Fnac -- It Is Time To Arrive In China Or Not?

Since WTO, China has opened it cultural market gradually, and at the same time the Chinese customers have been ready to experience a revolution in their purchasing of books, CDs, DVDS, etc. Earlier years the big success of the international supermarket chain come to China and changed the way the Chinese families’ buying their daily life products, and the overall national growth of wealth also enable them to pay more for their mental consumption. It is a good opportunity for the foreign advanced companies who are experienced enough to begin their business in China, but who is the one that can seize the resources at the first time?

I. Expenditure trend

Year 2002 2005 2010 2030 2050

Expenditure (Billion RMB) 6318 7861 10566 35613 109024

Growth 2002 - 2005 20%

Growth 2005 - 2010 34%

Growth 2010 - 2030 237%

Growth 2030 - 2050 206%

(Table 1. the expenditure growth from 2002 to 2050)

The total value of consumer expenditure grew by 20% through the year 2002 and 2005, which continued to experience a higher growth in the future.

The Engel coefficient also tells us that by the year of 2010, this number will decrease till 30% while a further drop of 25% will be realized by the year of 2020. The Chinese consumers are tending to pay more for the non-food products in their daily lives with the increase of their income and wealth.

These figures point to a strong growth in the cultural products including books, CDs, DVDs and other kinds of recreation and leisure product, due to the Chinese are at the same time paying more and more attention to the importance of education and they have changed their social value and lifestyles which emphasized more on the aspect of leisure and their pursuit of high quality of life.

II. The domestic bookstore industry вЂ" Competition from the local and international players

China is predicted to be the biggest book market that is under-developed, and according to a report by the CIPS (a Chinese institution who makes research in the domestic book market), 56.1% of the Chinese still go to the bookstores to choose their products, and the big market is predicted to grow in the average rate of 10% in this land. But this market is still in its quick growth stage and it is not quite good in some aspects.

Overall, the book retailing industry in China has a lot of drawbacks:

The long term inefficiency of the allocation of resources under the public regulated market, together with the high restriction, the local protection and the monopoly has been a bottleneck of the development of this industry. The demand supply relationship is ignored to a large extend, which makes a lot of consumers can not buy the books they want, while at the same time the bookstores are worrying about the overstock of certain books.

The price of the products is charged under a normal extend, selling one book makes the retailer only get 26 RMB averagely; but at the same time, the management expenditure consume a large part of the 30% gross profit, big size, convenience location, too many working staff, and the book supply does not fit the book demand, etc. these also makes the efficiency of the working capital, and the low inventory turnover become impossible. While compared with the countries who have well-organized book retailing markets, the gross profit in often over 45%, which can reach 55%.

Year Sales revenues (billion RMB) Growth (%) Share of the total sales in the industry

2001 7.007 18.06 17.15

2002 7.803 11.36 17.94

2003 9.068 16.21 19.64

2004 9.808 8.16 20.18

2005 5.899 -39.86 11.96

(Table 2. sales revenue of XINHUA Bookstore - public owned bookstore)

-- Bookdirects

Bookdirects comes to China early in 1995 for they have seen the big potential of this market, but at that time, this market is still under strict control of the Chinese government, so they could only use the form of reader club to build their brand. Until now, they have owned a customer base of 1.5 million members and they already take the first step since this market was opened 5 years ago, they have already built the stores with the cooperation of Carrefour in order to expanding their influence and customer base. The biggest advantage for them is their individual customer service and the convenience that they have created for the customers in providing various ways to paying and their fully thought for the Chinese customers.

-- JOJO AMAZON

In the year 2004, AMAZON has purchased www.zhuoyue.com in 75 million dollars in Shanghai, and with the huge financial strength of AMAZON, and their innovative concept and full service, JOJO has grow up as a strong player in very short time. They also establish a network and relationship with the influential publishers and famous writers, so that they could provide a unique service required by the individual readers by combing the strength and existing influence of these big entities.

-- Dangdang

The largest online bookshop in China, and the largest book retailer, in the year of 2007 Dangdang has increased their sales by more than 100 percent.

The strong and wide cover of the network of book retailing and the price advantage makes them outperform in this redefined industry. Flooded with rushing flood of special price books, attracting the customers by recommendation book list and convince them to pay by the w-o-m power of the experienced customers enable them to be the number one seller, while together with the adoption of selling online saves them a big investment in psychical stores, coming out with various channels of generating income also is a big advantage for them to keep their position in the poorly developed industry.

Dangdang keeps adding more than 100 new books or audio-video products everyday, at the same time, the special price books of only 1,2,3,5 RMB (1 euro = 11 RMB)

Generic strategies

Lower

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