International Journal of Research in Management & ISSN : 2348-6503 (Online) International Journal of Research in Management & Vol. 1 Issue 3 July - Sept 2014 ISSN : 2348-6503 (Online) Vol. 1 Issue 3 July - Sept 2014 Business Studies (IJRMBS 2014) ISSN : 2348-893X (Print) ISSN : 2348-893X (Print) Business Studies (IJRMBS 2014) An Exploratory Study of Retail Markets in Shanghai, , and INioka Wyatt, IITom Fung, IIINatalie Marchand IAssociate Professor, MBA, IIProgram Director, MBA, IIIGraduate Student IFashion Merchandising & Management, Philadelphia University, Philadelphia, USA. II,IIIGlobal Fashion Enterprise, Philadelphia University, Philadelphia, USA.

Abstract The Chinese economy has been growing at an exponential rate. With increasing amounts of disposable income, the investment-led Chinese consumer is becoming a consumption driven shopper especially through counterfeit markets. Due to China’s rapidly changing economy, the retail systems are thriving and it behooves retail practitioners to observe this diversification in the marketplace. These markets have not reached the pivotal point of saturation and more American brands are eager to enter the retail sector in China. In order to gain a full understanding of the retail market, background research on the Chinese consumer and retail market was done as well as various shopping venues were observed during a ten-day academic excursion to three metropolitan cities in China. This paper provides observations in Shanghai, Shenzhen, and Hong Kong and incorporates a SWOT analysis and thematic findings to correlate a new fashion system for China’s emerging marketplace based on trends that are shaping the United States (U.S.) retail territory. After analyzing and interpreting the data, we developed a SWOT to identify how retail systems will evolve in China. We believe that as China’s retail market expands, their consumers will become more sophisticated shoppers.

Keywords Apparel, Retailing, Marketing, Branding, Counterfeit, China

I. Introduction worked at retail locations based in the United States compared and During a ten-day fashion academic excursion to China, a group of contrasted retail store formats. After the China study tour, students students toured production facilities, attended professional business assessed the Strengths, Weaknesses, Opportunities, Threats, and visits, studied retail systems, observed experience design at major Trends (SWOT) of Shanghai and Hong Kong and created a series retailers, and engaged in cultural activities. Students were able to of thematic findings. The compilation of the findings is documented link theoretical and practical applications in product manufacturing in the paper. Initially, the SWOT was conducted on Shanghai and at host companies utilized by QVC, LaCrosse Footwear, Victoria’s Hong Kong; however there were major similarities in both regions. Secret, and Coach. During the study, a primary focus was linked As a result, the regions were coupled to synthesize the data. to consumer retail cultures and systems in Hong Kong, Shenzhen, and Shanghai to analyze the various modes of shopping outlets that III. Understanding The Chinese Consumer are carving the economic growth throughout China. Throughout The Organization for Economic Co-operation and Development the study, researchers identified that each location had unique reported that by 2016 China would become the world’s largest shopping experiences for consumers, whether it was targeted to economy. The report is based on the assumption that China’s locals or tourists. The first section of this paper highlights the GDP will grow at an annual rate of 8% (McLaughlin, 2013). domestic Chinese consumer and their spending behavior. The According to the International Monetary Fund, China’s current second section of this paper will provide an examination of the GDP is officially $8.25 trillion, though it’s estimated to be much background information as well as the classifications of shopping greater when adjusted for purchasing parity, making $12.38 trillion venues at each location in China visited. The three classifications more accurate, which is second in the world behind the U.S. of shopping venues analyzed are: branded retail stores, markets, ($15.66 trillion). The Chinese are becoming rich quickly and are and counterfeit markets. The branded retail stores classification becoming a consumer driven society. McKinsey & Company is a fashion brand’s brick and mortar location. Branded retail reported that the per capita disposable income of urban Chinese stores and markets were observed in Hong Kong and Shanghai. consumers would double from $4,000 to about $8,000 between The markets of China are classified as typical souvenir vendors 2010 and 2020 (Astmon, 2012). The Chinese investment driven or tourist attractions. The third classification of shopping venue mind-set has been changing towards one led by consumption. is counterfeit markets, which were observed in Shenzhen and With the growth of discretionary income, consumers are willing Shanghai. The counterfeit markets acquire knock off merchandise to spend more money on products to obtain better brands and such as: Gucci, Louis Vuitton, Hermés, Tori Burch, Chanel and excellent quality. Chinese consumers are also concerned about the others. social status that is received by purchasing certain brands (Astmon, 2012). Chinese consumers represent half of all luxury purchases II. Methodology in Asia (Hall, 2013). By 2020, Chinese consumers will buy more The strategy for formulating this research was mainly conducted than 44% of the world’s luxury goods (Branigan, 2011). by a series of observations and interviews conducted in Shanghai, For fashion items other than luxury, Chinese consumers utilize Shenzhen, and Hong Kong from March 6th to 16th. Students e-commerce and e-tailing has become increasingly popular. served as secret shoppers at retail markets and concentrated on The overall e-tailing ecosystem is profitable at around eight to the counterfeit system of selling luxury products. Interviews were ten percent earnings before interest, taxes, depreciation, and conducted with five counterfeit business owners, representatives amortization (EBITDA). In 2011, China’s e-tailing sales result was at the US Commercial Services, and five course participants who $120 billion (RMB 774 billion) and achieved a year-over-year sales

www.ijrmbs.com 35 © All Rights Reserved, IJRMBS 2014 International Journal of Research in Management & ISSN : 2348-6503 (Online) International Journal of Research in Management & Vol. 1 Issue 3 July - Sept 2014 ISSN : 2348-6503 (Online) Vol. 1 Issue 3 July - Sept 2014 Business Studies (IJRMBS 2014) ISSN : 2348-893X (Print) ISSN : 2348-893X (Print) Business Studies (IJRMBS 2014) increase of approximately 60 percent (McKinsey Global Institute, exports. The estimated value of total retail sales in Hong Kong was 2013). China’s transformative leapfrog in e-tailing development US$445.4 billion (Census and Statistics Department, 2013). is expected to surpass the United States and is outpacing the rest of the world. In 2012, it was reported that 242 million consumers 2. Branded Stores shopped online (The Boston Consulting Group, 2012). Although In November 2012, real estate adviser Cushman & Wakefield the industry is still in the initial building phases, the strategy for determined that Hong Kong’s Causeway Bay is the world’s most many companies is low investment that leads to high growth expensive retail destination. The rents at Causeway Bay average potential (McKinsey Global Institute, 2013). Apparel accounts US$2,630 per square foot (Diderich, 2012). Forever 21, a well for the largest market share of e-commerce. Furthermore, it was know fast fashion American brand for young adults launched a recorded that over 60% of Chinese consumers purchased apparel store at Causeway Bay in January 2011, and are reportedly paying from online retailers. It was reported that Tmall.com and VANCL. US$1.4 million a month (Oliver, 2012). The Causeway Bay area com are two of China’s biggest fashion online platforms (Hong is the location of international retail and luxury brands, from fast Kong Trade Development Council, 2013). China’s versions of fashion brands like Zara and H&M to luxury brands like Burberry, eBay are 360buy, Taobao, Tmall, and Paipai account for a major Gucci, and Louis Vuitton. The Times Square shopping mall is share of the e-tailing market. E-tailing is a new channel and deemed twelve stories and accommodates a majority of retail shops. Tam popular by Chinese consumers. Taobao had more than six million et al (2005) further confirmed that, “the operation costs in HK registered sellers, generate hundreds of product offerings, and are still high when compared with other sources of supply within streamlines the selling platform for SME’s (McKinsey Global the region such as China, Malaysia, Vietnam and Cambodia. The Institute, 2013). As a result, e-commerce has not reached the peak small- to medium-sized enterprises (SMEs) have to pay high prices of online retail sales. Online platforms have the ability to provide for quota, particularly when the category is popular. In turn, the virtual fittings, video shopping, and mobile snapshots of clothing. fixed link of the HK dollar to the US dollar has weakened the In 2012, China’s e-tailing industry accounted for five to six percent competitiveness of HK. of retail sales vs. about five percent in the United States (McKinsey Located nearby to Causeway Bay, less than 4 kilometers away, Global Institute, 2013). Consumers’ transition to online shopping is Hong Kong’s Central district. On Friday nights, the luxury because of the cost advantages and desire to acquire trendy stores such as Louis Vuitton and Chanel have lines of shoppers merchandise without physically shopping and traveling to retail yearning to purchase the latest designer products. When we asked stores. One of the challenges China will encounter is the support a representative why the lines were so long, they reported that, for the digital infrastructure by developing automated/ e-mail “young professionals must uphold their status by carrying the customer service systems, price and buying algorithms, advanced latest designer bags and wearing the latest trends of Christian search capabilities, and social media functions. Furthermore, this Louboutin mixed with a little Ralph Lauren” (J. Lui., personal platform provides an opportunity for the digital retail environment communication, March 8, 2013). Although the styles are similar to capture retail sales without acquiring the space to house big to U.S. merchandise, the variety of colors in pink, red, green, and box retailers like Wal-Mart, as well as create innovations in coral are attractive for consumer purchases. Retailers pay higher technology and logistics. China could develop a mix of physical rental fees especially on the street level of the Central District. and digital retail, with national brick and mortar chains exceeding Abercrombie & Fitch (A&F) is following suit by opening stores some product categories while online sales capturing additional in the Western hemisphere. A&F opened its flagship store in shares (McKinsey Global Institute, 2013). The majority of China’s August 2012. The real estate cost for A&F is US$3 million a fashion brick and mortar stores are luxury or high-end brands month. Prior to entering the retail store, customers are greeted by (Wheeler, 2013). Chinese fashion brands that cannot afford the two Chinese lions at two large wooden doors. The artistic design high rental fees create profiles on platforms such as Tmall.com. elements appeal to the higher echelon of consumers seeking to E-commerce provides the domestic fashion industry the ability purchase recent designer brands. Manlow and Nobbs (2013) to target the Chinese consumer. conducted an exploratory study of flagship stores by interviewing managers. They argued that flagship stores serves as a gateway IV. China’s Retail Markets by Location to new markets. The design of the flagship is a manifestation of the brand’s identity, producing what refers to as a brandscape. 1. Hong Kong Brandscapes reflect the brand’s identity in all elements of design During the tour of the US Commercial Services, representatives from architecture to placement of merchandise. These elements shared their views and provided facts for the economic development are used strategically to create a multisensory experience for of Hong Kong and other regions. According to the World Trade consumers. Brandscapes are also equivocal to experience design Organization (2013), Hong Kong has a population of around 7 because it focuses on a holistic approach to brand equity. Today’s million and 95% are Chinese. The overall GDP of Hong Kong is flagship era can be described as one in which a total experience US$258 billion, and the per capita GDP is US$49,300, ranked tenth is provided by a brand to consumers. in the world. Hong Kong is known as being the World’s Freest The participants entered the four-story Abercrombie & Fitch Economy and the location of Asia’s best shopping and nightlife. retail site and observed shoppers on each level. Although A&F Of the major industries of Hong Kong, services ranks at 92% is not marketed in the U.S. as a luxury brand, its strategy in and tourism ranks at 3% (E. Crowley, personal communication, China is the opposite. A brand that targets teenagers in America March 8, 2013, Hong Kong US Commercial Service). According is seen as a luxury brand for all demographics in China. The to the Tourism Commission, Hong Kong received 42 million large chandeliers, encased shelving, and customer service is visitors in 2011. The largest visitor source was China, the brand form of promoting A&F as a luxury retailer. Point which accounted for 28.1 million visitors and the United States and Hefer (2012) stated that, “it is the aim of the retailer to use represented 1.2 million visitors (Tourism Commission, 2012). In visual merchandise displays to attract customers in the store by 2011, The WTO reported a 20% increase in textile and clothing developing various forms of window displays and incorporating

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visual merchandising techniques to generate or increase sales.” Hygiene Department, 2013). According to Cant and Hefer (2012), “retailers realize that the way On March 21, 2013, the FEHD held an auction for the Hong Kong in which they use visual merchandising displays has the power Island and Island District vacant market stalls for non-short term. to create images about the products in the mind of the consumers At this auction, a stall at the Stanley Waterfront Market was up - images that will affect future patronage and perceptions of the for bid. This auction list gave insight to the process of acquiring product and brand”. In turn, visual merchandising displays are a stall and the cost structure. The stall auctioned was number 016 now a significant function of experience design to generate repeat located on the ground floor available to sell service trade and customers. Levi and Weitz (2009) notes that retailers want their has an area of 8.38 sq. meters. The upset price of this particular stores to attract consumers into their spaces, assisting them to find Stanley Market stall was HKD 11,000 or US$1,400 (Food and the merchandise they desire and to motivate them to make planned, Environment Hygiene Department, 2013a). unplanned, and impulse purchases and ultimately provide them with an enjoyable shopping experience. After perusing the retailer 4. Stanley Waterfront Market for an hour and observing the purchasing decisions of consumers, The Stanley Waterfront Market is located at Stanley New Street researchers noted that the cost of the products are relatively three and Stanley Market Road on the south coast of . times higher than the merchandise in the United States. The town of Stanley is an area inhabited by many expats and The Gap, Inc. is another American lifestyle brand located in the wealthy locals. Each day, the Stanley Waterfront Market is open Central District in Hong Kong. This three-story retailer was busy from 9am to 6:30pm. The market is “T” shaped, starts at the street, with customers on all levels. Although the Central District hosts and goes along the coastline. Although the walkway is in the open, many American and European retail and luxury brands, there the market stalls are covered. The market offers a large selection were no local retailers in the area. S. Lee from the Hong Kong US of souvenirs, apparel, silk garments, jewelry, accessories, knock- Commercial Service explained that, “most local brands couldn’t offs, home furnishings, flowers, paintings and prints, Chinese afford the rent of Hong Kong. For those that can afford rent, the trinkets, and food. At the market, consumers are able to bargain stores are typically located on the 3rd or 4th floor of a building, with the retailers to attain the best deal. The area was filled with but most local Chinese brands utilize the e-commerce market to tourists, expats, and Hong Kong locals shopping at the market. distribute products” (S. Lee, personal communication, March 10, The group of participants was given a total of an hour to shop the 2013). Based on an interview with one of the program participants market and observe the pier area. who also worked at the Gap in the U.S. stated that, “the product selections were similar to the U.S. market, however Gap had 5. Temple Night Market different sale strategies such as buy three get one half off. In The Temple Night Market is located on Temple Street, Yau Ma addition, the cost of the products was three times more expensive Tei, . The market is named after the Tin Hau Temple, and the visual displays incorporated a similar structure like the which bisects from north to south. The stalls at the Temple Night US” (M. Griglione, personal communication, April 5, 2013). Market are able to open at 2pm and stay open till midnight. The market is completely outside and hosts a variety of vendors and 3. Markets similar products found at the Stanley Waterfront Market. The Markets are another alternative shopping experience that are typical items that the students purchased were Chinese teapots, popular tourist attractions and is a main function in the retail paintings, and other cultural souvenirs. system. According to The International Counterfeit Coalition, it is estimated that over $600 billion is attributed to counterfeit 6. Shenzhen Background Information purchases. The two markets in Hong Kong that were observed Shenzhen is located in the Guangdong Province and is the world’s were the Stanley Waterfront Market and the Temple Night Market. fourth busiest container port located on the eastern bank of the Pearl Before talking about the experience and observations of the River, neighboring Hong Kong (Shenzhen Government Online, markets, an explanation of how to become a market stall owner 2013). As of 2012, the population that lives within Shenzhen’s 1,991 is as follows: (1) retailers who wish to occupy a stall at any type square kilometers was 15 million people (Sasin, 2012). The overall of Hong Kong public market must be the highest bidder at an GDP of Shenzhen reported in 2011 was US$185 billion (Shenzhen open auction of vacant market stalls held by Hong Kong’s Food Government Online, 2013a). In 2010, the total number of tourists and Environmental Hygiene Department (FEHD) (2) the bidder to visit Shenzhen was 76.98 million people and 10.21 million were must be a Hong Kong resident that is 18 years of age or older. visitors from overseas (Shenzhen Government Online, 2013c). The geographic location, Hong Kong Island and Island District, The estimated value of total retail sales in Shenzhen for 2011 was Kowloon, or , of the market determines the auction U$56.8 billion (Shenzhen Government Online, 2013a). to attend (3) before the auction occurs, the FEHD posts two types of lists and are: short-term tenancy and non-short term tenancy, of 7. Counterfeit Market the available stalls to bid on at the upcoming auctions. A short-term Shenzhen has one of the largest counterfeit markets in China. tenancy gives the highest bidder a lease agreement for 3 months. A The average monthly rent at the six story-shopping hub to Hong non-short term tenancy gives the highest bidder a lease agreement Kong is RMB10,000 or approximately US$1,600 (Central News for 3 years. The auction list also provides the following details Agency, 2008) and offers a diverse range of goods. A consumer is about the stall: the name of the market, the floor location, the stall able to find apparel, accessories, jewelry, souvenirs, electronics, number, the commodity that can be sold, the measurement of the toys, and fabrics in one location. Although the market hosts a stall area, the area of demarcated display area or platform, the stall variety of goods, the commercial center is a premiere market for height limit, the upset price or 100% of the open market rent, the knock-offs and counterfeit goods. The operating hours for the monthly air conditioning, electricity, maintenance charges, and shopping center is 8:30 am to 11 pm. other remarks about the stall are listed (Food and Environment At the commercial center, the purchasing transactions of counterfeit

www.ijrmbs.com 37 © All Rights Reserved, IJRMBS 2014 International Journal of Research in Management & ISSN : 2348-6503 (Online) International Journal of Research in Management & Vol. 1 Issue 3 July - Sept 2014 ISSN : 2348-6503 (Online) Vol. 1 Issue 3 July - Sept 2014 Business Studies (IJRMBS 2014) ISSN : 2348-893X (Print) ISSN : 2348-893X (Print) Business Studies (IJRMBS 2014) goods were observed. While a consumer is walking through the American, European, Japanese, and Korean. The only Chinese hallways of the market, the sales associates attempt to interact brands that were found were located on Level 3 in the area called and gain the attention of the individuals perusing. If the sales the Charm Gallery. The Charm Gallery is a section of the mall associate is successful at their attempt, they will offer the potential that Super Brand designates as a mini anchor. The mini anchors buyer a seat within the store. The items on display at the store are are small sections of each level that offer small retailers of similar knock-offs with no labels. It appears that the merchandise within product items. There are a total of 11 mini anchors at the Super the stores is just for showcase to distract the customs officer. Brand Mall. The Chinese brands that were found were Embryform When a potential buyer is in a store, they are handed catalogs and Maniform, two intimate brands. The two intimate brands are of merchandise to browse. The merchandise in the catalogs is the competitors of Regina Miracles, an intimate manufacturer counterfeit luxury brand items. Once the potential buyer has the group of participants toured while in Shenzhen. Maniform made a selection, the sales associate will place a phone call to a was the less expensive brand of Regina Miracle products and vendor in the distribution center that is in close proximity to the their intimates ranged from RMB129 to RMB269 (about US$20 market. If the first vendor does not have the desired merchandise, to US$45). Embryform is a more expensive intimate brand and the sales associate will contact other vendors until the product ranged from RMB375 to RMB600 (US$60 to US$95). At the is found. After 15 minutes of waiting, the merchandise will be Regina Miracles facility, the participants were advised that personally delivered in an unmarked bag. Prices are not discussed branded intimates make up only 16% of the Chinese intimate until the potential buyer inspects the items and identify if they market (W. Lai, personal communication, March 10, 2013). In are purchasing the merchandise. The potential buyer also has 2011, Regina Miracle developed their own line of under garments the opportunity to ask for better quality items, which will cost and opened two retail locations in Shanghai and Hong Kong. more. Once the buyer has decided to purchase the product, he/ Céline (2006) found that, “the strategy of design and retail she bargained for the lowest possible price. Whenever the buyer integration in the clothing industry allows firms that implement it is not inspecting the merchandise, the sales associate covers the to increase their products performance.” The participants observed products in unmarked bags and hide the catalogs in fear of the the Super Brand Mall for one hour, where it was determined that customs officer. If a store gets caught selling counterfeit goods, the the majority of brick and mortar retail stores of Shanghai are customs police will confiscate all the merchandise and the store international brands. is forced to shut down. The owner of the store is also unable to The second shopping area of Shanghai that was observed was the reapply for a rental space for at least 6 months. The supply chain Xintiandi Plaza. The robust plaza is located in the area of Shanghai of counterfeit merchandise at the commercial center was strategic, called the French Concession. The Xintiandi Plaza has outdoor planned, and vertically integrated. shops and restaurants and a two story indoor mall. The majority of brands at the Xintiandi Plaza are American and European mid to 8. Shanghai Background Information high-end retailers. The two Chinese brands available at Xintiandi Shanghai is the busiest container port of the world. Shanghai Plaza are I.T and b+ab. I.T is China’s fast fashion retailer from has a population of 23.5 million people. The overall GDP of Hong Kong. The Chinese brand offers young and energetic clothes Shanghai reported in 2011 was US$321.2 billion. The service for fashion consumers. The prices observed at I.T were average industry attributes to 58% of the GDP. The retail and wholesale RMB1299 (US$200) per item. The style offered at b+ab is chic industry ranks in the top 3 largest industries of Shanghai. The and trendy clothes inspired by Japanese fashion. The prices at b+ab per capita GDP reported for 2011 in Shanghai was US$13,500. were average similar to I.T at RMB1199 per item (US$190). The The estimated value of total retail sales in Shanghai for 2011 was students observed the Xintiandi Plaza for one hour on 2 occasions, US$109 billion. The number of tourists to visit Shanghai in 2011 where it was determined that the majority of brick and mortar retail was 239.2 million, of which 8.2 million were from overseas. Due to stores were high-end international brands plus the two high-end the rising income level and large percentage of tourists, Shanghai Chinese brands. is the largest consumer market for Mainland China. The average per capita expenditure of an urban household in Shanghai was 10. Markets 8.2% in 2011. Shanghai consumers are seen as fashion trendsetters Located in Old Chinatown outside of the Yuyuan Gardens was compared to other Chinese cities (Hong Kong Trade Development the Yuyuan Bazaar. The marketplace hosts over 100 shops and a Council, 2012). three-story indoor mall. The Yuyuan Bazaar attracts up to 200,000 visitors daily and is a major destination for locals and tourists (Top 9. Branded Stores China Travel, 2013). The market also offers a large selection of The branded store experience of Shanghai was similar to that souvenirs, apparel, silk garments, jewelry, accessories, musical of Hong Kong. The Shanghai retail market experienced a large instruments, home furnishings, paintings and prints, Chinese demand for international luxury and mid-market retailers in 2010 trinkets, and food vendors. The indoor mall was filled with antiques (Cushman & Wakefield, 2010). Ground-floor retail rent space has and jewelry vendors at a variety of price points. At the market increased by 11.6% since 2012 to RMB54.7 per square meter per certain stores had set prices, but majority of the vendors would day (China Money Podcast, 2013). allow shoppers to bargain. Although the vendors would negotiate, The first shopping area of Shanghai that was observed was the the area is a big tourist attraction that enabled the retailers to Super Brand Mall located in Pudong’s Lujiazui Area. The Super take advantage of the shoppers. The marketplace was filled with Brand Mall is a 13-floor international style urban shopping and tourists and locals browsing the vendors, shopping, and eating. entertainment center. The average daily traffic reaches 180,000 The group of students was given a total of forty-five minutes to people and on weekends the visitors exceed 300,000 (Super shop the market and wander the bazaar area. The typical items Brand Mall, 2013). The retail stores at the Super Brand Mall are that students purchased from the Yuyuan Bazaar were cultural international mid-market brands. The majority of the stores are souvenirs, jewelry, musical instruments, and swords.

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11. Counterfeit Markets order for Hong Kong’s retail market to remain competitive. The The counterfeit product mall located on Nanjing road was observed researchers have included the areas and identified if China have to understand the knockoff market in Shanghai in comparison to been successful in the following areas. the commercial center in Shenzhen. At this mall, a consumer 1. Government – The Government could enhance the image of is able to find counterfeit apparel, accessories, leather goods, HK fashion by partnering with the Hong Kong Trade and jewelry, electronics, toys, and other merchandise. In a previous Development Center (HKTDC) by enhancing the design study conducted by Phau et al (2009), the researchers administered gallery and becoming a key player in hosting international a survey to students at a large Australian university to assess trade shows, hosting fashion shows, and promoting Asian their attitudes towards purchasing counterfeit Ralph Lauren designers. The researchers agreed with this statement and polo shirts. The Theory of Reasoned Action (TRA) method was found that China is making improvements by partnering with instituted to formulate several findings regarding the reasons why the HKTDC to showcase their creative talents. For the past consumers purchased counterfeit merchandise. It was found that four years, researchers have visited the HKTDC and assessed consumers purchased counterfeit products because of their lack the organization. During our 2013 tour of the HKTDC, of knowledge in production principles and the cost associated we were given an overview of the organization. The guide with branding global merchandise. In addition, “often buyers of lacked presentation skills and was not able to answer key counterfeits do not consider the damage their actions are having on questions. There is not a level of consistency in presentations. the economy or that their participation in this illegal activity may Researchers suggest that employees should be trained on fund organized crime or other illicit activities” (Tom et al., 1998). speaking to larger groups. The staff in the library was very It was also reported that the purchase of counterfeit merchandise knowledgeable about the product offerings and plethora of is not associated with only low-income earners, but stems across resources that are available at the development center. a wide array of salaries. The likelihood of consumers purchasing 2. Product Development—China should enhance its product counterfeit Ralph Lauren polo shirts contributed to perceptions development by creating more sophisticated merchandise of low cost manufacturing, unethical manufacturing, and leads while focusing on low cost production in Mainland China to the attitudes of indifference towards illicit buying behavior and other nearby Asian regions such as Cambodia and (Phau, 2009). Furthermore, consumers do not feel that they are Bangladesh. In addition, the government should have a vested jeopardizing their morals and values when purchasing counterfeit interest in sustainability of design, the economy, and the retail merchandise. industry. In turn, the government should create a one-stop The counterfeit mall in Shanghai was three stories and much shopping fashion hub by developing innovative fabrications smaller compared to Shenzhen’s, but the retail stores were and improve logistical processes. According to Tam et al, much larger in square meters. The retail stores were larger to “HK designers are familiar with the interpretation of design, accommodate hidden cabinets and closets. The hidden cabinets but there is no specific design image representing HK, which and closets are the main difference in distribution strategy in is easily recognized internationally.” To date, China lacks Shanghai and Shenzhen. The process of luring consumers into textile designers and lacks overall in creative design fields. the stores is the same, but revealing the counterfeit merchandise Their strength is heavily embodied in manufacturing and was different. Once the retailer understands what the consumer logistics. The largest shipping port is located in Hong Kong wanted to purchase, the hidden closets were revealed. If the item and serves as a major distribution channel for Asia. was in a cabinet, the sales associate removed the merchandise 3. – The educational system is based on examination and allowed the consumer to inspect the item inside the store. and lacks critical thinking and creative skills. Tam et al states, If the items were located within the hidden closet, the sales “A greater emphasis on creative activities in educational associate would bring the consumer into the closet to view the programs would invariably help to develop the necessary products. The transaction for items found in the closet occurs human resources for the Textiles & Clothing industries.” while the door is locked. In Shenzhen, the retail store contacts Hong Kong Polytechnic has been one of the major partners the merchandise distributor while the consumer is in the store to in Asia and is the most predominant university for fashion deliver the products. In Shanghai, the retail store acquires the and textiles. Students are skilled in technical execution of merchandise to stock in the store before a final transaction occurs. products, however they lack presentation and social skills Whether the retailer in Shanghai purchases the merchandise for that are necessary for a successful career in the global fashion wholesale or on credit from the merchandise vendor is unknown. industry. On the contrary, students are learning the latest Although the supply chain structure and distribution strategies technological applications for fashion development and are for counterfeit merchandise are different between Shanghai and able to intern with some of the most reputable manufacturers Shenzhen, the bargaining interactions between the consumer and in the industry. Students may lack in the areas of creative retailer are similar. execution, however they are technically savvy. In Shanghai, older residents do not speak English, however the younger V. Strengths, Weaknesses, Opportunities, And Threats population of students are taking English as a secondary (SWOT) language. In turn, the wealthier natives are sending their In a previous study by Tam et al (2005), a SWOT analysis was children to United States boarding schools hoping that it conducted to assess the retail market in Hong Kong. Based on will be an easier transition to attend Western universities. the previous findings from Tam and our experiences throughout 4. Media – Tam et al also notes that, “Magazines and TV China, we were able to build on the concepts and offer further programs could usefully introduce the collections of the recommendations to improve China’s retail market by developing designers to the buyers and serve as a reference in sourcing. an additional SWOT analysis to include a series of thematic Currently, the local fashion magazines tend to emphasize findings. Tam et al also suggested four areas to improve in reporting of trends from the fashion capitals and do not

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give proportionate coverage to the collections of the local their private label merchandise beyond 25% and expand into designers.” Researchers noted that the number of American other product categories such as active wear and performance and European fashion magazines are growing. Feng and Frith gear. Companies will leverage supplier and logistical systems to (2008) identified that the shift is due to global brands that streamline the influx of e-commerce purchases to meet shipping need to advertise and showcase their brands’ image and create demands. In addition, they will infuse logistical components to a vehicle to advertise. Due to the growth of technological ship merchandise to consumers within days, minutes, or utilize applications and online materials, printed media has been their citizens to act as runners to distribute merchandise. We declining. In turn, popular magazines such as Elle, Vogue, witnessed this strategy at the counterfeit markets. Shanghai and Cosmopolitan, Glamour, Harpers Bazaar, and Marie Claire Shenzhen will push the study of the English language and in turn have transitioned into the Asian market which is a similar pull a dynamic sales team of young, eager professionals who are concept orchestrated by luxury brands. willing to service their economy. As China continues to become The following is the SWOT analysis conducted by two faculty a retail-centric and consumer driven society, they will cultivate leaders for the course and ten students who travelled to the host their designers in US based schools and infuse the latest textile countries. The purpose of the SWOT is to build on previous and material innovation to service their retail system and global research conducted and couple the information with forging new customers. retail systems for China’s growing retail markets. Insert Table 5.1 VIII. Limitations of The Study When understanding the retail market in China, some limitations to VI. Thematic Findings Based On Assessment Of Retail the research occurred. The first limitation is only metropolitan city Locations retail locations were observed. Because the group of participants 1. We foresee that Shanghai will become the next Tokyo in the only visited 3 metropolitan areas, the rural retail market was 21st century, continued western influence in consumerism, not observed. We pose that future research should focus on one more global brand penetration, as well as the rise of particular retail area because of the vast amount of shopping domestic brands and private label merchandise infiltrating observations and generalizations that could cause the research the retail system. to become misconstrued. An additional limitation of research deals with the inability to communicate with sales associates and 2. Our observations of China becoming an extremely fast domestic consumers. Although English is widely spoken in Hong paced society will place pressure on their workers and Kong, there was still a language barrier when observing the retail government to increase wages. Consumers will place market especially in Shanghai. The requirement to visit specific prime importance on social status. In addition, the rise of retail locations is another limitation to the research because of the e-commerce, home shopping networks, infomercials, and study tour component. The participants had a set touring schedule direct sales channel such as Avon will become paramount and designated time to observe each market. To fully observe a in China’s growing economy. retail setting, it is necessary to study the area for longer periods 3. The notion of affordable luxury would permeate the mid- of time rather than an hour to four hours. The final limitation tier market. Counterfeit merchandise will become more of research is the inability to find specific data. Certain retail sophisticated in developing sales strategies. statistics, rent statistics, and other necessary data was challenging 4. Based on our observations and interviews, the Chinese to acquire. will develop their own individual sense of style instead of adopting international brands. They will implement IX. Future Research cultural applications into contemporary lifestyle brands. China’s growing economy and vast retail markets offers researchers China is beginning to lessen state’s control on businesses, the ability to study additional emerging markets in rural areas. As thus allowing innovations and creativity to be coming China begins to open their market to technological advancements more freely from the private sectors. and social media applications, consumers will become more open to explore and share their plethora of experiences. A series of 5. Retail spaces will embody style and sophistication in case studies could be developed with key businesses to facilitate various brandscapes. Retailers will increase marketing classroom discussions and publish findings. The future research and visual merchandising budgets to attract consumers will also explore the growth of online sales and other retail systems in lower and high-tier cities. that are evolving such as home shopping networks. Currently, electronic mogul QVC is exploring a partnership with a key home VII. Trends In The New Retail System network agent in China. Since this partnership is in the beginning Based on the SWOT generated by the participants and researchers, stages of development, future research could explore the growth the future of retailing in China is rampant. The new system will and development of the system. The research was done over comprise of workshops to train personnel in customer service ten days and as a result, it was difficult to interview additional by integrating technological applications to simulate various people. The majority of the interviewees spoke English, however forms of retailing skills. Faculty and practitioners will partner communication was difficult for the students. and consult with key officials to train management staff in ethics, corporate social responsibility, and operations management, which X. Conclusion is a driver necessary for development and growth in the retail The Chinese retail market cannot be observed within a ten-day sector. China’s new system will master multi-channel retailing to academic excursion, however the various shopping venues that include: brick and mortar, e tailing, catalog, and mobile commerce. were visited gave clear insight into domestic consumers and Manufacturers who survived the economic turmoil will increase spending patterns of tourists. Due to the increased awareness

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of brands, desire for social status, and economical growth, it Opportunities Threats is apparent that luxury and high-end international brands are • Inter-global expansion • Other developing continually expanding in China. Based on our thematic findings, in other regions (i.e. countries may emulate we foresee a growth in mid-priced apparel brands penetrating Shanghai’s metropolitan China’s economical Tiers 3 to 6. When it comes to the counterfeit market, the desire influence extended to strategy for high quality replica goods for low prices is paramount and neighbouring cities, e.g. • China’s political will expand into additional territories for locals and tourists in Hangzhou, Suzhou, and stance Shanghai, Shenzhen, Hong Kong, and surrounding cities. The Nuking) • China’s overall government will pose stringent regulations on the counterfeit • Institute additional economic power markets, however the counterfeit organizations will infuse a brands • Counterfeit variety of marketing and distribution tactics to increase sales • S h o w c a s e l o c a l system filter products to consumers. Similar to the counterfeit markets, designers • Integration of Chinese markets and bazaars will remain prevalent in the retail • Online and at home low cost brands in the arena as long as tourists visit China. A recent article in the New markets (Home shopping retail system York Times discussed that the Chinese government is revamping TV network and mobile • Price inflation the country’s growth model and reducing the state’s role in making commerce) • Increased wages economic decisions. China’s leaders seek to strengthen the private • Modern retail store • Government’s sector and leverage the economy to stimulate growth (Barboza, layout control over social media 2013). Although the luxury market will continue to expand, the • L u x u r y b r a n d and the internet (i.e. international and domestic mid-priced brands will have the ability expansion Google and Facebook) to gain market share throughout China’s retail system and growing • Improve logistical economy. system • Creating a global Strengths Weaknesses presence in the consumer • Young opulent market • Vast amount of goods market through • Velocity of people counterfeit goods the increased popularity (consumers) • Lack of creative of American brands and • Thriving economy talent the interculturalization • Variety of product • M a r k e t e n t r y of Western influences offerings complicated due to Table 5.1 • Prominence of luxury timeframe for retailers market to enter China References • Strong service sector • Real estate is [1]. Astmon, Y., Magni, M., Li, L., & Liao, W. (2012, March). • Foreign investments expensive Meet the 2020 Chinese Consumer. Retrieved from McKinsey • Increasing consumerism • S o c i a l m e d i a & Company website: http://www.mckinseychina.com/ • Geographic locations of applications are wp- content/uploads/2012/03/mckinsey-meet-the-2020- retail locations in high blocked due to consumer.pdf traffic areas g o v e r n m e n t a l [2]. Barboza, D. & Buckley, C. (2013). China Plans to Reduce • Prominence of mid restrictions the State’s Role in the Economy. New York Times priced brands (Gap, • Retail infrastructure [3]. Boston Consulting Group (2011). Dressing Up: Capturing H&M, A&F) and store layout the Growth of China’s Fashion Market • Lack of e-commerce [4]. Branigan, T. (2011). China’s taste for high-end fashion and and m-commerce luxury brands reaches new heights. Retrieved from http:// • Lack of customer www.guardian.co.uk/world/2011/apr/26/china-super-rich- s e r v i c e a n d demand-luxury-brands communication skills [5]. Céline Abecassis-Moedas. (2006). Integrating design and • Marketing of domestic retail in the clothing value chain: An empirical study of the talent and brands organisation of design. International Journal of Operations • Overwhelming size &Production Management, 26(3), 412-428 of retail locations (i.e. [6]. Cant, M. C., P., & Hefer, Y. (2012). Visual merchandising Super Brands Mall is displays: Wasted effort or strategic move? the dilemma 13 floors) faced by apparel retail stores. Journal of Applied Business • Lack of individual Research, 28(6), 1489-1496 Chinese style [7]. Census and Statistics Department (2013). Provisional Statistics of Retail Sales for December 2012 and for the Whole Year of 2012. Retrieved on March 24, 2013 from The Government of the Hong Kong Special Administrative Region website: http://www.censtatd.gov.hk/press_release/ pressReleaseDetail.jsp?charsetID=1 [8]. Central News Agency (2008, July 30). Slow Retail in China’s Biggest Commercial City. Retrieved March 22, 2013 from

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