Last year, retail sales in China grew by a staggering monthly average of 18.4%. That sounds like easy pickings for your savvy Yankee retailer, doesn't it?
Not so fast, gringo. There's a whole lot that American business needs to learn about selling to Chinese consumers before it can slice off a sizeable piece of that pie. Here are a few lessons from the "What Not To Do" textbook.
It's a cultural thing
Mattel went wrong assuming that Chinese girls and their mothers would go gaga over the curvy blond doll. Barbie was just too over the top for Chinese sensibilities. Cute dolls are good; sexy dolls are creepy. Doing some homework here could have helped.
Best Buy also had a few other cultural barriers to contend with. Its U.S. stores depend on warranty contracts for a chunk of their revenue. But Chinese consumers don't buy warranties. Also, the typical Chinese chain store pays its suppliers only when their products have been sold. Best Buy paid its suppliers whether the items moved off the shelves or not. Chinese suppliers pay salespeople to push their products, while Best Buy had a more neutral stance.
As fellow Fool Seth Jayson points out, Home Depot in China was the brainchild of its former chairman and CEO, Bob Nardelli who, back in 2004, said, "I am confident of the portability of our model to China." Perhaps "overconfident" is more accurate.
Even the king of retailing is vulnerable
But lately it's not all been a bed of congee for Wal-Mart in the People's Republic of Shopping. Its market share has dropped from 8% to 5.5% over the last three years. According to theChina Herald, the big-box model that works in the States is not all that suited to China. Traffic has been increasing, and there is a lack of free parking -- and this pushes consumers to shop in their own neighborhoods.
Also, Wal-Mart's image as a low-price destination cuts both ways for the company. On one hand, it can't compete on price with tiny mom-and-pop stores that survive on the thinnest of margins. On the other hand, the upwardly mobile consumers find the Wal-Mart stores just a bit too downmarket for their tastes.
Would you like sea slugs with that?
Yum! takes China very seriously. It made 40% of its operating profits in the past four quarters from its Chinese business. The company has shown that American retailing can work there. But what other American companies have to learn from its success is that business in China is not business as usual. What works in middle America doesn't necessarily work in the Middle Kingdom.
Have another story of an American company getting it right or wrong? Let me know in the comments section below.