canadian retailers still shy
china’s retail sales are growing in the double digits and big consumer brands from around the world have been hungrily eyeing its thriving consumer marketplace.
Wal-Mart Stores Inc., IKeA Systems bV, Mcdonald’s corp. and Starbucks corp. have set up shop there, as have the world’s biggest purveyors of luxury goods, including chanel, Louis Vuitton and Gucci.
So why have so few canadian retailers looked to expand into the populous, burgeoning nation? Aside from leather and apparel chain roots canada Ltd. and convenience retailer Alimentation couche-Tard Inc., our country’s biggest brands have been shy to take the plunge.
The topline numbers look promising. Fuelled by consumer spending, china’s retail sales grew almost 13% in the first half of this year after a 14.3% rise last year and a 17.1% increase in 2011.
but according to experts, the prospects are daunting for any foreign retailer considering the chinese market, where some of the world’s biggest players have struggled or failed.
Home depot Inc. entered in 2006 and closed its seven locations in 2012. best buy co. opened around the same period, but has seen its market share decline. U.K. grocery giant Tesco PLc and Wal-Mart, the biggest retailer in the world, which opened there in 1996, have struggled.
“It is a five- to 10-year process to build a brand in china,” said George Minakakis, Toronto retail consultant and a former executive at Italian eyewear giant Luxottica Group who worked as the retailer’s ceO for china from 2006 to 2009.
A key barrier to entry is short retail leasing terms of one to three years on store spaces, he said, compared with much longer leasing periods available in North America.
“you barely have enough time to establish your store. The developer might swap you out for a watch business versus a doughnut shop.”
Another deterrent to foreign retailers is widespread counterfeiting, Mr. Minakakis said. “best buy is in china, but you walk into certain markets and buy a [low-cost] copy of an iPhone,” he said. “you are competing against that.”
Nevertheless, roots canada has operated stores in Asia for more than a decade and expanded into china with franchised stores in 2009, where “sales are excellent” at its 24 stores, according to Michael budman, president and co-founder.
“We were the first brand to put canada on our backs,” he said. “The Asian community embraced roots: they love canada, they love fashion and they love brands. We appeal to many groups, but in specific in china, the vision of canada — the health, the wellness, the environmental consciousness — in all of these things, we are seen as an extremely progressive country.”
but roots’ embodiment of all things canadian is precisely why the retailer does well there, says ShihFen chen, an international business professor at the richard Ivey School of business.
“roots is not just a fashion brand; it is selling a lifestyle,” he said. “Asian people particularly like brand names that carry a positive symbolic image.”
Mcdonald’s and Starbucks are popular in china because they are viewed as made-in-America lifestyle experiences rather than restaurants, Mr. chen said. “They are cultural products. People in china do not like the taste of Mcdonald’s food, but their kids get to brag that they went to Mcdonald’s and got some toys there. A student in canada can give up one meal on campus and buy three Starbucks [specialty] coffees. In china, you would have to give up six meals to buy a cup of Starbucks. People do not spend that much for coffee just because they want to drink it, but because holding the cup of Starbucks coffee makes them feel so good psychologically.”
The non-lifestyle retailers able to succeed in china are those who stringently adapt the business to local culture and have very deep pockets.
“you need to have a home market with generous enough resources to support your expansion into china, where you are probably going to lose money for 10 years,” Mr. chen said.
He said successful retail brands such as 7-11 opened first in smaller Asian countries many years before opening in china, both to test the markets and to build some brand awareness among chinese travelling to neighbouring nations.
“you can be successful in a market like Taiwan, where you might lose money, but the size of the loss would be much smaller. expand to Korea, expand to Taiwan first.”