Business Models, Economics, Retail Design

Spent a few hours in Nanjing Lu, the main shopping street in Shanghai with lots of shopping malls, department stores and restaurants… in a nutshell: everything the Chinese and tourists want in one street. I first visited this street 25 years ago and it was very different. Today’s Shanghai is different, but China is China, there are always things that remain the same. I am very impressed with the economic progress in various aspects from retail design, customer service and overall basic efficiency. The best part was when I went through immigration in Shanghai Pudong International Airport, the officer politely asked me to rate their services by pressing on a device which had buttons from “excellent service” to “poor service”. This is definitely a first in the world.

Marks & Spencer just opened a store on Nanjing Xi Lu, replacing a Muji. Both are established brands in their home country (UK and Japan) and both manufacture and package their own products. Both have a similar product approach in terms of keeping things simple but are different in their design approach. Marks & Spencer is not exactly an exciting retail experience and Muji has far better product design and presentation from functionality to aesthetics. Muji is not doing that well here, as it requires a level of sophistication to appreciate it whereas Marks & Spencer is basically selling British quality and this will win in the short term.

Distribution has always been the greatest hurdle for retailers. The opening of the wholesale sector should lead to major improvements in the distribution environment, but there is a big gap. Strategies that successful foreign enterprises have employed to overcome distribution barriers include developing their infrastructures or partnering with the locals, and both has unique challenges.

In 10 years, its retail sector has been transformed from a simple and inefficient distribution system to a much more complex and highly competitive market-oriented economy. The new retail economy in many ways resembles the contemporary retail economy in the US. It is also exhibiting significant differences with Chinese characteristics but I think eventually it will move towards a different direction. Shanghai and the rest of China is currently suffering from some kind of “Brand Fatigue” as consumers are slowly becoming more sophisticated. The trust and prestige issues carry very different meaning here in China. We are still 5-10 years away from a more predictable consumer behavior and the market evolves.