For the third year in a row, the NRF Foundation and American Express hosted the aspire2retail intercollegiate challenge for budding industry executives. Here’s how it works: students from six of the top university retail programs are divided into cross-college teams, provided discipline mentors from some of the largest US retailers (think Best Buy, Macy’s, Toys “R” Us, and Estée Lauder), and given a challenge upon which to create a business plan complete with recommendations for management. This year, teams were asked to evaluate the feasibility of expanding their fictional US-based company into China – taking into consideration finance, real estate, demographics, merchandise planning, marketing, and staffing.
All the plans were impressive, all the students phenomenal, but one team walked away with first place and the opportunity to present their plan at Retail’s BIG Show. Members included Gentry Adams, Senior, Marketing, University of Florida; Kira Martin, Senior, Merchandising, Florida State University; Anna Rhoades, Senior, Marketing, Georgia Southern University; Elena Brick, Senior, Retailing, University of Wisconsin; Aysha Majeed, Junior, Business Administration, University of Michigan; and Natalie Bendroff, Sophomore, Retail/Consumer Sciences, University of Arizona. The team was lead by Melinda Burke of the Terry J. Lundgren Center for Retailing at the University of Arizona.
This is always one of my favorite sessions at the Show, so it was hardly a chore when I was asked to cover it for the blog. The winning team is an impressive bunch…they are incredibly bright, professional beyond their years, eager to learn, and well spoken. Sleep easy tonight, our industry’s future is in great hands!
Here, highlights of their plan, how they arrived at the conclusions for management, and what they learned along the way (I picked up a few new things myself by listening in):
Expand or Not to Expand? After thorough research, the team decided it was in the company’s best interest to expand into China. They looked at population statistics (China’s is at 1.4 billion!) and the annual growth of the Chinese retail market (a whopping 16.6% between ’99-’08) to define a target market of 20-39 year olds who are or aspire to be middle class consumers. Considering that 34% of Chinese are between the ages of 20-39 and the middle class is rising, I think they made a good decision.
Where to Locate? Riding the wave of positive press following the Olympics, the team decided to locate their store in Beijing. Urban households in that particular city have some of the highest disposable incomes in China. In addition, they were able to locate a street with considerable exposure, public transportation options, and a lot of foot traffic.
How to use the Internet? China has an online population of 335 million, but online shopping is not overly popular with the Chinese consumer. With that in mind, the team decided to focus their online efforts on advertising and promoting. One of my favorite ideas – consumers will have the ability to design a room, select furniture, and input their budget. Then, they will only be presented with options that fit within their parameters. Smart!
What merchandise should be sold? The team looked at cultural and societal trends to evaluate products for their store. Due to China’s one-child policy, they made the decisions not to carry bunk beds and focus on small dining sets. Furnishings will be compact and functional since most of their customers will be city dwellers living in apartments.
How should the merchandise be displayed? The team decided to focus their efforts on dynamic, evolving window displays, since the Chinese love to window shop. Continuing their focus on customer service, each floor of the seven-story building will offer an Assistance and Expertise Desk and upon entering the store, wall directories will guide shoppers where to go. Two Courtyard Cafeterias will offer traditional and westernized cuisine.
How do you find the right people? Assistant supervisors and sales associates will be recruited in Beijing. More senior managers will initially come from the United States. Employees will undergo a four-class work program that focuses on etiquette, product layout, returns, and quality of furniture and will have to pass a test upon completion. Full health benefits will be offered and three weeks’ time-off.
What are the financial implications? The team evaluated expenses vs. profitability and decided they were comfortable with a negative ROI the first three years abroad, as long as the store shows continual improvement. Their hope is to expand into Shanghai and Guangzhou within six years and possess a 20% market share by 2018.
At the end of the presentation, we learned that the team had 2 ½ weeks to pull together the entire project – 2 ½ weeks that spanned the Thanksgiving holiday and finals week! I’m still not sure how they did it, but couldn’t be more impressed.
Congratulations to the winning team and thank you to all students, mentors, advisors and sponsors who participated. Welcome to the industry!
One Comment
I wanted to comment on some of the ideas that were suggested by the Winning Intercollegiate Challenge Team.
I live in Hong Kong now and I am conducting my own study on the culture and shopping behavior of China, hopefully chronicled in a forthcoming book. I have been reading and comparing the various sources of current opinions on the Chinese consumer and their shopping habits, much of which demonstrates conflicting views. Currently there is not one accurate source of information I have found. Therefore, I am sharing my thoughts so that either the students or potential retail strategists consider their options well before proceeding with expansion in China. We have already seen savvy retailers like Marks and Spencer experience adversity in this market which they thought they had advance intelligence about.
Before proceeding, let me congratulate the students on their efforts.
So here are my thoughts. Nothing is definite yet as China is a country in constant motion.
Expand or Not to Expand?
I would first ask, why are you heading to China? Companies must have a logical, rational reason for coming here, not because it makes sense, is obvious, or an adventure. In 2005, Daniel Bernard, Chief Executive Officer of Carrefour said, “You have to love the countries where you are.” And if you think China is an easy market to enter, think again. Hire a top flight cultural interpreter, and someone who has experience with failed attempts to integrate the company’s home culture with China’s culture.
Too many companies make the mistake of assuming the 1.4 billion people of China think as one. With increasing independence and freedom of thought, in the coming years, China will experience even greater variation and diversity that will challenge the continuity and consistency of most chain operations. For example, in the local McDonald’s, the menu changes regularly. Those 20 – 39 years olds everyone is getting so excited about, are the most difficult to predict too!
Growth rate for 2009 was between 8% and 9%, which is disappointing to most companies.
Where to Locate?
If it is a fashion or trendy brand, better to open first in Shanghai. Even if the store misses sales goals, the PR achieved from a store there will carry your brand further than Beijing. If your store is a practical, mass brand, Beijing could (?) work better.
How to Use the Internet?
My sources say online shopping is very popular, and getting more so as the infrastructure for deliveries is improving. I contributed to a piece for China Daily News on the poor result of online Luxury Shopping, and there the results make sense. The affluent Chinese consumer wants the total experience one can only get at a Louis Vuitton or Gucci store; and being seen getting served!
What merchandise should be sold?
If one is realistic, most of the shoppers for this store will be urban dwellers, so let’s focus on them. They are more affluent than those living in the country. They can and will pay the government to have more than one child. I would think that following the Sichuan earthquake, in which so many families lost their only child, couples are thinking of having larger families. In Shanghai, they are already encouraging more than one child for approved couples.
Expect a continuing rise in automobile ownership, leading to congestion on the street becoming even worse than it is today. Therefore, there is more planned expansion of their very efficient mass transit system too. In either case, this will offer more people the opportunity to live further from the city. Families are already buying more than one home, and purchasing weekend houses in the country.
All this leads me to say, don’t rule out bunk beds or focus on small dining sets!
How should the merchandise be displayed?
Chinese window shop no more than Americans. In fact, with all the visual distractions, it’s difficult to get their attention. I’d suggest information and education about features and benefits is a better way to go to make a sale to an interested shopper. Remember, most of the population has never seen the item before, except for in a television commercial, still the best way to market your store or product in China, today!
How do you find the right people?
Plan on sending the managers from the United States home as quickly as possible. In order for the store to be embraced by the local shopper, management and floor personnel need to be Chinese. I visited a new Wal-Mart in Beijing to meet and be toured by management. This store was to be the new flagship in the region. Not a gwiello (foreigner) was in sight.
What are the financial implications?
A plan to possess 20% of the market in 8 years? Carrefour stores, one of the most successful foreign retailers in China has only 6% of the market after 15 years. The enthusiasm is great. The goals are not realistic.
Conclusion
I believe it is imperative for a foreign company to be successful in China, it must first determine what the Chinese customer needs and how you can deliver a product or service in a way unique from the competition. China should not be a strategic objective just because it is new to your company. It needs a global mission statement. The Chinese consumer is smart and getting smarter with the explosive growth the internet and more importantly, mobile communications.
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[...] Note: You can read a full recap of of the students’ presentation over at NRF’s BIG Blog. [...]