Chinese Goods and US Prices

"The Chinese supply 78% of the footwear imported into the U.S.; 71% of the ties; 55% of the gloves; roughly 50% of the dresses and baby clothing; and 90% of house slippers, according to Commerce Department data."

The article in Wall Street Journal this morning here. The following chart highlights the trend:



The article ends with a quote from Bernard Leifer, chief executive of SG Footwear:

""There's been a shift in who is holding the cards," Mr. Leifer says. "It used to be that the retailers would demand lower prices. Vendors like us would demand lower prices from the factories. And the factories would generally acquiesce. The whole thing has now flipped. The bottom line is the American consumer is going to end up paying more.""

A New Way For Analytics

A good friend, executive at a large analytics company, asked me how I would articulate the next product in the space. Here is my attempt:

New markets require new analytics products that begin in a new fashion.

A generic and current example would be: We can dissect the consumer population into demographics (have schema), and run campaigns on them (poor distributions, hitting same consumer with many, at times conflicting messages).

New approach... Let's define the demographic we seek, and develop the application around understanding it.

For example, there is no analytics application that comprehends the Muslim Consumer in-depth. The new application has to be incremental in learning, i.e. it never stops learning; it has to comprehend the unseen, i.e. it is schema free, hence, leading to intuitive outcomes; it has to be real-time i.e. no more running the models for days to get an answer; it has to be built upon existing infrastructure i.e. it does not throw away the clients current spending on IT; it has to provide the unification of statistics and semantics i.e. no arm twisting to "try" to make "sense".

There is no such application in the market currently. Such a proposition is where insights into products for families living below $2/day can come from. This is where the analytics engine begins to develop a “memory” of the entity, may it be a consumer or a automotive.

This is NOT aspirational, this IS the “Near Tomorrow” (Copyright 2011 The RBR Group).

The execution requires for example for CPG/FMCG: (1) Understanding a client's goal for new market entry, (2) developing the ideal consumer (no, not digging within the existing, looking back at the past data, it was yesterday), (3) searching for the ideal consumer, (4) begin to consume all data on the closest matches in the method defined above, i.e. schema free, incremental, with statistic and semantic unification.

This delivers the consumer’s unstated needs, where the value is the highest for a product that fulfills it. Example, the consumer had no clue they wanted an iPhone. Keypads, smaller and smaller were fine too!

For the 21st century, analytics is the when predictive goes to forecasting to deterministic.

For a thought provoking look at engine technology that delivers the above, see Saffron Technology.

Naomi Klein on NPR

In the "On Point" program on NPR Tom Ashbrook talks to Naomi Klein, listen here.  Watch Naomi on Comedy Central here.

Shoppers Reality at the Shelf

Having been the Architecture Leader at Procter & Gamble on the shopper and consumer virtualization platforms, I am thrilled to see that the statistics still hold true when you and I stand in front of the shelf to make the buy or not to buy decision.  My work was covered in AG Lafley's book "Game Changer" blogged here by friend and colleague Franz Dill.  Franz was instrumental in setting up the P&G Innovation Centers, now enabling P&G to be the leader in shopper and consumer insights to impact product development at the concept stage:

"In the Bases research, the biggest driver of new-product awareness in store was simply seeing the product on the shelf -- accounting for product awareness in 71% of cases where people cited the store. All the other tools marketers and retailers use to drive in-store awareness -- including off-shelf displays, retailer circulars, product demos, in-store media and samples, accounted for awareness in only 2% to 18% of those cases. In-store media and product demos both scored in the low single digits. That helps drive home the importance of packaging and signage, Mr. Twitty said."

States the article "This Upfront, P&G May Want to Boost Spend on Piggly Wiggly" here. 

Though AdAge's graph here from Nielsen showcases the impact of shopper based design, shopper driven marketing communication, shopper based package design, etc. see below a video from the Economist on the impact of TV on the shopper and the consumer.

Consumer Value Shopping Driven Innovation in Retail

Andy Bond, CEO of ASDA talks with the Economist about the changes in consumer behavior and how ASDA continues to innovate and grow its revenue.

Chinese Consumer - Market Dynamics in Retail

Good friend and colleague who is a global leader in retail innovation, Mr. Tony Tsai, Chief Executive Officer – BHG Retail Innovation Institute & Executive VP Operations – The BJ Hualian Hypermarket Co. forwards an excellent article from Nielsen called "Changing Market Dynamics in China's Retail Industry".

The article states of the consumer product goods while touching on the fast moving consumer goods:

"The government’s retail statistics show a slowdown in retail sales over the last six months from 22 percent growth year on year in Quarter 3 to 19 percent in December and 15 percent in February. This slowdown is certainly reflected in FMCG as well. When looking through Nielsen data, specifically in the Modern Trade channel, there is a significant slowing from a 13 percent growth in Q4 2008 to two percent in Jan/Feb 09."

Mr. Tsai and I had discussed, interestingly sitting in Dubai a few years back while we were conducting an analysis of Gulf retail markets, how retail growth in emerging regions like Gulf begins with super market arena in tier 1 cities is followed by hyper and mini growth. What I was curious about was what happens with tier 2 and then tier 3, where the consumer desires for the experience of the tier 1 cities and the super markets? Inevitably it is consumer economics driven. As tier 1 cities grow larger and harder to navigate, hyper and mini marts start to provide the essentials of daily consumption while the weekend trips are reserved to the super "stores".

In case of China, Mr. Tsai had shared about 6 months ago that the workers who do not have work in the cities are returning to the tier 2 and tier 3 cities and towns. The Nielsen reports the results of this:

"Lower tier cities, where the spend on food and beverages represent roughly 40 percent of household expenditure, are achieving double digit growth, however the growth is potentially being fueled by the fact that more workers are staying in their hometowns as less job opportunities exist due to factory closures in South China. Another factor could also be that consumers are moving from villages to the towns to do their shopping as well as downgrading to lower priced products."

Also, Mr. Tsai back then highlighted that fluctuations in economics of a rapidly growing region like Gulf will impact consumer behavior, such as brand switching. I felt that bargain hunting may start to play a role in the consumers decisions

The nielsen report validates these predictions for the rapidly growing region like China impacted with economic woes:

"Consumers are changing their purchasing behavior ... with the significant increase in promotional activity, are being ‘trained’ to buy more on promotion. This highlights the importance of price right now with 85 percent of Modern Trade shoppers paying more attention to price promotions."

China Update

Few selected reports from China:

"China's shopping team to sign over 30 deals in the US - a delegation sent by the Ministry of Commerce arrives in the US to explore trade and investment opportunities. The delegation will visit Washington, Chicago and San Francisco on a 10-day trip. The delegation is expected to sign more than 30 deals with American companies."

"China still struggling with over-capacity in some regions - the Ministry of Industry and Information Technology holds a press conference. According to the press conference, China's industrial output grew 5.1% year-on-year in the first quarter of the year. March alone saw a rise of 8.3%. Zhu Hongren, director of the Performance Inspection and Coordination Bureau under the Ministry of Industry and Information Technology (MIIT), says China is still struggling with over-capacity in some regions. In the first quarter, 15 provinces and municipalities posted industrial growth of over 10%. Industrial growth in Central and West China is faster than in East China."

"China bans import of poultry from Kentucky, US - the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) says on its official website that China has suspended all imports of poultry and poultry products from Kentucky, the US after an outbreak of the bird flu was reported at a chicken farm in Kentucky. "

Consumer Insight - Skin Color: White or Tan?

I have been following Philip Martin's "The Color Initiative" (details here) with interest. Two recent podcasts have provided Asian consumer insights of great value.

Traditionally, from the Far East and South East Asia to South Asia and Middle East, white skin color is prized, darker color has been associated with lower cast or class, implication of an individual's socio-economic standing, etc. Interestingly these influences date back not just centuries but millennia.

To highlight this point, in the podcast a Taiwanese 18 year old girl states:

"I try hard to make my skin white, yes. If my skin is lighter, I think I will be more happier."

Philip Martin states of the skin whitening business:

"Across Asia, skin whitening is a growing and lucrative $18 billion dollar industry. Cosmetic companies and dermatologists are scrambling to cash in – pushing whitening creams, ointments, and skin-bleaching treatments."

Listen to the podcast or read the transcript for "Skin whitening big business in Asia" here.

Next Philip Martin provides a contrarian view that the consumer is choosing to act on from within the same region in the podcast "The color of success in Asia" here.

These two podcasts highlight that a tradition within a culture can have long lasting affects. With economic growth and independence, the consumer can choose to shed the burden of tradition in favor of another choice available to them. The Asian consumer is going to be evolving at a fast pace and the traditional CPG companies engaged specifically in beauty-care may need to look upon this business as FMCG.

Prediction - No-nonsense brands will prosper in 2009

In the article "Flight to value" here in The Economist's The World in 2009, it states:

"Any brand built around do-gooding notions of organic, corporate social responsibility, or caring for the environment may need to rethink, ... , as value of money rises up the consumers agenda."

Does that mean the dollar store styled value chains are going to prosper in the USA? The market seems to agree with this conclusion hence giving confirmation to the above article's conclusion - have a look at the Family Dollar Stores, Inc.'s (Ticker FDO) trading price and volume chart here for 2008 and 2009.

What about the luxury brands? The article states:

"Luxury brands are in trouble."

Yet, the following prediction in the article may be the one I would be interested in closely observing:

"... 2009 will see the arrival of big emerging-market brands into the developed world. ... Mahindra, an Indian conglomerate with a strong brand, ... will launch a small, fuel-efficient sport-utility vehicle in America."

I believe value will drive purchase intent, quality and/or brand will trump price in some cases and finally if the economic conditions continue to decline as they are, family budgets will be the final driver on decisions of the above two.

"Succeeding in a Volatile Market: 2018 The Future Value Chain"

A report brought to me by way of my friend and colleague Mr. Anthony Tsai, who currently is CEO – BHG Retail Innovation Institute and EVP Operations – The BJ Hualian Hypermarket Co., published jointly by Global Commerce Initiative, CapGemini, HP and SAP. Mr. Tsai is currently leading the development of Hualian Innovation Center in Beijing, see Mr. Franz Dill's blog on the subject here.

"Succeeding in a Volatile Market: 2018 The Future Value Chain" is report on global trends and a study developing a ten year vision of consumer goods and retail industry. It has a strong focus on Asian markets. It has been presented at the Global CEO Forum where its approach and outcomes found great reception. The report is not published on the internet yet but a similar report "Future of Supply Chain 2016: Serving Consumers in a Sustainable Way" is available for download here.

The highlight of the report for me is the focus in its recommendations on consumer insights - to learn and to know the latent need and satisfy it and to act on consumers concerns quickly, such as environment and sustainability.

A few conclusions from the study regarding CPG / FMCG market place are (1) given the continued economic volatility and environmental concerns, retailers and manufacturers have growth opportunities when focused on meeting the consumer needs better, (2) cooperation and collaboration among partners, retailers and manufacturers can help them face trends that are bound to hit the Asian markets currently faced in other parts of the world. These conclusions may be called obvious, yet one must note that the report was developed with competing manufacturers and retailers sitting side by side in GCI conducted workshops.

I personally liked the study's focus on the Asian low income consumer and tangible ideas put forth on how best to deliver to them products that fulfill their needs with the highest quality and the lowest cost - here is a challenge indeed. Yet, here is the market for pure growth versus value based returns.

Finally, a trends analysis usually is mired in details of what the future may be - this report goes further and provides an examination of, at times with deep scrutiny, the on-the-ground implications to consumers, retailers and manufacturers of the said trends.

Olfactory Route to the Consumer's Heart

The Economist predicts that in 2009 the world will see the sense of smell integrated into the browsing and buying experiences for consumers. See the article "Led by the Nose" here. The article quotes:

"Simon Harrop, chief executive of BRAND sense agency, reckons the power of scents comes from their close association with emotion and memory. Get the smell right and you can bypass rational thought."

I believe perhaps for the first time purchase the average buyer "may" go for an evaluation that involves obvious or discrete methods of olfactory indulgence (or insurgency) yet the mainstream consumer, for example a mother does not on average have the time for extrapolation or exploration unless it comes in the form of a free trial, coupon, etc. and is usually a repeat buyer of tried and proven products.

The article ends with:

"But retailers and their marketers are treading a path full of pitfalls. What are the ethics, for instance, of enticing obese people to buy snacks by wafting the smell of popcorn at them?"

Procter & Gamble - "Innovate How We Innovate"

See Franz Dill's blog on Procter & Gamble's CEO - A. G. Lafley's video on Innovation here.