting to China’s retail landscape over the long term will require more than just an inside-out perspective, international operations logic, competitor benchmarking and continuation of existing best practices. Although evaluating and evolving concepts through the eyes of consumers – from the outside in – is a simple and highly effective approach, operational convenience, optimization, profitability, politics and internal priorities are all valid business metrics that are often irrelevant to Chinese consumers.

Starting with a profound understanding of critical target groups is advisable instead. This used to be relatively straightforward, but today’s consumer landscape in China is exceptionally hard to navigate. It’s important to not just cluster segments based on what consumers want and can buy, but also on how they choose to interact. MNCs today almost always neglect the latter.

How to Become and Remain Relevant?

An appealing retail offering depends on more than just quality, range, brand or product categories. Since everything is available from multiple sources, relevance is established through more than just assortment. Priority should be given to customer experience, brand narrative and promise, and O2O (online-to-offline) excellence. To succeed in Chinese retail, MNCs must prioritize user experience – not just customer experience.

While e-commerce excels in speed and convenience, physical retail now revolves around providing unique experiences, entertainment and engagement. This means allowing customers to participate, share and influence, and seamlessly integrating digital tools into the shopping experience.

From Retailer to Destination

Many consumer goods and retail categories are undergoing significant changes. Consumers are adopting new definitions and perceptions and adjusting their spending habits accordingly.

To minimize the risks that result from shifting consumer interpretations, Chinese retailers are acknowledging the need to create appealing destinations that resonate with modern consumers, rather than focusing only on providing a place to purchase. New malls and department stores are intentionally evolving into “designer destinations” that align with their respective products and brands. This strategic approach helps bolster the retailer’s position and reduces its reliance on partners.

In Shanghai, some of the most successful retailers are relatively small companies with a keen understanding of their target audiences. They prioritize providing enjoyable experiences, selfie opportunities, attractive packaging and a “kawaii” aesthetic, in addition to their products. This combination is highly appealing to specific groups and has led to long queues forming on some of Shanghai’s most renowned streets.

Additional Metrics

Retail is a highly optimized industry everywhere, but to maintain momentum it is important to establish key performance indicators (KPIs) that go beyond just financial aspects. To monitor developments more comprehensively, fiscal performance should be combined with customer responses and satisfaction, user engagement frequency and intensity, segmentation, and shifts in consumer trends, as well as reputation and brand perception.

Regardless of how MNCs collect and analyze data, simple, informal, face-to-face conversations with people, especially non-users, about their opinions, preferences and needs can generate the most valid insights when an MNC operates far from home.

Business concepts become irrelevant if they are not regularly updated to meet consumer needs. It is important to stay proactive and always be ready to adapt. Retailers should maintain a sense of urgency across their strategy and business concept teams. Incorporating additional metrics can help MNC retailers and consumer goods companies better understand what needs to be done and when.

The Times They Are A-Changin' (Again)

The recommendations for multinational retailers and consumer goods companies are straightforward: Embrace the need to adapt, even when it contradicts your domestic market strategies. Aim high, as Chinese consumers are not looking for more of the same. Always assess your initiatives from the user’s viewpoint. And be prepared to evolve, as China is constantly changing.