The most interesting aspect of House of Fraser’s expansion into China is the cities where it has chosen to open stores.
Almost a year since its acquisition by Chinese company Nanjing Cenbest, the 166-year-old House of Fraser, one of the UK’s most venerated retail establishments (counting the British royal family among its customers), is about to enter the Chinese market.
As of April 2016, Cenbest will have rebranded its Orient Department Store in Nanjing as a House of Fraser store, and plans to also open branches in the cities of Xuzhou and Chongqing.
House of Fraser is bypassing the “obvious choices” of initial locations in the tier-one cities, such as Beijing, Shanghai or Guangzhou, but is heading straight for the tier-two cities.
These lower-tier cities are experiencing economic and retail growth that is faster than in the more developed tier-one cities. They are also less saturated markets, yet have substantial populations of increasingly sophisticated and well-heeled consumers.
There are 531 million consumers living in tier-one to tier-three cities in China.
Some 28% live in tier-two cities and 59% in tier-three cities. They are happy with their current life - 56% of consumers surveyed in Mintel’s Department Stores and Shopping Malls China 2014 reported claimed they like the city they live in.
Demand for quality
Meanwhile, basic living costs are no longer a major issue for all of them.
They have a strong interest in spending on travel and are trading up to higher-end products and services. And they are open to trying new as well as established brands.
Being increasingly well-travelled (53% of surveyed consumers prioritise money towards travel), and exposed to the most prestigious brands (60% of tier-two consumers surveyed identified well-known brands as a factor they associate with high quality) the world has to offer, they are demanding more high quality products and better customer service.
The department store market in China is increasingly focused on lifestyle and experience.
Offering Chinese consumers a slice of Britishness on their own doorsteps could be crucial in defining a unique selling point for House of Fraser in China.
But the brand will also have to work hard to gain attention and to adapt its product and service offering to local consumers if it is to ultimately succeed in what is a highly competitive market.
There is now a very similar level of eagerness among consumers across all three city tiers for buying premium products across a wide variety of categories, as they pursue a better quality of life.
Lower-tier city consumers are catching up with their tier-one peers in their sophistication, experience and diversity, but require more proof of quality before they buy. They have strong aspirations to trade up to higher value products, but need convincing that the premium they pay is matched by the quality and prestige they desire.
The cachet of the House of Fraser brand, with its long history and established reputation, therefore has the potential to offer something different to the shoppers in these cities, which they cannot even get in the tier-one cities.
The retailer will also explore development of its consumer base among Chinese nationals travelling to the UK.
- Matthew Crabbe, director of research at Mintel Asia-Pacific