Many international brands have recently increased their focus on China’s offline market, with some willing to allocate additional marketing spending to it. Several factors explain this:
- Offline retail accounts for a larger share of the market, at approximately 70%;
- Online growth has stalled or turned negative for some brands;
- Online competition continues to intensify.
The central issue is that many online categories are experiencing zero or negative growth while the number of competitors keeps rising, creating substantial pressure.
We have experience across several offline channels, including fashion mono-brand stores, traditional key-account retail, wholesale outlets, off-price channels, loyalty-points platforms, and corporate and government procurement.
Based on this year’s observations:
- Fashion mono-brand stores: Their target audience is narrow. They serve more as brand showcases than sales drivers, generate limited revenue and are constrained by geography.
- Key-account retail: Retailers are reducing brands and SKUs. Niche products are being replaced by high-turnover staples, while Chinese-made goods and retailer-owned labels are taking a growing share.
- Wholesale outlets: These serve small downstream retailers and also focus on high-turnover staples. Most international products are not competitive enough to enter.
- Off-price channels: These are a better fit and easier to access, but require extremely low prices and are best suited to products approaching expiry.
- Loyalty-points platforms: Major companies such as banks, airlines and telecom operators use these to add value for members. They were once attractive channels, but most such companies in China are state-monopoly enterprises. Anti-corruption efforts in recent years have centralized procurement at group headquarters, leaving room mainly for high-turnover staples.
- Corporate and government procurement: Similar to points platforms, procurement authority has increasingly moved to headquarters and purchases are conducted through online tenders. Local offices retain some product discretion, but competition remains intense.
Overall, corporate and government procurement currently offers the only meaningful offline opening. Other channels require substantial brand and product strength. For brands generating less than RMB 100 million in annual online sales, securing offline distribution is virtually impossible.
Despite increasingly fierce online competition, it remains the only viable option for most international SME brands. Improving efficiency and strengthening competitiveness are essential to their survival in China.