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Challenges of Localization

Can Loft Adapt to the Chinese Market?

· Innovation Insights,Localization,4-min-read

After a bunch of pre-opening campaigns for more than half a year, the first Loft in China officially opened to the public in Shanghai Metro City on July 24th, 2020. As one of the most popular lifestyle specialty stores in Japan, Loft is expected to become another famous ‘check-in’ place in Shanghai.

Loft store-front

However, despite high expectations, customer feedback tells a different story. Can Loft win the fierce competition in the Chinese market with its current products? Social media users are critical of Loft’s relatively high price point with little unique selling points.

Initial concerns about Loft

IKEA, another international furniture and lifestyle brand, has also taken a big step forward.

This summer, the world's first IKEA City Shop was opened in Shanghai, Jing'an district. This is the first appearance of this type of business format. Compared with the existing standard stores, the "city store" is much closer to the city center. It created a new home retail experience through the integration of online mini-program malls and offline experiences. At present, IKEA's innovation for the Chinese market has been well received.

Exhibition Area of Jing’an Old House

Exhibition Area of Jing’an Old House

In recent years, international big names have entered China one after another. China's huge consumer market and potential have been seen by more and more people. But the realistic problems of "localization" has become a barrier for market expansion and development in China.

MUJI: Declining sales volume and no guarantee of product quality

MUJI was born in 1980. Back then, the Japanese economy stagnated. The Japanese, under the bubble economy, were still fascinated by luxury brands, but they began to look forward to the emergence of more affordable brands.

The concept of "MUJI" coincided with the demand of Japanese consumers for high-quality and low-priced products at the same time. With this positioning, MUJI has always become a very popular brand in Japan.

Cafe Muji store-front

In China, Muji is positioned as a "high-end" brand. Its high prices have also turned away a large number of consumers. In Japan, MUJI can be seen everywhere: convenience stores, small subway shops, and even street vending machines. While in China, MUJI only appears in high-end shopping malls in first-tier cities.

At the same time, its high-priced products have had some issues on producing consistent high quality. On January 15, 2019, a hazelnut oatmeal biscuit produced in Malaysia by MUJI contained high levels of toxic carcinogens; on February 22, 2019, the test results showed that in "natural mineral water", a potential carcinogen exceeds the standard.

When consumers gradually lose confidence in MUJI, the rise of local brands such as MINISO, Taobao Xinxuan, NetEase YEATION, Xiaomi YOUPIN, and domestic FMCG brands have given customers more choices. MUJI's road in China will be more difficult in the face of the growing domestic competition.

Costco: Unique advantages won't work in China

Costco is an excellent integrated service provider based on supply chain operations. While reducing procurement costs, it has absolute control over the entire supply chain. The underdevelopment of e-commerce and distribution in the United States lead to the creation and success of Costco; but is this model applicable to China?

Costco store-front

Part of Costco's supply of goods to the mainland this time comes from Taiwan, China, with SF Express providing logistics services from Taiwan to the mainland. This limits the types of goods and reduces efficiency. After all, Chinese consumers are spoiled with convenient delivery methods such as "Tmall half-day delivery" and "Hema food delivery in the same city" everywhere. In this environment, Costco's excellent supply chain loses much of its original competitive edge.

In addition, the fact that they have not yet fully grasped the local favor is another major pain point. Costco builds a typical membership model for the middle class who focus on brands and are used to stocking up. Whereas many Chinese consumers are more concerned about "freshness" and "cost-effectiveness".

Airbnb: The dilemma of being besieged by local companies

As a representative of the global sharing economy, Airbnb's development in China has been challenging.

As early as 2016, it is estimated that Airbnb has more than 30,000 listings in China, which is a far cry from the amount of listing of local Chinese companies. Among local Chinese companies, Tujia ranked first with 420,000 units, covering 329 domestic destinations and 1085 overseas destinations. Ant Short-term Rental ranked second with 300,000 units. In recent years, local short-term rental platforms have rapidly increased their listings thanks to local advantages. Relevant analysis reports have also indicated that local, short-term rental platforms may be a better choice.

Airbnb

In addition to the strong competitiveness of local companies, policy barriers in the Chinese market are also a major problem. Unlike the US market, although the country has encouraged the development of vacation rentals, the market is not yet fully regulated; such as docking security systems, short-term rental taxation, etc. When these policies are unclear for short-term rental companies, especially overseas ones, the layout in the Chinese market may be limited.

At the end of the day, a major reason for the dissatisfaction of enterprises in China stems from a lack of comprehensive and systematic understanding of the Chinese market and policies.​

Explore together and accelerate forward with Open Innovation

On July 27, 2020, as a partner of the Global Innovation Alliance, XNode and Enterprise Singapore launched a new round of the China-Singapore Innovation Launchpad Acceleration Programme. You might ask, in the post-COVID-19 era, can these startups make it in the China market?

China-Singapore Innovation Launchpad

In 2019, XNode successfully helped eight Singaporean companies achieve cross-border acceleration, including organizing China-Singapore business matchmaking events, and took Chinese companies overseas to participate in the Singapore SFF × SWITCH conference, during which all parties benefited from a fruitful year.

This year, we will continue to innovate and advance. In this batch, the China-Singapore Innovation Launchpad Acceleration Programme involves 8 startups in sectors such as medical, marketing, maritime technology, and more. XNode will work with these nine companies to explore business opportunities in the "post-epidemic" China market, helping them build networks of partners in China.

So, if Costco and Airbnb are hitting bumps on the path to localization, how will these startups fare? That remains to be seen! The road to delivering a crisp value proposition for Chinese consumers is a challenging one!

Curious to see the final results? So are we!

Virtual Demo Day (bilingual) will start at

August 20, 2020, 14:00 (GMT+8)

Sign up at the link below:

https://zoom.com.cn/webinar/register/WN_dDQr5a1_SJ2CBvajEedS7Q

XNode Insight

"Localization" is not just about hiring local employees and translating website and product information. In-depth understanding of user psychology, adjustment of product logic, and even iteration of existing business models are all factors that need to be considered when entering a new market. China has a huge market, but that does not necessarily mean overseas companies can get a share of the pie. How to make cross-border business expansion still competitive with local companies requires understanding the long-term market insights.

Contact us

Emily (XNode)

Emily Xu

Senior Acceleration Manager

emily.xu@thexnode.com

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