China’s New Focus on Customer Experience

By Rachel Tang

Long driven by macroeconomic growth, China’s prosperous retail industry is now facing a turning point. Since 2009, growth rates among China’s top 100 retail brands continue to shrink. In 2012, due to low demand, the sales numbers and profit of most retail companies declined. The continuous deterioration of PMI (Purchase Management Index— an important indicator of the manufacturing sector’s economic health), showed that oversupply had pushed the Chinese retail industry into deceleration.

Meanwhile, traditional retailers have been grappling with the daunting challenge of increased costs. Rents have gone up by 30 percent and labors costs have increased 20-30 percent annually during the past two years. To stay competitive, even leading department store chains are starting to review each store’s performance and closing locations with negative margins. The situation that small to mid-sized businesses are facing is even more severe.

However, e-commerce is a bright spot in this economic picture. In 2012, e-commerce soared in China, accounting for more than 5 percent of total retail sales and exerting tremendous pressure on traditional retailers. Online shopping portal Taobao, for example, smashed last year’s record by tripling sales and reaching 19.1 billion yen (USD $ 200 million) in a “double 11” promotion (November 11th). The downside of this trend is showrooming. Brick and mortar stores have become the fitting rooms for e-commerce—consumers come in to inspect a product in person or try on garments, but ultimately make the purchase online where better bargains can usually be found.

Facing stiff competition from e-commerce players, traditional retailers are exploring new ways to boost business. Going online is the most common approach. Even Wanfujing, a department store established more than half a century ago, launched an online shop in January 2013. Among the top 100 traditional retailers in China, 54 now operate an online store.

While e-commerce is growing among Chinese and foreign retailers (such as Toys “R” Us, which last year launched online sales in China), many retailers are still trying to figure out how to better position their brick and mortar businesses. Many China’s New Focus on Customer Experience have scaled back plans to open new stores, instead putting more effort into improving customer experience. As retailers experiment with ways to encourage customers to stay in-store longer, they are realizing that anticipating consumer needs and providing innovative services are the keys to customer satisfaction. Walmart, for example, is developing a mobile app that sends promotional information via free Wi-Fi to customers once they enter the store. It will also track consumers’ transactions in order to provide product recommendations that are relevant to each customer uniquely.

Some retail companies are taking things further and adopting information technology solutions that can streamline operations and reduce costs. In April 2012, Suning launched its first automated warehouse to become more efficient. Technologies like automated checkout and packaging have even been adopted by some local supermarket chains. It’s only through the improvement of information systems and value chain management, which are core competencies of modern retailers, that China’s retail industry can mature and evolve.

Overall, 2013 may be a bumpy ride for Chinese retailers, even as China’s General Chamber of Commerce remains optimistic (projecting 15 percent growth this year). While sales were up 14.3 percent in 2012, growth was slower compared to 2011 (+17.1 percent). A cause for optimism, e-commerce maintained fast growth (+54 percent) and accounted for 6.3 percent of total retail sales.

Mobile commerce, another bright spot, is just revving up with sales more than tripling in 2012. Just as Walmart is stepping up its mobile efforts, the Taobao virtual mall is rolling out a Qianniu (literally, Thousand Oxen”) mobile platform for its vendors, allowing sellers to better manage their online inventory, transactions, marketing, analytics and other data.

Mobile commerce, another bright spot, is just revving up with sales more than tripling in 2012. Just as Walmart is stepping up its mobile efforts, the Taobao virtual mall is rolling out a Qianniu (literally, Thousand Oxen”) mobile platform for its vendors, allowing sellers to better manage their online inventory, transactions, marketing, analytics and other data.