I have read dozens of post-mortems on Barbie’s recent closure in China, but none have resonated like the one I just read, entitled, “Shanghai Barbie Undressed: What’s to blame, consumer preferences or strategy” [link no longer exists]. This one resonated with me because (as far as I know) this is the only one by a true expert in China retail. The post was written by Renee Hartman, who started and then sold one of China’s leading retail consultancies, Enovate and who also started and successfully ran Eno, a China-based retail clothing store chain in China that was named one of the Top Ten Most Innovative companies in China in 2010 by Fast Company Magazine. I know it wrong to base the validity of an article on the writer of the article, but because I am not expert on China retail, I have little choice.

Ms. Hartman attributes the downfall of the Barbie store not to any inherent lack of interest in Barbie by China’s youth, but to strategic mistakes:

The problem was that Mattel didn’t have a strategy for making money in the China retail market. They didn’t have plans for small retail stores, were not seeking out franchise customers to expand the Barbie brand throughout China, and did not have a coherent merchandising and store concept strategy that would have enabled them to expand nationally throughout China. I believe that this lack of scale and a long-term retail business model for China created most of their problems that led to the closure of the store. Some of these problems included:

Merchandising issues: Because the Shanghai Barbie store was the first of its kind for Barbie worldwide, they had to piece together the merchandising in the store from various global lines from all types of retail outlets. Many of the products had to be imported into China – resulting in high prices from import duties and VAT taxes. And since they only had one store, they didn’t have the scale necessary to build a line dedicated to China. In the end, they had an unfocused, mismatched, expensive collection that didn’t directly address Chinese consumer preferences or needs.

Location: Running a street front store in Shanghai is challenging – even on a high profile street like Huaihai lu. Foot traffic is difficult to rely on, as most consumers hit the mall when they are doing serious shopping. Although the rent at the Barbie store must have been steep, I am sure it wasn’t as expensive as some smaller stores at the high profile malls in Shanghai – its just that the location didn’t generate the numbers or the “active shoppers” that it needed to justify the rent.

The downfall of the “experience” store: Experience stores have worked in the US, Japan and other markets, but I have yet to see an experience store work in China. Somehow cafes, spas, hair salons and other activities just don’t mix with retail in China (at least for now). I would attribute the reason for this to two factors: 1.) It’s hard enough to run quality retail in China. Adding running an F&B or service business, and things start to go downhill quickly 2.) Consumer shopping preferences in China are extremely difficult to change. Shoppers are used to going to specific streets or shopping areas for certain items – mixing categories just doesn’t seem to work that well.

Ms. Hartman sees Barbie (the dolls) having a real future in China:

I believe that the Barbie brand does resonate with Chinese consumers. I remember when the store opened, I was surprised how many grown women (and men) were going gaga over Barbie. One of my colleagues explained it well. She said that she never got to fully experience her childhood (she was in her late 20s), and this was her chance to have the childhood experiences she craved when she was young. These consumers have their own children now, and want to shower them with the experiences they never had, and even have these experiences together. These are powerful consumer insights to tap into, and ones that are perfect for the Barbie brand. I believe that the Barbie brand can still do well in China – it just needs a new strategy.

I have a fascination with Chinese retail because it has always struck me as hit or miss. Or to put it another way, I am always surprised by what foreign goods succeed and fail there.

What do you think?

  • Dan.
    A lot of speculation on this, and Renee makes some good points, and in some sense I think Barbie may have pulled out too soon. The market needed time to stew.
    Ultimately their cost structure was too high for that though, which was in a word HUGE.
    At the time they signed the lease, rents on adjacent buildings were in the 3.5 ~ 5 USD / m2/ day, and while I don’t have the number on me right now, that building was on the high end of that range (if not higher)…. which is only one part of the equation as on top of the rent is the cost of fitting out the space, which, I would estimate to be in the 750,000 – 1,000,000 range, depending on their equipment investments (HVAC, elevators, etc)
    Barbie entered at a time that leads me to believe they were pushed to ride the China wave.. or somehow position themselves for the tipping point where China’s domestic spend kicked in. They simply overestimated the market’s need for another flagship (at this time) or thought that they could use this as a footprint to smaller stores but ran out of leash… and I think Renee’s post highlights that well.
    All in all, they should have started in Tokyo or HK first, and then come into China… but then again, perhaps that strategy just wasn’t sellable 5-6 years ago when the board stamped the plan.
    R

  • I have a Barbie store since October 2006 and I’m not yet what we can call an ‘expert’ on Barbie. But when Shangai Store opened, my first thought was: ‘Why in Shangai? Will it work there? Shouldn’t it open in a major american city, like Los Angeles or New York?’
    Looks like my instincts were right, even though I’m not an expert on markets and trades…

  • I have a Barbie store since October 2006 and I’m not yet what we can call an ‘expert’ on Barbie. But when Shangai Store opened, my first thought was: ‘Why in Shangai? Will it work there? Shouldn’t it open in a major american city, like Los Angeles or New York?’
    Looks like my instincts were right, even though I’m not an expert on markets and trades…

  • Enoch Yiu

    So we’re told that we should despise those non-economists who in the process of understanding China will occassionally comment on the subject, yet on the other hand, read comments on retail from a law blog admitedly not qualified to do so. Apparently hipocracy and double standards are rife online as concerns blog China business literature.

  • Tiu Fu Fong

    Who is telling you to despite the non-economists, Enoch? In any case, the comments on retail appear in a law blog but are quoted from Renee Hartman, who – as the post makes clear – is eminently qualified to comment on the matter. Where exactly is the hypocrisy?
    That aside, great views in this post and I also very much appreciated the second link at the end to Renee’s earlier guest post.

  • James Page

    There seems to be a lot of lessons there for the retail industry in general, not just in China. With retail jobs being so important to the UK economy at the moment it’s clear that there are more than a few retailers here that can learn lessons from Barbie’s experience in China.