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Commercial Flooring News

Assessing opportunities in China; the market, logistics and consumer buying habits

As a consultant to the global floor covering industry I talk to manufacturers about shifting markets and how to reach new opportunities. The fastest growing and yet most mysterious market is Asia where the demand for all products, including floor covering, is rapidly rising. It’s no secret that China’s market is expanding at unheard of rates and some floor covering companies have already made the leap to China. In fact, US exports of floor covering to China increased 36.8% over the first eight months of 2011, according to Stuart Hirschhorn of Catalina Reports.

Flooring Mall on Yi Shan Lu Rd, Shanghai

I have written about the growing opportunity in China many times and you’ve certainly heard the message from others. But I know many of you are asking, What does it mean to me? Is there an opportunity for my company and if so, How can I capture it?

These are serious questions especially when you consider the trouble that some of the world’s largest, and presumably most sophisticated, retailers have faced in China. Best Buy Company, the world’s largest electronics retail chain, while successful around the world, has closed all of their Best Buy branded stores in China (http://www.bloomberg.com/news/2011-02-22/best-buy-s-china-stores-shut-as-retailer-focuses-on-more-profitable-brand.html ). Closer to the flooring industry, Ian Cheshire, CEO of Kingfisher plc, Europe’s largest home improvement chain with 900 stores worldwide, explained after closing its 22 stores in China that big-box DIY “is not the model for China.” (http://www.kingfisher.com) Giant Atlanta-based Home Depot, too, has closed some Chinese stores with only seven still operating in mainland China. (http://www.homechannelnews.com/article/kingfisher-has-new-idea-chinese-diy-retail). At the same time, Starbucks opened their 500th store in mainland China and announced plans to increase that to 1,500 by 2015. KFC is China’s largest restaurant chain and is still opening new stores at the rate of one per day. One can’t help but wonder:
Why are some globally successful companies failing while others are flourishing?
Is there a market for Western made products in China and if so how would those products get to market?
What do we need to understand about the Chinese consumer in order to succeed in business there?
I’ve been asked these questions by companies around the world. My client Domotex asia CHINAFLOOR (Asia’s largest floor covering trade show) wants to answer these questions for people and companies considering if they should attend or exhibit at the show in March, 2012… and so my research began.

As expected, questions begat more questions but ultimately I focused on three main areas:
The MARKET -what changes are taking place in China’s consuming market that could affect your company and your opportunity?
LOGISTICS – if you were to expand into China, how could your products get to market – what is the state of China’s logistics channel?
RETAIL – how and where do consumers buy goods in China and what do we need to know about the Chinese consumer?
After dozens of interviews with experts across China, a White Paper on the Chinese market and logistics channels is taking shape. I will also publish a series of articles in the industry trade press and of course I’ll also post here.

For now, here’s something to think about. China is the third largest market for US exports (after Canada and Mexico). US exports of goods to China are up 468% since 2000 and since 2009 alone US exports to China have grown by 32%. This percentage increase is ten times the increase in exports to Canada and Mexico. (US Dept of Commerce)

There is a huge expansion of consumerism in China; already more BMWs are sold there than anywhere in the world, and that was before the Chinese State government made increasing domestic consumption a key target of its economic restructuring goals in its 12th Five Year Plan (2011-2015). Through a series of macro and social changes and continuing shifts in urbanization the consuming middle class is growing faster in China than anywhere else in the world. Retail sales in China grew about 18% in 2010.

This new focus on consumerism can transform China from the World’s Manufacturer into the World’s Supermarket. Already the number two consuming nation in the world, behind only the United States, it’s not hard to predict that it will become the largest. These changes will have a major impact on countries, industries, and companies – perhaps yours.

What I hope you are doing now is assessing how you and your company may prosper from these changes.

Here are some related articles I’ve written on China:
The Great Urbanization Threats and Opportunities in China
China-Threats and Opportunities Part 1 (Floor Covering News) Part 2
China’s Economy and Construction Boom Creates Huge Floor Covering Potential

Jim
Jim Gould is President of the Floor Covering Institute