International retailers are carefully assessing expansion strategies outside of their developed-country home markets, where growth is slowing and their number of existing stores is already high. China remains a compelling market for global retailers, especially as the country’s economic growth, even if moderating, continues to present a plethora of untapped opportunities. But, the question that remains on everyone’s minds is: how to enter the China market – on their own, with a partner, or some combination of the two?

JLL will release a white paper in the coming weeks to examine this important strategic question. Key messages in the publication will include:

• Make Beijing and/or Shanghai the starting point – and own your stores there.
• When corporate control is not an option for a second-tier city, go for the next best thing: a mixed strategy.
• For third-tier cities and beyond, use a franchise to penetrate the market quickly over the short and medium terms.

Given that consumers in China’s major cities are becoming increasingly brand-savvy and sophisticated with their shopping preferences, international retailers will need to open and maintain high quality stores and provide top customer service to win over these markets. Corporate stores are well positioned to please discerning customers due to their emphasis placed on securing a strong location, quality fit-out, and proper staff training. Unlike franchisees, direct-owned stores are fully committed to the brand and its development within the China market. This dedicated approach essentially gives the corporate retailer a sustainable edge over the competition, especially for the long-term.

Though initial capital investment and financial risk are higher with the corporate model, direct-owned stores also enter with the resources needed to make a bigger splash in the China market, especially via key cities like Beijing and Shanghai. Successful retailers which “go corporate” in China agree that these efforts more than pay off when all of the sales revenues generated by their China stores are exclusively theirs.

When going corporate isn’t an option, international retailers should find a strong local partner. Franchisees offer valuable local know-how, which they are often able to use to get around speed bumps in the market. Particularly in smaller cities, the need to operate swiftly, in a manner that produces concrete results fast, is crucial to getting ahead of the market and catching up to competitors.

Global retailers that do resort to using a franchise, however, should do so cleverly, with the long-term intention of taking back control in select markets once these have matured and their stores within them start outperforming. As these cities advance and their consumers develop more refined shopping habits, international retailers will need to evaluate which stores in which places are most worth their while – leaving those that are not to remain in the hands of a capable franchise – and be prepared to convert them to corporate ownership when the time is right.

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