Screen grab of Marks & Spencer at Tmall.com

China is now the world's largest e-retail market but foreign companies are still trying to find the best operating model

Britain's leading retailer, Marks & Spencer Group Plc, has prioritized online sales in its ambitious plan to boost its stagnating business in China.

In addition to revamping its physical stores, the retailer is improving e-commerce operations on leading retail website Tmall, which is Alibaba.com's online platform. In 2013, M&S launched a virtual store on Tmall where it sells apparel and accessories. It also expanded its food category on the Tmall store.

The plan is to offer the same prices online and in their stores. "On Tmall we offer over 1,000 clothing and food products, while our stores will vary depending on size," a source at M&S say.

"At our Golden Bell store, for example, we sell our exclusive Best of British capsule clothing collection," a source said. "Combining M&S's rich heritage with modern styling and an emphasis on true British craftsmanship and quality, the exclusive collection is only available online and at a handful of M&S stores in the UK and internationally, including Shanghai."

With sourcing operations in Hong Kong and 15 stores in China, the retailer is expected to leverage existing infrastructure to support its online growth. It also has 400 to 900 food lines in China, including a wide range of traditional British favorites such as crumpets and biscuits, specialty international food including pasta sauces and a wide range of wines from around the world, which all perform well online and on Tmall.

James Roy, associate principal at China Market Research Group, says it is a big decision for any retailer to go online and it must have a clear e-commerce strategy and target.

He says Tmall is where the majority of Chinese consumers look to buy things online, so it offers easy access to many consumers.

But the terms offered by Tmall to many retailers can be frustrating as they are very strong on negotiating power and the terms can be unfavorable for retailers, he says.

Companies with higher brands and loyal customers can do well with their own websites, Roy says. He cites Hugo Boss as an example of a company operating an online store in China and using its consumer loyalty program to develop a more intimate relationship and more profits.

He says there is strong incentive for retailers to have access to consumers at places where they have not yet had stores or to increase their brand awareness among consumers who have not been aware of them.

Jason Yu, general manager at Kantar Worldpanel China, says foreign retailers who have started to launch e-commerce offers are still limited in presence and scale.

He says Wal-mart's investment in yhd.com, a Chinese online grocery business, is probably the bravest example of a traditional retailer taking a large stake in an emerging e-commerce retailer.

However, most foreign retailers are trying to build e-commerce offers themselves, which has been slow and costly, and only in a limited number of cities.

Those offers find it difficult to compete with the likes of JD.com, Tmall or yhd.com. Logistics and delivery remain their biggest challenges in China, Yu says.

In addition, building their own e-commerce systems also requires significant investment in people and technical infrastructure, he says.

Yu suggests foreign retailers build alliances with existing local e-commerce retailers to exploit the existing synergy.

According to a survey by the China Chain Store and Franchise Association, the country's leading chain store retailers have been more involved in e-commerce in the past few years, reaching 70 percent in 2013, but few are achieving major success, says Pei Liang, secretary-general of the association.

The formats to expand their presence in the e-commerce marketplace consist mainly of setting up their own websites or collaborating with Tmall. But slower revenue growth and high costs often hinder their progress, he says.

It is crucial to build a merchandise-purchasing system and a new delivery system based on the requirements of e-commerce, as well as appraisal methods through online volumes, to make a smooth transition from traditional retailing to an online-and-offline business model, Pei says.

Meanwhile, it is a challenge for traditional retailers to keep their market share when competing with online rivals. This is not only due to technological issues, but also with whether traditional retailers have the courage to apply shock therapy to their current operational and profit models to restore their control over their products, Pei says.

Zhao Ping, deputy director of the Chinese Academy of International Trade and Economic Cooperation, which is under the Ministry of Commerce, says the shrinking profits of traditional retailers are the result of rapid emerging online sales that are stronger in price and convenience. Also rising labor and rent costs have further reduced their profits.

In some cities, labor and rent make up almost half of their costs, Zhao says.

French retailer Carrefour SA has not engaged in e-commerce in China as it is closely watching the progress of online businesses. But the company is confident various successful business formats will develop in the Chinese market.

wangzhuoqiong@chinadaily.com.cn

(China Daily European Weekly 05/23/2014 page7)