‘An uphill battle’: Why Macy’s is pulling out of China

In an email, a Macy’s spokeswoman said the move was linked to keeping its core U.S. business profitable. She added that Macy’s rolled out new functions to Macys.com to let Chinese customers buy items there.

That is true, but for industry experts, this is an example of an American brand unable to crack the Chinese market, with a too-narrow focus on Tmall and its local e-commerce site, and Macy’s lack of a strong offline strategy.

“There was definitely a focus on getting the U.S. business turned around, and management wanted to be laser-focused on that challenge; the business was tough, they were closing stores, and they were focused on getting that fixed,” said Stephen Rector, president of Bakertown Consulting and a former employee of Macy’s. Rector worked with Macy’s as a consultant to build its China e-commerce operations from September 2017 until May 2018.

For a market heavily reliant on e-commerce, direct-to-consumer brands often stand a better chance of success since customers can easily go directly to the merchants through these platforms. Multibrand retailers like Macy’s face an added challenge since their U.S. model is based on a tailored selection of brands that are often already available on Chinese marketplaces or through local distributors. It’s a problem that isn’t unique to Macy’s: In 2011, Best Buy shuttered all nine of its Chinese stores.

For Macy’s, the lack of a physical presence and brand recognition also hindered success. Rector said the company had a local team of approximately 100 people on the ground, but the brand didn’t keep pace with where the market was moving, especially given the trend to add offline experiences to complement e-commerce — a cornerstone of Alibaba’s “new retail” concept. The company rolled out pop-up shops in Beijing and Shanghai last year, but they were one-off activations.

Meanwhile, on Tmall, the company stood against algorithms that favored single-category brands.

“Tmall algorithms don’t help a department store — if you look at other stores on Tmall, they’re focused on one category,” Rector said. “For Macy’s, it was an uphill battle with the algorithm to get to the top [of search results].”

Despite a local team that made product decisions, Macy’s wasn’t able to carry the same brands it sold in the U.S., since some had exclusive deals with local distributors, he added. On top of that, Chinese customer preferences were different from American ones.

“There were teams in both Hong Kong and Shanghai that were very focused on making sure the assortments were correct from a Chinese lens — they really did the best that they could,” he said. “In many instances, they were leveraging the inventory in the U.S., and much of the styling of the assortment U.S. merchants would buy didn’t make sense for the Chinese consumer.”

According to Neil Saunders, managing director of GlobalData Retail, Macy’s entry into the Chinese market was doomed because it didn’t have a specific brand proposition for the Chinese consumer. While other U.S.-based retailers like Walmart had a large assortment of private-label, brand-affiliated products, Macy’s relied too much on curation.

“Macy’s has a very well-recognized brand name, but that brand name doesn’t really stand for anything globally,” he said. “Macy’s strategy has been about curating other people’s products under one roof. On a platform like Tmall, that’s useless.”

A broader e-commerce approach and an aggressive offline strategy may have given the company a leg up against competition, said Franklin Chu, U.S. managing director for Azoya, a firm that helps U.S. brands scale to the Chinese market.

“The e-commerce market is so crowded and so competitive, you need a broader approach than just being on one marketplace,” he said. “You also need a local partner in the trenches day in, day out, working with a variety of retailers and product categories who are in a position to make changes [to inventory] on short notice.”

Despite these challenges, Rector said China is still a great opportunity for other U.S. retailers.

“It’s a huge opportunity, but you have to have patience,” he said. “I would say [Macy’s exit] is disappointing; I understand why they did it, but for other retailers, it’s not a reason not to enter the market.”

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