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ChinaFile: Where Clicks Beat Bricks

E-commerce in China is growing at such a quick rate that Chinese retailers are looking to the Internet instead of opening brick-and-mortar stores.

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Who needs a store in China?

Nobody.

Not when e-commerce is taking off the way it has been. According to different sources, e-commerce in China is growing at a rate between 23 and 38 percent a year. And guess what: Nearly 40 percent of the online business is for fashion and accessories, with an estimated volume of 61 billion yuan, or $9.6 billion, for 2012.

If these numbers do not convince you to skip the brick and use the click to reach your customers in China, let me count the hurdles you have to overcome to open a retail shop.

RELATED STORY: Click Here for Last Week's 'ChinaFile' Column >>

To start with, real estate is not cheap in China, especially in upscale malls. If you find the space, decorating the shop to fit your brand image and the requirements of the fire marshal is another challenge. Oh, you don’t want a sprinkler right in your shop window? That’s going to cost you.

Suppose you survive the fire marshals, then customs wants to discuss import tax with you. Good luck arguing with them that your T-shirt is not a luxury item and should not be taxed the 38 percent luxury rate.

Now let’s suppose that you did open the store and your merchandise passed the customs inspection just fine. Let’s talk about hiring employees. First of all, benefits are a whopping 46 percent of salary, and you, as the employer, have to pay it all. The legally allowed “trainee” period is two months and after that they are your official employees. Once there is a contract, there is virtually no way you can fire an employee, short of him or her getting arrested and jailed. After three years, even if you do not renew their employment contract, you have to pay a severance.

I can go on and on — how expensive it is to hire a proper p.r. company to do your parties; how impossible it is to calculate your cpm (cost per mille, or thousand views) on your advertising; how incredibly difficult to keep your staff even though you cannot fire them. The list is infinite. And if you find someone to open stores for you, how sure are you that the brand image is strictly followed and there are no fakes mixed in with the real merchandise?

The Internet does help you alleviate some of the pain of operating retail in China. However, there are different approaches there as well: You can simply add Chinese language and a shipping destination to your current Web site. Most Web sites selling to China state clearly that Chinese taxes, if any, are borne by the buyer. I have been buying books from Amazon for the past five years and was charged only once for tax. Apparently, tax on packages is a random thing. But when it hits you, it hits hard.

Another possibility is to do a China-specific site, although this seems redundant if you are already selling on the Web. Adding Chinese is a much better option. An offshore Chinese site might help you skip all the hassle of a physical store, but you still have to do a bit of marketing to attract traffic to your site. Now, that’s a whole book in itself. It’s complicated and probably expensive, too.

The other option is to open your store on Tianmao.cn, the great branded mall opened by Taobao, the originator of the Chinese e-commerce boom. In its original form, anyone could open a store and Taobao was known for cheap, but not quality. In order to attract brands to the platform, Taobao has built Tianmao.com, a mall for vetted brands, not just anyone. The site has a strong marketing presence but mostly plays host to local Chinese brands, with the exception of Uniqlo.

So if China is really a market you want, it’s truly only a click away.

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