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Why these brands lost their Chinese market?

Updated: Nov 1, 2023

H&M refuses to use any cotton from Xinjiang

In March of this year, a very trending topic appeared on China's famous social media Weibo, which caused a heated discussion among the public. In October 2020, H&M, a member of the BCI (Better Cotton Initiative), posted a statement on the group's website, claiming that there was "forced labor" in Cotton cultivation in Xinjiang, China. In order to resist forced labor, H&M will refuse to use any cotton from Xinjiang in the future. Shortly after the announcement, international brands such as Adidas posted similar announcement on their international websites (except Chinese website) boycotting Xinjiang cotton, and some international brands even announced in a statement that they no longer had Xinjiang employees in their Chinese factories. However, the statements of these international brands all have an obvious common point, which is that they have not passed the actual investigation and research. The boycott of Xinjiang cotton by international brands such as H&M and Adidas has sparked widespread public sentiment in China, which is seen as disrespectful to their country. As H&M and Adidas made the decision to "stop xinjiang cotton" based on BCI's evidence without actual investigation, their sales in the Chinese market have been dramatically decreased.

Xinjiang cotton field

H&M joined the Chinese market in 2007, with fast fashion as their marketing strategy, it has had the rapid and stable development. According to the figures, H&M has developed rapidly in China with the number of stores skyrocketing from 134 in 2012 to 444 in 2016. The annual revenue of H&M in China reaches 7.6 billion US dollars. But after the Xinjiang Cotton scandal, H&M has been removed from many e-commerce platforms in China, and its sales have dropped by 28 percent after the incident.

Adidas refuses to use Xinjiang cotton

Adidas entered the Chinese market in 1997, when China's productivity and technology were relatively lagging behind and the market potential was great. Adidas's strong economic capability and production team, as well as the company's localized marketing strategies and rapid innovation models in the supply chain to respond quickly to the needs of Chinese consumers, have led to the continued bullish view of Chinese investors and the company's steady growth over the years. In 2018, China has become Adidas's largest market in the world, with sales estimated at $28.7 billion by 2020. After the Xinjiang Cotton scandal, a large number of Chinese brand ambassadors have dropped their contracts and started to cooperate with local Chinese brands. These local brand ambassadors represent and lead the current aesthetic and trend, they are influencing the preference of the Chinese people, especially the young people, exactly the target group that the brand hopes to influence. Without marketing, it basically loses public attention and social influence, therefore, gradually loses the brand awareness of the brand to the public. And in response to the Xinjiang cotton scandal, Chinese consumers have moved in favor of domestic goods, pushing the stock price of some local sneaker makers up to 275 percent this year. Anta's shares have climbed to a series of record peaks, lifting its market value to more than $60 billion, and Li Ning's shares have jumped more than 65 percent. Adidas's stock price only increased less than 15%. Because of the decreasing of media exposure and marketing, brands like H&M and Adidas will be weaken their brand exposure to the Chinese consumer and in the meanwhile the resistance emotion to these brands have been generated by the Chinese people. It will eventually lead to the drop of the brand value and will be taken place by the other brands in Chinese market.

Korean brand Lotte Mart in the Chinese market

It is unwise for a brand to get involved in political events and Lotte has left the Chinese market for the same reason. Since entering China in 1994, Lotte has maintained Korea's highest level of global competitiveness in many fields including food, retail, tourism and petrochemicals. According to the investigation, Lotte has invested nearly 60 billion yuan in China for 23 years, covering 24 provinces and municipalities in China. In 2016, Lotte's revenue in China was 3.2 trillion won, more than seven times comparing with 2009. However, Lotte had to leave the Chinese market in 2017 due to political reasons. In 2017, Lotte sold off one of its golf courses to host the THAAD system, which caused protests in China. The THAAD system is a US anti-missile system with a detection radius of 2,000 kilometers, which can cover more than half of China. It has seriously affected China's national security and aroused the anger of the Chinese people. Because of this incident, the Chinese people boycotted buying Lotte products. Lotte, which had been enjoying smooth development, experienced a "cold winter" and its sales performance in China began to decline right away. Although the Korean headquarter has spent 2.1 billion yuan to save the situation, Lotte still lost tens of billions of dollars indirectly.

Dolce & Gabbana lost its Chinese market because of disrespectful of Chinese culture in their advertisement.

In addition to the political factors, some of the brands are likely to have a direct impact on their brand reputation due to lack of understanding or disrespect of Chinese local culture. It’s impossible to find an individual who like a brand that does not respect the culture of his or her own country. Therefore, the brand should not be too casual in the expression of their brand value, the public expression of a brand should be handled more carefully.

The advertisement video insulted Chinese culture.

In 2017, Dolce & Gabbana's sales of products reached 1.3 billion euros, trebling its profit from the previous year. Exports accounted for 70% of Dolce & Gabbana's sales. The Asia Pacific region accounted for about 30% of sales. China is the brand's largest market in the world. On November 21, 2018, Dolce & Gabbana hosted the "DG Loves China" event in Shanghai, which cost RMB 8 million to set up. Five days before the event, Dolce & Gabbana posted pre-event videos on Instagram and Weibo, paying homage to China in the most creative Dolce & Gabbana style. But instead of being praised, Dolce & Gabbana's tribute video has been criticised in China. The video, in which an Oriental model uses chopsticks to artificially demonstrate how to eat foreign food, and the narration uses "Chinese pronunciation" and arrogant tone, has led many Chinese to question whether the video discriminates against Chinese culture. And at 11 a.m. on the day of the Shanghai show, the popular Chinese social media site Weibo retweeted Dolce & Gabbana founder Stefano Gabbana's insulting remarks about China. Stefano Gabbana called China is a 'physical, dirty, stinking underworld' and said he was not afraid of being published. Stefano Gabbana's words and actions further stoked Chinese anger, forcing Dolce & Gabbana to leave from the Chinese market after its big show was canceled and all the Chinese e-commerce platforms have banned this brand.

China has the largest market in the world, which means that enterprises will gain huge profits if they enter the Chinese market and develop steadily. But China is also one of the fastest changing markets in the world, and competition among companies is so fierce that poor management can lead to heavy losses.

Bershka shop in China

Zara entered the Chinese market in 2007, opening its first store in Hong Kong. In 2011, Zara has increased to 200 stores in China. In 2017, the parent company Inditex, which operates the Zara brand, ranked first in the global apparel market. As the core brand of the company, Zara had a turnover of 25.3 billion euros that year. Clothing stores around the world were impacted obviously by the pandemic in 2020, Bershka, Pull&Bear and Stradivarius (brands in the Inditex group) all closed in China and Inditex group was hit seriously. Bershka, Pull&Bear and Stradivarius have been in China for years, but their impact and consumer acceptance are far lower than other fast fashion brands. One reason is that though the three brands have different styles of clothing, it is difficult to get rid of the plight of homogeneity of clothing, and the quality of these three brands is also defective. ZARA's advantage lies in fast fashion, but Chinese consumers want personalized products rather than homogenized products, which will become ZARA's biggest weakness. In addition, there are also fast fashion brands such as H&M and Uniqlo in the Chinese market. The market competition is very fierce, and Zara's competitive advantage is difficult to play out. To some extent, the closure of Bershka, Pull&Bear and Stradivarius is the proactive choice of Inditex. For Inditex, Zara has always been focusing point of the company, so the investment and attention on other brands is limited, and internal adjustment is needed when the business problems are encountered.

Advertisement of Garnier brand in China

Same as Zara, L 'Oreal has also made an internal brand adjustment, withdrawing its brand Garnier from the Chinese market. Garnier entered China in 2006 and has experienced eight years of growth since it opened its first supermarket showcase at Carrefour in Shanghai. From 2008 to 2011, Garnier enjoyed good development and continued to introduce new products. In the best year, Garnier's turnover exceeded 700 million yuan. In 2014, Garnier was available in supermarkets, department stores and beauty shops in dozens of Chinese cities. But Garnier's unclear position in China has led it to change direction five times in three years, and according to industry estimates, Garnier has lost more than 1 billion yuan in China. Therefore, L 'Oreal took the initiative to pull Garnier out of China and focus the business on L 'Oreal and Maybelline to achieve stronger and more sustainable growth.

Topshop in Hongkong

In December 2016, Topshop, the most famous British high street brand, entered the Chinese market. Like H&M and Zara, Topshop takes fast fashion as its marketing concept. But on November 1, 2018, Topshop decided to pull out of the Chinese market for the time being. Why is that? Originally, although Topshop, as a fast fashion brand, has certain technical capabilities, it cannot compete with Zara, H&M and other fast fashion brands in terms of followers, brand awareness, products and pricing. And when Topshop entered the Chinese market, Zara had been operating in China for more than 10 years, and H&M had been operating in China for nine years. Topshop was far less competitive than Zara and H&M, and finally withdrew from the Chinese market after two years of operation.

Advertisement of Karicare in China

In addition to the above reasons, the brand will also withdraw from China due to the influence of product quality and reputation. Karicare is a milk powder brand owned by French brand Danone. Based on the figures, the sales revenue of Karicare in China reached 3 billion-4 billion yuan at its peak. As Danone's milk powder brand, Karicare has been ranked among the best in the Chinese market. But in 2016, Danone shocked the world by withdrawing Karicare from the Chinese market. Originally, the sales revenue of Danone in China in 2015 was about 10 billion yuan, among which Nutrilon and Aptamil contributed about 7 billion yuan, and Karicare contributed less than 3 billion yuan, which was lower than other brands of Danone. This is because Karicare was once exposed to botox incident in 2013, which also made consumers panic about Karicare milk powder, leading to a decline in sales. As Karicare milk powder was once very popular and enjoyed high popularity in the Chinese market, some businesses or criminals took advantage of the reputation of Karicare milk powder and began to recycle empty cans of Karicare milk powder to make fake milk powder and re-circulate it in the market, which directly impacted the interests of the official Karicare brand. The low quality of fake Karicare milk powder on the market has also affected Karicare's reputation. So in this case, Danone decided to withdraw Karicare from the Chinese market.

Most of those brands have been in the Chinese market for years, making huge profits in China every year and they also take the Chinese market seriously. As a foreign brand company, instead of playing politics tricks or disrespect a nation’s culture, putting effort on providing good service and building good relationship with the consumers and making profit is the fundamental purpose for an enterprise. Moreover, it’s also essential to do enough market research before expanding in a new market. If a brand wants to develop in the Chinese market, localization is the key to test the long-term interests and sustainable development of a brand. Moreover, it is the key to find the right brand positioning in the transformation of a brand. Only the correct brand positioning, good product quality and brand reputation, can attract Chinese consumers.

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