Karen Fifer; Gauri Padmanabhan
Asia’s consumers may be the spenders of last resort for a world hungering to get trade moving again. There are signs that the retail sector in the region is holding up better than its Western counterparts due to a host of systemic factors. Lower household debt, healthier banking systems and ongoing stimulus initiatives have seen consumers continuing to spend, although at a slower pace than before.
At the same time, the pool of available leadership talent is gradually expanding as international executives who were uninterested in moving to the region during boom times offshore are now much more willing to make the leap. Retail executives who have been through downturns are in particular demand, as most of Asia’s retail leaders, with the exception of Japan, have previously not experienced volatile boom-bust business cycles.
But experience alone is not enough. Incoming executives need to understand the cultural sensitivities of the different nationalities that make up the region.
Transplanting products from the United States, Britain or Australia doesn’t always work. In previous regional and global downturns, Asia’s recovery was led by a rebound in exports to the “rich” world, an unlikely scenario this time around due to the dramatic collapse of Western consumer spending. The West and even Asia are now looking to Asian domestic demand and the increasingly affluent middle class in India and China to provide this next stage of growth.
Big chains strengthen Asia links
Asian economies have certainly been affected by the world crisis and even China’s gross domestic product was down in 2008. However, predictions have China’s GDP rising to 7.8 per cent by the end of 2009 and there is similar optimism about the continued growth potential of other countries in the region. While the global financial meltdown has surely come as a dampener, the future for the sector still looks bright in the region.
A big vote of confidence has come from Wal-Mart, which is focused on gaining market share while competitors cut back. It has just set up shop in Hong Kong to expand in the major economies in the region. Wal-Mart is well-positioned. It opened its first mainland store in the southern city of Shenzhen in 1996. It now has more than 100 stores in China.
French hypermarket chain Carrefour, British retailer Tesco and German wholesaler Metro have entered the Indian market and are expanding their presence in China. Home furnishing giant Ikea plans to add two more stores to its existing six outlets in China. In Japan, the Swedish “cheap and chic” retailer Hennes and Mauritz also sees the slowdown as an opportunity to expand. It recently opened its first store in Tokyo’s Ginza shopping district and another in Harajuku.
The next wave in India retail belongs to the fashion and luxury segment. Many players have recently set up single brand outlets in the country and have reported good sales. A joint study by the Associated Chambers of Commerce and Industry of India (ASSOCHAM) and KPMG predicts that the retail market in India will grow steadily. Consumer spending in India increased by 75 per cent in the last four years and is expected to quadruple in the next 20 years. Meanwhile, the traditional market is giving way to new format stores such as hypermarkets and specialty stores.
Key Leadership Skills for Asian Retailers
With these retailers using the recession to ramp up market share, qualified executives are in demand. About a third of China’s businesses say they are actively looking for top executives. In India, retailers are reportedly trying to lock in their best people with short-term incentives. Other nations are experiencing similar trends.
What will it take for leaders to succeed in Asia? They will of course need the usual suite of retail skills, but they will also need to possess the following attributes:
Cultural sensitivity: Asia is not a homogenous region. What sells in one country may not sell in another. Experienced executives will therefore need to be customer-focused across different cultures as well as vastly different markets.
Strong negotiation skills: In Asia’s more flexible marketplace, executives must constantly negotiate prices and terms with suppliers so lower inventory costs can quickly be passed on to consumers ahead of the competition.
Understanding of points of difference: The retail executive should have an acute understanding of changing value propositions. Consumers are looking for a better deal. Multi-purpose goods can often be more successful than single-purpose items and price points needed to be monitored continually.
Ability to blind-side the competition: This is the time for experienced executives to try new things. In Australia, Myer doubled its advertising budget for the first quarter of 2009, cleverly getting reduced rates for its blitz, while its rival David Jones cut back. Increased market share is the likely result. Executives need to be strategic and experienced in gaining market share in volatile times.
Understanding new channels: Executives need to be comfortable with physical stores and virtual or online environments. China recently overtook the United States as home to the largest number of online users on earth. Retail executives need to be familiar with ways of reaching customers across all environments.
No-one knows precisely what will happen with the global economy. But one thing is certain: Asia is enjoying strong demand for consumer goods by people who have savings, not debt. At the same time, a growing pool of experienced retail executive talent is waiting in the wings to facilitate that demand.