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China 2016: CATEGORIES IN BRIEF | Retail

CONSUMERS KEEP SPENDING, BUT PURCHASE MORE WISELY 
 

The retail category declined 2 percent in value in the BrandZ Top 100 Most Valuable Chinese Brands 2016. The decline indicates the category’s competitiveness, the pressure of e-commerce on physical stores, and challenges facing Alibaba.

Because of these challenges, including concerns about counterfeit merchandise on its sites, Alibaba fell 20 percent in brand value. The other retail brands included in the BrandZTM China Top 100 rose sharply in brand value: Suning, 68 percent; Yonghui Superstores, 45 percent; and Alibaba competitor, JD.com, entered the ranking for the first time.

The retail category also contended with changing shopper attitudes and behavior. Consumers continued to spend, but more wisely. The annual growth rate of retail sales declined over the past several years, from 13.7 percent in 2013 to 10.3 percent through the first 10 months of 2015, according to Kantar Retail.

Consumers sought not only price, but also quality, and were willing to pay a premium, if justified, according to Kantar Worldpanel. In the big cities especially, spending shifted from necessities to products and services related to transportation, communication, culture, education, and entertainment.

Other factors, including government initiatives, also impacted development of the retail category. Internet growth, a government priority, and the availability of a ordable smartphones, facilitated the rapid expansion of e-commerce throughout China, even to rural areas. The major e-commerce brands expanded rural distribution significantly during the past several years. Alibaba, for example, is present in 27 provinces with 170 county service centers and 8,000 village service centers.

Because of the government establishment of cross border e-commerce zones for reduced tariffs on foreign merchandise, Chinese consumers enjoyed lower online prices and faster delivery for imported goods. The first cross border e-commerce zone was established in March 2015, in Hangzhou. The government plans to set up zones in Shanghai, Guangzhou and 10 other cities. The zones are intended to drive consumption, a government goal.

Brands also worked collaboratively to improve online and o ine integration. E-commerce giant Alibaba purchased almost a 20 percent stake in Suning, the consumer electronics retailer that operates about 1,600 stores. The synergistic hook-up strengthens Alibaba’s presence in the physical world, and boosts its electronics offering, while lifting Suning’s online profile, and improving logistics and delivery times for both brands.

Tencent, the giant Internet portal, and China’s most valuable brand, is a stakeholder in JD.com, the e-commerce site known for its consumer electronics strength. This social e-commerce arrangement enables consumers to seamlessly purchase products from JD.com while texting on WeChat, Tencent’s ubiquitous messaging site.

Meanwhile, the product categories available with e-commerce are expanding to include even big- ticket purchases, like cars. During China’s Singles Day shopping event, on November 11, 2015, consumers bought over 6,500 cars on Alibaba’s Tmall.com, and then picked up their purchases at local car dealerships.

At least one consideration keeps Chinese consumers shopping in physical stores however, a concern for food freshness. Yonghui Superstores is known for its strength in fresh food. Freshness becomes a competitive advantage because it drives tra c to the Yonghui’s large format physical stores at a time when consumers increasingly are shopping online or at smaller convenience locations.