What should British retailers consider before expanding into China?

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As Chinese president Xi Jinping visits the UK, British retailers should consider a number of factors if they want to expand into his country.

A Chinese delegation headed by president Xi Jinping is nearing the end of its four-day state visit to the UK, in a bid to improve business ties between the two countries. Despite the headlines of a slowdown in China, the country’s retail market remains one of the world’s largest – and as recent ventures into the country by Sainsbury’s and Mountain Warehouse suggest, it is too significant to ignore.

Tapping into the Chinese market remains merely on the wish list for many retailers, but there are a number of important factors they should consider in order to realise their dreams of making it in China.

Know your customer

A recent report from Goldman Sachs declared that there is no such thing as the “average Chinese consumer”, and identified four key tiers.

First, the crème de la crème. There are around 1.4 million movers and shakers with an annual income per capita of around $500,000 (£323,535).

Second, the urban, ‘narrow’ class, with a population of 146 million people with an annual income of around $11,000 (£7,118).

Next, the urban mass, which consists of 236 million people with an annual income per capita of just over $5,500 (£3,559), followed by the 387 million rural workers who earn just over $2,000 (£1,294).

Retailers should also be aware of the differences and sensitivities between age groups. Those in their fifties and forties are likely to have experienced poverty and austerity. Those in their thirties and the millennials may not have experienced hardship and could be ‘second-generation rich’.

Social media

There is no Google, Facebook, YouTube, Twitter or WhatsApp in China. Instead, it has Baidu, Renren, Youku, Weibo and WeChat.

Tommy Hilfiger and Burberry are just some of the retailers that have used Chinese social media channels to secure hundreds of thousands of followers and fans – and ultimately boost sales.

Physical vs online

To take advantage of China’s online grocery market, which IGD estimates will be worth more than $180bn by 2020, Sainsbury’s recently launched on Alibaba’s Tmall site.

Grocery chains with physical stores such as Walmart and Carrefour have observed a change in tastes and trends, along with an increase in online competition.

Following a spate of high-profile food scandals, Chinese consumers are placing greater emphasis on food provenance. These are all key considerations for retailers looking to expand to China.

Retail technology

Slowly, but surely, an increasing number of retailers in China have started to introduce free in-store wifi.

With the consent of the shopper, wifi can provide retailers with valuable insight to identify popular offers, trends and deliver advertising or even exclusive “wifi only” promotions and discounts.

Chinese shoppers love showrooming. Research from McKinsey found that only 16% of consumers who did their research on a mobile actually bought the product at the store. Yes, that is a threat. But forward-looking retailers need to see this as an opportunity to provide Chinese shoppers with an immersive retail experience.

New retail technologies such as beacons can provide an engaging shopping experience – and are delivering results. Chinese jewellery retail outfit Chow Tai Fook used beacon-supported location and proximity marketing with WeChat to generate sales of more than $15m (£9.7m). Other technologies that could bring the retail experience to life include augmented reality, self-service apps, in-store navigation and automated kiosks.

Information silk road

Turn back the clock two millennia and the ancient world of commerce depended on a thriving Silk Road. Then – just like now – traders built strategic alliances to gain a competitive edge.

Fast-forward to today and it is an Information Silk Road. Chinese consumers – like their Western counterparts – are discerning and have little patience for downtime. New retail technologies can be dazzling and futuristic – but, ultimately, they are only as good as the networks they run on.