Home Shopping in China
US home shopping networks are finding success among Chinese consumers seeking safe, high-quality products.
US companies looking to do business in China—especially those looking to sell cosmetics, consumer goods, food products, and nutritional supplements—may want to consider exploring China’s burgeoning home shopping television networks. In 2012, the combined total revenue for China’s home shopping industry was $9.3 billion, a 31 percent increase over 2011.
There are currently 39 home shopping television networks in China, including 11 with national TV home shopping licenses. With a national license, the shopping network can be viewed anywhere in China; otherwise it can only be aired in certain regions.
The momentum for home shopping in China is being fueled by a growing consumer-driven economy, and a more demanding consumer. Convenience is becoming king, and if consumers can trust the quality of the product and the reliability of delivery services, many prefer comparing prices and purchasing from the comfort of their home. Increasing overseas exposure for Chinese citizens means they have greater expectations of retailers, local and international alike. Many Chinese are demanding high-quality, genuine foreign products; especially US brand-name products. Furthermore, as average disposable incomes rise in China, price is becoming less of an issue for Chinese consumers. For example, $2,200 Tahitian black-pearl necklaces were selling like hot cakes on the New Year special on one home shopping network, CNR Mall TV.
What Chinese consumers want
Almost any product that makes Chinese families safer and healthier will appeal to Chinese consumers. These products include non-perishables, agricultural products, baby formula, organic foods, cosmetics and nutritional supplements, and personal healthcare accessories. Chinese consumers also want high-quality products that are uniquely foreign, and many customers look for attributes that display a supplier’s attention to detail, such as certain types of stitching on clothing. The more suppliers can weave in the history, symbolism and cultural significance of a product, the more appealing it tends to be for Chinese consumers. For example, a jewelry company that models its designs on famous landmarks and uses stone pulled from an historically significant quarry, might find its products resonate well in the Chinese market.
But, in general, many products selling on home shopping channels in the United States would sell in China. The easiest way to test it out is to talk with the home shopping networks and see what they think about the opportunity.
Chinese viewership of home shopping programs is on the rise. For example, the global home shopping network, QVC Inc., a division of Liberty Interactive Corp., has partnered with CNR Mall. The partnership has seen its viewership in China grow to 70 million homes in 2012–a growth of 83 percent in one year. There’s certainly a sense among the QVC staff that they are on to something fresh after years of skepticism in the home shopping space. The company boasts over 600, mostly young, staff members who work in jobs including sales, merchandising, broadcasting, and customer support.
Challenges in China’s home shopping industry
Home shopping networks in China have had a history of false product claims in advertising. In recent years, several home shopping networks have started to recognize the Chinese consumer’s growing appreciation for honest feedback, quality customer service, and the desire for more experimental shopping. However, even if a US company has rigid quality control measures and an appealing luxury product, the firm will still have to work hard to build the confidence and trust of the Chinese consumer.
Other key challenges include unreliable delivery services and under-developed payment systems. Delivery infrastructure, while improving, is still inadequate: big cities tend to have more reliable transport services, but most Chinese cities often rely on shipments that pass through multiple local couriers, usually consisting of several legs, and numerous transport companies. All this can slow delivery.
After overcoming the initial problem of how to get the merchandise to the customer, the next problem is making sure the customer can purchase the product. Cash it still king in China, with cash-on-delivery (COD) the preferred payment system. While growing fast, credit card penetration remains low, at 38 percent; COD still accounts for 50 percent of payments, which includes credit card swipe on delivery. This method adds hardware and training costs.
The home shopping networks’ largest competitors are ecommerce platforms. As more Chinese consumers become comfortable with in-home purchasing via ecommerce, they may also become more comfortable with home shopping.
Another challenge home shopping networks face in China is that Chinese customers are accustomed to inspecting a product before they hand over their money, and many Chinese consumers have a tendency to buy the same item in different sizes and colors, keep one, and return the rest. Therefore, companies in the home shopping space face extremely varied and cumbersome inventory costs and controls. While US and European customers can do this as well, return rates tend to be lower because consumer culture makes them less likely to return something they already paid for online.
But competition has driven logistics costs even higher. For example, to bolster long-term trust, some networks offer free shipping and return service regardless of the item’s price. A simple calculation calls into question the economics of sending a $6 fan on a one-day trip to a customer for free, only to have it returned to the warehouse and restocked for free. But most businesses see this as a small price to pay to capture long-term customer loyalty, which is hard to come by in China.
The battle for market share among the at-home shoppers in China is underway. Ecommerce will likely continue to lead the way, but at-home shopping is nothing to shake the remote at. The at-home shopping industry in China is projected to keep growing due to the rise of consumer sophistication, growth of disposable incomes, the Chinese government’s newfound confidence in the industry, and the increased home-based purchasing habits created through ecommerce growth.
How the US Commercial Service can assist US businesses in tapping the Chinese home shopping network
One of the best ways to connect with China’s home shopping network is to work with the US Commercial Service’s offices throughout China. The first step is to determine if the product of interest has strong export prospects in the Chinese market. For a small cost-recovery fee, the US Commercial Service can help companies do that.
Interested US companies can send commercial service staff a one-page backgrounder. Our staff consults with home shopping networks such as QVC to get their feedback, and responds to the company regarding that feedback on in-home shopping market potential in China and possible next steps. For products with strong potential, the next step would be to introduce the US firm to multiple home shopping networks to determine the best fit. If the product requires registration and/or certification in China, the home shopping networks can provide a list of possible service providers.
The US Commercial Service also supports US company participation in events such as CNR Mall/QVC’s home shopping supplier summit in Beijing. At these summits, foreign companies of varying sizes can sit in with Chinese home shopping hosts who walk them through the process of importing, presenting and marketing on their home shopping networks. This is especially beneficial for those US companies which have never exported to China. These events occur twice a year. In addition, home shopping networks often take trips to the United States to source unique products.
Also, to be successful in the Chinese home shopping market, US firms need to have a large inventory on the ground in China. This isn’t expected on the first visit but will be required prior to the initial launch. The US Commercial Service can introduce US firms to distributors that can manage this function.
But the first step for firms coming to China is to make sure they have their IPR registration in order. Our office can provide information and non-legal guidance on that as well. US companies are also encouraged to visit the US Department of Commerce website www.stopfakes.gov for IPR information and assistance.
— Joshua Halpern