Strong domestic retailers are going to make life harder for Western brands eyeing growth in China, writes Doreen Wang, global head of BrandZ at Millward Brown.

As the consumer’s place at the centre of China’s economy crystalises, the country’s retailers are becoming accomplished at building valuable brands.

The retail category grew a phenomenal 3,827% in value in this year’s BrandZ Top 100 Most Valuable Chinese Brands ranking, reaching a total of $62.3bn. Alibaba, which made its debut at number two after a record breaking IPO, drove much of this increase. But, even without taking its contribution into account, the category grew 64%, bouncing back from the previous two-year decline.

Retail brands are successfully responding as Chinese shoppers become better informed and more sophisticated, and their expectation of quality products and experiences rises. Consumers are more discriminating – choosing brands because they offer value in a meaningful and different way, rather than because they project status or have a long provenance.

Finding the meaningful difference

Innovation is powerful way to achieve growth and strive for advantage as market competition increases, and Chinese retail brands are seen as both innovative and creative by consumers. These are characteristics not traditionally associated with Chinese brands, which are more likely to be described as wise or straightforward.

With a brand worth $59.7bn, Alibaba is already approaching a value that took Amazon over a decade to achieve. There’s a lot more to its success story than its scale in China (its active buyers totalled 307 million at the end of September 2014) or being a ‘hot stock’ for investors in the Western world.

As well as salience – coming quickly to consumers’ minds – Alibaba scores highly on being meaningful, meeting functional and emotional needs, and different, unique and trend setting. Together, these three components build brand equity: the inherent power of a brand that predisposes the consumer to choose it over another.

One way it has created this meaningful difference is through brand extension, expanding the size and scope of its offers to grow its customer base while helping it stand out from competitors.

Today, Alibaba combines ecommerce with social networking, an online payments system called Alipay, and a music streaming service called Xiami. It has even started competing with banks by offering micro-loans. Recent acquisitions that are helping it diversify include First Dibs, a luxury site for furniture and home furnishings, jewellery and other items; Tutor Group, an online educator; and ChinaVision, producer of movies and TV shows.

Appliance retailer Suning is another brand that has moved away from its core competencies to enter a new category. In 2014 it received regulatory approval to launch an insurance company, making it the first retailer to offer insurance nationwide.

O2O: building the consumer experience

In 2014, Chinese consumers accessed the internet more frequently with a mobile device than a PC for the first time. As the use of ecommerce and mobile commerce increases, a number of retail brands have partnered with technology brands to deliver digitalised products, services and mobile payment solutions.

Alibaba has even purchased a stake in Sina Weibo, a Twitter-like site, allowing Weibo’s 500m users to move smoothly between their social network and online shopping activities.

Both web-based and bricks and mortar retailers have recognised the growing importance of seamlessly integrating online-to-offline (O2O) commerce to engage and interact with customers across every touch point.

Physical stores are being transformed into immersive ‘experiences’ using digital technology such as information terminals, interactive touchscreens and display functions. At casual wear brand Metersbonwe’s remodelled flagship store in Chongqing, for instance, customers can use the ‘Mix and Match’ service to scan an article of clothing and receive other wardrobe recommendations.

Traditional bricks and mortar retailers are investing heavily in their online presence, realising that opening more stores alone is no longer a guarantee of success.

Yonghui Superstores – which has around 290 hypermarkets in 17 provinces – has launched a social network platform called myStore, which enables it to connect with customer communities and facilitate mobile shopping and in-store pick-up. Youngor, a maker and retailer of men’s apparel, has partnered with Vip.com – an online discount retailer of branded products – while improving its presence on internet shopping sites Tmall and JD.com.

Although store-based retailing continues to dominate jewellery sales, because people prefer to physically see, touch and try on the products, jewellery retailers have begun to incorporate ecommerce aggressively, even offering exclusive online designs. Ming Jewellery now has an official online shop on Tmall, and has boosted its mobile marketing to reach younger consumers.

Online retailers, meanwhile, have extended their activities into physical locations to enable consumers to participate in an offline experience. Online grocer Yihaodian, which is ultimately owned by Walmart, has put package pickup locations in major apartment developments and at over 300 FamilyMart convenience stores in Shanghai, for example. It has also experimented with virtual stores, featuring rows of product photos with QR codes on the walls of subway stations and other busy locations.

Opportunities to move outwards and look inwards

According to The Economist Intelligence Unit, China is expected to overtake the US as the world’s largest overall retail market within five years. As competition heats up, the brand-building efforts of the country’s retailers is likely to help them expand into overseas markets as well as succeed at home.

Alibaba has shown that Chinese retailers can be world-class marketers of consumer products, and the publicity surrounding its grand entrance on to the international stage will have set the scene for others to follow.

The expectation of further growth in the Chinese retail market creates a huge opportunity for retailers who want to make their mark – including those from overseas.

International retailers should be aware that the importance of strong brands in China will become even greater as the market continues to liberalise. They will need to understand consumers’ fast-evolving needs and expectations, and respond to them with distinctive and relevant products and services. Identifying niche segments and focusing on meeting the desires of smaller groups with a value-for-money proposition could be a highly effective strategy.

Above all, retailers must create and exceptional, engaging and empowering user experiences that draw together every point in the purchase process, both online and offline.