Tianjin is key to drugstore chain Watson’s mainland China ambitions, says the company’s mainland boss, Christian Notthaft in an exclusive BT interview
Few industries have benefited from increased Chinese spending power as much as the cosmetics and personal care business. Also, few retailers have been as prepared to cash in on that growth as much as health and beauty products retailer Watsons, a Hong Kong-based retailer which plans to have 3000 stores in the mainland by 2016 with more than a dozen of them in Tianjin.
The city has been a guinea pig for the firm as it expands beyond tested ground, like Beijing and Shanghai, into regional cities. Watson’s in 2009 claimed to have broken new ground in opening a ‘concept store’ in Tianjin International Shopping Mall, with the addition of a new perfume centre and an ‘experience area’ allowing locals to try and buy international perfume brands such as Burberry, Paul Smith, and Nina Ricci. It has since reverted back to the traditional store format, but today, aside from aisles of mass-market personal hygiene products, there’s over two dozen cosmetics counters in the store staffed by dedicated sales staff telling customers how and what to apply.
The retail arm of Hong Kong conglomerate Hutchison Whampoa Ltd, the AS Watson Group runs over 9,700 stores in 33 countries. The firm’s mainland China boss, Christian Notthaft, says in addition to network expansion, the company will also focus on store-by-store profitability while staying ahead of market trends through research and membership cards .
A Watson’s press office release says the firm is “…committed to offer various products to meet consumers’ diversified needs and lifestyles to help our customers enjoy their life more by making a bigger positive difference to their health, looks, and the way they feel; making sure they are always having fun, looking good, and feeling great.”
That translates as: the firm hopes to stay ahead of rivals like Manning’s by opening 2,000 new stores by 2015 in mainland provinces like Fujian, Zhejiang, Anhui, Liaoning, Heilongjiang and Shaanxi, cities with new manufacturing investment and a high percentage of young people with disposable incomes.
How many a) concept, b) ordinary stores do you have in China? Do concept stores have a much larger floor space?
The Tianjin Store is one of Watson's China standard store formats. We will still keep our standard store format in the future, since the shopping environment is familiar to customer. The store format is distinguished by shopping environment and style, not just store space.
What kind of training are you offering staff or customers? Will customers for instance get advice on applying make-up?
We invest large amounts of resources in staff training. Our 'Retail Academy' and 'Fast Track' programs bring more opportunity to our staff. So far there have been more than 10,000 staff who have joined the 'Retail Academy' and more than 1,000 staff have trained in Fast Track while accumulating 3000 training hours. For sure, customers can get advice and assistance on applying make-up when customers come to a Watsons store.
You have said your expansion will not be affected by the current global economic situation. You have also promised to open 12 new stores in Tianjin, in addition to your six existing stores. Which city do you have the most stores in (in China and internationally)?
In China, Watsons has the most stores in Beijing, Shanghai and Guangzhou. Now that we have achieved our goal of 1000 stores in 100 cities we want to expand our store count to 3,000 by 2016. Besides tier one cities, we would go deeper into other key cities.
You are already in 150 Chinese cities, and you’ve said you’ve found good markets in smaller cities. Isn't price an issue in the fourth, fifth tier? What are the other challenges (I imagine logistics is one?)
According to our daily operations, there is no distinct consumption gap between different tier cities. Specially, with the development of China’s economy, non-Tier 1 cities show delightful growth. Watsons China will enlarge the market share in these districts, so that our business will be larger in the future.
You have previously attributed the rapid expansion to the company's ‘strong foundations, flexible business model, knowledge of changing customer needs and good infrastructure.’ What's so flexible about your business model? Isn’t everyone else's knowledge of customer needs also strong?
Our business model is confidential, and we appreciate your understanding. However as mentioned, we invest large amounts of resources in staff training. Our staff has a profound marketing insight; therefore, we can fulfill customers’ needs.
Are your stores all wholly owned or some are franchised? Will you franchise in future?
At this stage, Watsons China has no plan for a franchise model, and we will manage our stores directly. As a leading personal needs store in mainland China, we project continued growth in coming years. We have plans to open over 3000 stores in more than 300 mainland cities by 2016, while focusing on store development in small cities in order to bring more products to more customers.
You claim to serve more than 3 million customers in the mainland every week, to whom you’ve issued more than 20 million membership cards. How useful have the membership cards been in driving business? Would your sales be as good without the membership card?
Without a doubt, Membership Card Development is our key strategy. We customise personal service for our members by SMS, e-DM and special promotional e-mail. Moreover, we arrange different member activities. Our membership system could share product information and fashion news with our members that will enhance member’s emotional bonding with the Watson’s brand.
Is it useful to be part of a bigger conglomerate (Hutchinson Whampoa) with real estate interests? Does this help you get good locations for instance?
There are more than 100 employees in the property departments of different cities throughout the country, who are trying to find proper sites every day. Also, we have cooperated with many real estate giants who specialise in site selection, property management, and business scale expansion. This enhances our store location selection efficiency.
Your rival Mannings has established more than 200 shops on the Chinese mainland since 2004, according to its official website. Is competition more from international rivals like Mannings or from locals like Gialen?
Watsons China has had a presence in the mainland market since 1989. After 22-years of effort, Watsons opened its 1000th store in Dec; it was an outstanding milestone for Watsons China. Also, we developed our business with strategies to face competition. One is network expansion. We plan to achieve 3000 stores in 300 cities by 2016 to deeply extend our network even though we have realised the goal of “1000 stores in 100 cities”. We have our own Brand Strategy. We provide the latest and most complete selection of personal-care products for our consumers. Watsons not only fills a gap in the market, but also enables consumers to enjoy a comprehensive shopping experience according to their desires.
Few industries have benefited from increased Chinese spending power as much as the cosmetics and personal care business. Also, few retailers have been as prepared to cash in on that growth as much as health and beauty products retailer Watsons, a Hong Kong-based retailer which plans to have 3000 stores in the mainland by 2016 with more than a dozen of them in Tianjin. 
You have said your expansion will not be affected by the current global economic situation. You have also promised to open 12 new stores in Tianjin, in addition to your six existing stores. Which city do you have the most stores in (in China and internationally)?
