China’s 300 million-strong middle class is expected to double in the next five years as more shoppers gain access to additional income, according to J. Michael Evans, President of Alibaba Group. Evans and Alex Gourlay, Co-COO of Walgreens Boots Alliance, discussed international expansion strategies during the On Top Of The World: Commanding Today's International Retail Markets session on Jan. 14 at the NRF Big Show.
“I’ve been dealing with the Chinese market for 23 years, and I have heard consistently about how China is slowing down, it’s growing too fast, or it is going to go through a recession,” said Evans. “For 25 years China has managed to grow [its GDP] at levels between 7.5% and 8.5%. It’s like nothing in the history books, and it’s hard to see how any other country will repeat it.”
While the Chinese market has indeed started to slow down, the net effect is small: the country still posted 6.9% GDP growth in 2017. While China may not maintain its blazing-hot expansion rate, Evans expects the country to become the largest economy in the world within the next decade.
Retailers Must Stand Up To Scrutiny To Succeed In China
China’s consumer base is very young: more than 80% of Alibaba shoppers are under 35, and 40% are younger than 25, according to Evans. These shoppers are also quite tech-savvy — the vast majority of their shopping is performed using mobile devices, and they are ready and able to put in the research needed to find the best deals and products.
“That consumer base is not only affluent, it’s also very curious and very research-oriented,” said Evans. “It isn’t as simple as showing up in China with a product and saying ‘There are 600 million people in my audience, surely somebody must be interested in it.’ They actually do quite a lot of work understanding what the brand message is and what the retailer is selling, where the products come from, and why they would fit in their lifestyle.”
As a result, any Western brand looking to enter China needs to take its time to build a presence from the ground up. Many of the products Chinese shoppers want to buy are produced abroad, but retailers shouldn’t mistake that interest as a recipe for instant success — they need to put in the work, potentially for years, before reaping the benefits of China’s massive middle class.
“This is a market that requires patience,” said Evans. “If you’re impatient, if you’re in a hurry, or if you’re doing this as something to hopefully impact your quarterly results this year or next year, China is not the market for you. If you see China as part of a long-term opportunity — and it doesn’t matter if you’re a brand, a small business or a retailer — it’s the market of the future.”
Partnerships Offer Expertise To Offset Weaknesses
Walgreens is making inroads in China through the same partnership-focused approach that helped the retailer thrive following the merger that created it. A combination of acquisitions and alliances is helping Walgreens make progress in an industry where the local touch is paramount, giving the retailer a foothold without alienating shoppers from their trusted pharmacist.
“It’s an amazing marketplace, and we have 40% ownership of Sinopharm, which is the biggest pharmacy chain in the country,” said Gourlay. “That gives us a good, established partner in China.”
Walgreens also sells products through Tmall. With a flagship store on the e-Commerce retailer’s site, the company can enter the market through a platform local shoppers already know.
The key to smart partnerships is to understand one’s own strengths and weaknesses and plan accordingly, according to Gourlay. Smart partnerships can shore up weaknesses in a number of scenarios, from localizing the brand in a new market to selling products that may be outside a retailer’s usual area of expertise.