Neiman Marcus to Sell Items Online in China – WSJ.com

Here are a couple of thoughts that come to mind regarding Neiman Marcus’ strategy to “slowly” enter the Chinese market.

Why

  • Expansion is necessary for any business to grow. Companies grow by either developing more products and services for consumers, or by going into new geographic markets. International expansion can be tricky for luxury brands especially because of the political, economic, social, technological, environmental and legal nuances of target markets.
  • In China’s case, the market for luxury goods is growing very rapidly, and is expected to be the largest market for luxury goods in the world. Specifically, e-commerce is a booming segment, having grown by 68% to $122B in 2011. Considering that e-commerce provides higher margins, it is the “low hanging fruit” (most attractive option) for Neiman Marcus.

Entering China now could help [Nieman Marcus capture] more newly affluent consumers who can grow with the company

– Excerpt from WSJ 

How

  • International expansion can occur in a variety of ways: franchising, licensing, joint ventures (JV), mergers and acquisitions, and startups. Each entry method has unique merits striking the balance between the assumption of risk, control, and opportunity for sustainable returns. For Neiman Marcus, their JV approach:

is an attempt to take advantage of the booming Chinese appetite for luxury goods, but without the risk and investment of opening physical stores… Shipping to China allows Neiman to test international waters without much risk. Neiman won’t have to enter real-estate contracts or grapple with local customs. Online sales tend to be higher margin than retail sales because of fewer overhead costs

– Excerpt from WSJ 

Issues/Concerns/Risks

  • Chinese consumer behavior is not yet compatible with the culture of e-commerce. Most shoppers prefer the experience of shopping in a physical facility where they can see, feel, test, and try products. Based on the excerpt below, this could be an opportunity or a threat:

In 2011, China’s online luxury sales accounted for just 3% of Chinese luxury sales, up from 1% a year earlier, according to Boston Consulting. That compares to 12% in the U.S., where overall luxury sales totaled roughly $45 billion last year

– Excerpt from WSJ 

  • Counterfeit products: There is an assumption that the online market (where anyone can sell a product) is rampant with counterfeit products.
  • Selling at full price: Neiman plans to sell its goods at full price on the site. The ubiquity of e-commerce in China (and everywhere else) has had a substantial impact on competition.

Most [Chinese] consumers head to the Web for sales and Glamour Sales (Nieman’s JV partner) itself has amassed a loyal consumer base in China, where it rolled out in 2010, with flash sales of discounted goods.

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