5 July 2017
Characteristics of the Children’s Goods Market in Western China
An interview with Zhou Yafei, Vice-president of Sichuan Rong Sheng Da Business
Sichuan Rong Sheng Da Business is a provincial-level agent in the Sichuan-Tibet-Chongqing region. It also works with second-tier agents in developing the rural market in the region. The company currently sells more than 80 medium-to-high-end baby and children’s goods brands. Its range includes NUK (Germany), Combi and Goo.N Baby Diaper (Japan), Nac Nac (Taiwan) and Hin Sang (Hong Kong).
In addition to Bebe house, its own multi-brand store, the company’s main sales channels are department stores and supermarket counters. Its sales network covers the Sichuan province, the Chongqing municipality and Tibet. Zhou Yafei, the company’s Vice-president, recently spoke to HKTDC Research with regard to the characteristics of the baby and children’s goods market in Sichuan, as well as outlining how agents and brand owners can co-operate in this sector.
Multi-brand Store Reinforces Professional Image
Rong Sheng Da sells its baby and children’s brands through special counters at department stores and supermarkets. Due to the great variety of products being marketed (including clothing, small appliances, maternity/baby goods and healthcare products), the counter design and display format may vary considerably. In line with this, Rong Sheng Da inspects these counters at regular intervals, constantly looking to monitor the in-store displays. In order to reinforce its image as a professional agent for both maternity and baby brands, the company opened Bebe house, its proprietary multi-brand store, some two years ago, seeing it as a showcase for the products in its brand portfolio.
In 2015, Rong Sheng Da began selling products online via WeChat. Its e-commerce activity, however, only accounts for less than 5% of its total shipments. By volume, its shipments go primarily to department store counters (30%), then supermarkets (20%), shopping malls (15%) and second-tier agents (30%). When choosing sales channels for physical stores, its main considerations are brand position and product characteristics. In general, the customer flow of venues, the local consumer base and terms of any co-operation are also important factors.
Addressing herself to the inevitable competition between physical and online stores, Zhou said: “Online sales had an impact on the retail market as a whole in the early years of their development. Goods sold online tend to be cheap, while the profit margin is low. As a result, the weaker online traders are already being eliminated. Overall, the price gap between online and physical stores has narrowed over recent years and has almost reached parity. As a result, the impact of online sales on physical stores has tapered off somewhat.”
Grandparents: The Prime Purchasers in the Rural Markets
Thanks to the advances in information technology, mainland consumers can easily obtain product information over the internet, particularly reviews posted by other consumers with regard to the quality/price-performance ratio of products. Baby and children’s goods have proved no exception to this. In addition to product quality, consumers are also becoming increasingly demanding with regard to the services they expect from retailers.
Highlighting this, Zhou said: “While mainland consumers may give the impression that they cannot resist cheap products, where children are concerned, quality and safety are the most important considerations, whether that’s with regard to food, clothing or daily necessities. People’s quality expectations have also gone up significantly in the second- and third-tier cities over recent years, while they are also now more sensitive about brands and after-sale services. Recommendations by shop assistants have also become increasingly important.”
It is particularly worth bearing in mind that baby and children’s goods are primarily bought by parents in the provincial capitals and prefectural cities of the Sichuan-Tibet-Chongqing region. Such parents are every bit as concerned about brands, product quality and design safety as their counterparts in the first-tier cities. In the more rural markets, however, children are frequently left in the care of their grandparents, with their parents having migrated to the larger cities in search of work. Inevitably, then, it is the grandparents who are the target buyers in such areas.
In line with this, Zhou also highlighted the important role played by shop assistants when it comes to driving sales and assisting customers in these grandparent-dominated rural markets. She believes that such pro-active sales engagement directly stimulates the willingness of grandparents to buy. Even well-known brands, she says, need to tailor their marketing strategies to the characteristics of local consumer groups.
The Market Potential of Imported Food
In Zhou’s view, food and healthcare products sourced from Hong Kong and from abroad have greater growth potential than most domestically-produced baby and children’s items available on the mainland market. This is largely because many mainland consumers believe that Hong Kong brands and overseas companies are stricter when it comes to adhering to food standards and supervising production. As a result, their quality is assured and, ultimately, consumers see them as more trustworthy.
Similarly, as food and healthcare products have best-before dates, Zhou maintains that the inventory and circulation of such goods must be kept under strict control. In the case of goods that are durable, bulky and functional (such as prams and cots), however, imported brands do not enjoy the same competitive edge over local brands, largely because of the high transport and packaging costs incurred. As a result, consumers are only willing to pay a premium if such products have special patented designs or other features.
Choosing the Right Sales Channel
In the vast mainland market, brand owners always look for sales channels that suit their particular brand positioning. In Zhou’s view, when trying to enter the mainland’s first-tier market, the best option for new baby and children’s goods’ brands is to set up dedicated counters in department stores, largely because such outlets attract higher-end consumers. A heavy customer flow also guarantees accelerated brand recognition on the part of consumers. In the case of the second- and third-tier markets, however, Zhou recommends co-operating with agents and specialty stores familiar with the local maternity and baby goods sector in order to quickly establish a professional image.
Zhou also acknowledged that China’s two-child policy has given a substantial boost to the baby and children’s goods’ industry. As a result, many new brands have emerged over recent years, although a substantial number have disappeared just as quickly. In line with this, interested companies are advised to take the highly completive nature of the mainland market very seriously.
The Roles of the Agent and Brand Owner
In its role as an agent, Rong Sheng Da is largely responsible for marketing activities in the Sichuan-Tibet-Chongqing region. This includes planning the marketing strategies for brands, as well as developing retail channels. As a brand owner, though, it is additionally responsible for maintaining product quality, ensuring product safety and refining brand positioning. When launching any new brand, the company singles out several products within the range for particular promotion, looking to capture the attention of consumers and ensure the brand becomes easily recognisable. Typically, the agent and brand owner share – in a mutually agreed proportion – the cost and expenses of such promotions.
Spelling this out in more specific terns, Zhou said: “The brand owner and agent should both contribute financially to the costs of increasing market share in the early stages of the promotion of any brand.” In addition to sales promotions, Zhou also recommends offering free gifts with initial purchases, something she sees as helping build brand awareness. While prices are usually fixed by the brand owner, she says an agent can also make suggestions on the basis of the available market data.
In terms of order quantity, she recommends that both sides should meet and agree on a target figure. Should sales fall short of that target, she emphasises the need to discuss and identify any specific problems before deciding whether or not the two parties should continue to co-operate. When developing the rural markets in Chongqing and Tibet, she said, Rong Sheng Da frequently co-operates with second-tier agents as they have considerable influence in these regions, as well as a better understanding of the local sales channels.
For Zhou, any Hong Kong company considering developing its sales in the mainland baby and children’s goods market should consider co-operating with local agents, looking to capitalise on their understanding of local consumer preferences. When choosing an agent, Zhou also recommends taking into account a number of key factors, including the agent’s economic viability, its sphere of influence, the management of its team, its operational philosophy and its credibility within the target markets.