Entering the Asian retail market. An increasingly challenging exercise

Feb 01, 2023

The global economy has been unpredictable and volatile, with events like the commercial war between China and the US, the Covid-19 pandemic, and the recent conflict between Russia and Ukraine all affecting the retail industry.

Despite the difficulties, the Asia-Pacific market remains a beacon of hope for retailers. However, the landscape of this market has changed dramatically in the last three years, making it increasingly challenging for new entrants. The Covid-19 pandemic, for instance, has fueled an e-commerce boom in China, leading to a rush of brands eager to tap into the market. However, this was more of an illusion than a real chance to tap into a booming market, as the pandemic has also raised the bar and made it harder to enter Asian markets. Meanwhile, countries like Korea have emerged as strong alternatives to Japan and China, while other markets such as Thailand and the Philippines are evolving into mature consumption markets. In a typical Asian way, even during the Covid Asian cities have changed their skyline, and new retail has been added. HCMC or Jakarta are a pale resemblance in 2023 as compared to 2019.

In this challenging and yet changing environment, most international brands still plan to enter Asia through a distributor or a local investor. Yet, distributors, notably those focused on pure retail, i.e. monobrand retail, are decreasing in numbers and quality. This has happened because the costs of retail or, better to say, omnichannel retail, have skyrocketed, reducing appetite for new “acquisitions”. Secondly, Asian distributors usually prefer long-term trusted relationships and do not fit well in the corporate world of management turn-overs and ownership take-overs that concerns the majority of brands nowadays. Finally, local brands are starting to grow, notably in China, a new factor that is shifting investors’ interest from international to domestic brands.

Therefore, international new entrants need to change their approach to Asia and be ready to make investments in the market, by supporting the distributors and sharing with them start-up capex and marketing investments. Alternatively, they should plan direct investment and set up their teams or consultants on the ground.

 The old approach, whereby the distributor would fully take care of the business in the market, limiting the risk for the brand to the minimum, is long gone. The last three years, far from opening up the market, have further reduced its access and increased the challenges for new entrants. In a nutshell, the longer a brand waits, the more expensive it gets to come to Asia.

Reach out to us if you wish to discuss your expansion strategy at info@texereadvisors.com

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