China’s retail industry increasingly resembles an army of mice running on wheels. More and more money is being invested, but at the end of the day, companies find themselves running neck and neck with the rest of the competition

How fast companies dodge price wars

Updated: 2013-09-02 07:36

( China Daily)Retail | Koh Yew China’s retail industry increasingly resembles an army of mice running on wheels. More andmore money is being invested, but at the end of the day, companies find themselves runningneck and neck with the rest of the competition, with nothing much to show for all the effort.

The 2012 financial results of listed retailers all paint the same picture. Profits are slowly butsurely being eroded, and operating margins are increasingly being squeezed in the face ofrising costs and intensifying competition.

It seems that the mighty consumption engine of the Chinese middle class is starting to showsigns of wear and tear as consumers wise up to simplistic marketing tactics and make smarterbuying decisions.

Fighting the price war is a zero-sum game that in the long term destroys an industry’sprofitability. Many companies now realize that the sustainable way of competing whileincreasing the industry pie is to make innovation a strategic focus and to continually create thefirst-mover advantage. They need to become “fast” companies to survive in the modern retailindustry.

What makes a fast company? It must have the right products, develop customer-led insight,cultivate fast innovation and set up an enabling partner network.

For instance, fast-fashion leader Zara is finely tuned to customer desires. The company’scentral teams from different divisions maintain close relations with stores. Every day, managersnot only send obligatory sales reports, they also detail what hasn’t sold and why.

If a customer eschews a given product, in-store representatives ask, “What’s the problem? Arethe stripes too wide?” If they are, Zara narrows them. Autumnal colors are all the rage? Zarachanges its color palette. Few other retailers have created the loop Zara maintains betweenon-the-floor feedback to design and manufacturing.

Beauty and healthcare chain Watsons has also developed its customer insight to a highdegree. Its market research into buying patterns found that female working professionals aged18 to 35 like to splurge on themselves for their birthdays. In response, Watsons introduced the”birthday month special”, where Watsons card members are given double their reward pointsfor every purchase during their birthday month.

Watsons also found that women were using normal plasters as makeshift protection frompainful abrasions caused by wearing heels. Identifying this as an opportunity to meet acustomer need, Watsons introduced a purpose-made protective plaster for women who wearheels.

Being able to correctly and regularly identify what customers want creates a competitiveadvantage, and having in place the proper systems to gather this market information is criticalfor retail success.

Product lifecycles have become increasingly compressed and the risk of product obsolescencehas become a huge challenge for many retail companies. Being able to innovate continuouslyis proving invaluable in today’s fast-paced market.

China’s largest leather footwear manufacturer, Aokang Group, has its own innovation assemblyline that emphasizes the speed to market of all new products – 24 hours for conceptualization,three hours for production, 24 hours for distribution – and then the product is taken off theshelves in just 30 days. This speed has shaken up the retail scene for leather goods andincreased the market for leather footwear.

The hard truth is that there exists a time premium for retail goods. The first to the game getsthe lion’s share of profit while the stragglers will always be left picking up the scraps.

When it comes to the speed of product release, perhaps retailers can learn a thing or two fromthe software industry about iterative product development, where the product is put into themarket first and then incrementally revised or upgraded after the retailer has gathered userfeedback.

This strategy avoids the trap of overly long gestation periods in product design and workingonly on improvements that they already know customers will value.

The development of new products often requires drawing on the network of business partnersto achieve first-to-market advantage. US retailer Target joined forces with Italian fashion houseMissoni to create a product launch so powerful that the company’s online website crashedbecause of demand overload. Shelves were empty in some stores in minutes. The practicebegan in the fast fashion field with stores like H&M and Debenhams. With the success ofTarget/Missoni, the strategy shows no sign of slowing.

Winning in retail requires not only being right – it requires being right now. Creatingdifferentiated, high-demand products will not add to profit margins if they are introduced aseason too late. Getting the right products to market quickly requires strong capabilities inthree key areas: repeatable platforms, integrated planning and agile multichannel supplychains.

Repeatable platforms: Many companies now realize that innovation needs to be structured andorganized in a way that allows them to build innovations off past successes, rather than startingfrom scratch each time.

Executing a product launch is an exercise in precise project management, where the overallstrategy and the sales, marketing and inventory management plan, all come together to deliverthe product to market with the greatest impact.

Customers are demanding more and more from their retail experience but many companies arestill stuck in the old ways. Looking at the brutal pace of change and competition in today’smarket, retailers that fail to evolve their culture and practices into those of a fast company maysuffer fatal consequences sooner rather than later.

The author is managing director of retail lead for Accenture in China. The views do notnecessarily reflect those of China Daily.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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