James Grigsby

SVP, Delivery Office

October 25, 2013

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“Build-It-And-They-Will-Come” Is Over In China

New systems and solutions for store development.

Building in China

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One of the things that motivate us here at getchee is our view that store development professionals in emerging markets really lack some of the high value tools and data that retailers use extensively in North America and Europe. Many other aspects of enterprise operations — from accounting, to production management, to supply chain, to human resources — have undergone significant transformation in recent decades as software solutions have brought changes to these business processes.

 

These have essentially become industry standards for medium and large firms operating in both developed and developing economies. We see similar adoption of store development tools and solutions in major western countries, but much more limited adoption in emerging Asia.

What do these “store development solutions” look like? They are typically composed of three elements:  business process structures, software platform, and data. The software platform is typically in the form of a visual map-based interface. You can see our article on “5 Mapping Tools that Can Make Your Job Easier.” Maps are a very intuitive way of processing and sharing data — which of course means that there must be data to feed into the system. Both external market data and internal business performance data are fed into the system, analyzed, and reported on. In order to unlock the true potential of both the data and mapping platform, business processes need to be clearly understood and often revised.

When properly integrated, store development solutions provide a range of benefits. They establish a platform, so that there is less reliance on one or two senior planners who may have a good track record, but can easily take their know-how and connections with them when they leave the company. They help firms learn and remember what works and doesn’t work, because there is a structure to test hypotheses identify correlations. And they speed decision-making and boost confidence. 

The data component is of course one of the key challenges with the market being mature for store development solutions. In more developed countries, data quality, availability, granularity and comprehensiveness are all very high. In other words, the raw material for store development planning solutions is abundant, and as a result the market for such offerings is quite mature.

For emerging markets in Asia, large challenges with data remain, but the data exists and is getting better. To learn more about data challenges in Asia, check out “5 Data Headaches in Emerging Markets.” Where holes in the data remain, getchee has developed some very effective techniques to model and project data. When properly combined with the mapping solution and business process applications, these can provide value.

One approach that several corporations with large store networks have implemented is to provide centralized process and data support from headquarters.  Starbucks and McDonalds are two examples that have corporate platforms that local teams tap into and use for store development and site planning needs. In some cases, however, the result might be that flexibility and the ability to accommodate local data idiosyncrasies is lost at the expense of a standardized platforms.

In many cases as more “home grown” approach may be better. getchee is working with food and beverage and convenience store brands to integrate solutions that are tailored to the challenges of local markets. In a number of cases, these are international brands that do not have major store networks outside of China, and in fact are using China as their initial test environment for new platforms.

In the long run, the home grown solutions are likely to work better for retail planning in Asia, as they have been purpose built to handle the unique data and planning realities found in Asia. One client used the metaphor of a factory that produces physical goods, with data inputs as the raw material. Factories that are built to run on highly refined inputs will quickly run into trouble when less refined, lower quality inputs are fed into the production process. On the other hand, factories that are built to handle qualitatively different inputs will actually deliver more reliable outputs.

In China, many location decisions are made by considering competitor or benchmark brands. The classic bell-weather brand is Starbucks. Good traffic generators, targeting young affluent customers. Check out our Startbucks infographic to see their locations around Asia.

While these rule of thumb approaches are useful in a rising market, they are not quite enough when the environment gets challenging. Planners need to look outside their immediate surroundings. Questions such as are there too many retail developments in this area? Are there too many similar retailers going in? Is my target market base sufficient to support my business?

The impacts of rushing in to marketplaces, and using only rule of thumb guides, can be seen in several areas. The case of Shenyang often comes up when talking with retailers about challenging markets. A recent post on the Jones Lange Lasalle Asia Pacific Research blog sums this up well. In work we did with the retailer 5 or more years ago, Shenyang was showing signs of over-penetration by retail brands — moving ahead of the curve in terms of what the local economy could support. How did Shenyang reach this level of over-saturation? Largely because retailers saw other retailers rushing into the market without considering the fundamentals of the local economy.

Investing in the systems and processes now can help retailers learn from their mistakes, and identify the key indicators business drivers. It’s not about replacing local knowledge, but about widening the circle of knowledge and enabling the organization to use other fact-based types of data — ranging from micro-level mall placement analyses, to shopping center classification, to trade zone level assessments, and on up to city level market holding capacity studies.

The days of “build it and they will come” are over in China. Slowing retail growth, over-penetration of stores, and the rise of e-commerce are all posing significant challenges to building and operating store networks. One of the lessons from retailers and brand owners operating in developed markets is that having robust systems in place helps companies maintain growth through challenging times.

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