Chinese Economy and Lane Crawford
One of the biggest retailing stores in Hong Kong China is Lane Crawford. Lane Crawford specializes in luxury goods such as designer labels. This company sells luxury products to Hong Kong, mainland China as well as online. The company has been in operation for around 164 years after being founded by two entrepreneurs by the name of Ninian Crawford and Thomas Ash Lane, in the mid-1850s. Despite having started in a bamboo booth, this retail shop has developed to deploy around 10 ultra-modern retail outlets, with the floor space of around 600,000 square feet. It now has the points of sales in the various cities across China, such as Chengdu, Beijing, Shanghai and Hong Kong.
As it can be seen in the history of Lane Crawford, it has been a firm that has been very ambitious and has grown from very humble beginnings to a mega luxurious store as it is today. This development has been occasioned and influenced by both the internal and the external factors. The pre-requisites in the economy, as well as economic times, have influenced the growth of this firm both to the positive and negative extent (Adler 27).
Despite its dominance in Hong Kong, Lane Crawford has been unable to dominate the mainland China market for a long time: the first entry of this firm to Shanghai was in the year 2005. The firm left shanghai in the year 2007 due to various reasons. Some of these reasons are economic while others are internal to the firm. The president of this company, Mr. Andrew Keith, was quoted saying that the reasons for their expansion to the market in Shanghai, in the year 2007, were space limitation coupled with the need for brand consistency in the market. Mr.Keith said that their partner then was not very fit to represent Lane Crawford as a brand on the consistent grounds.
Although space limitation and brand consistency could have been the reasons for closure of Lane Crawford in the city of Shanghai, the main reason for this closure was the state of the economy back at those times. The Chinese economy has been undergoing immense changes in the recent past. Its growth has been astounding in the recent past. China has seen an average of 10% growth in the nominal GDP in the last 30 years. This is a very high expansion rate. China is the fastest growing large economy in the world. Additionally, it is the greatest manufacturing economy in the world. Between the year 2005 and the year 2013, this economy has experienced immense growth in the nominal GDP.
Economic growth brings with it some social, political and demographic changes. This is also true for the purchasing power as well as consumer habits and preferences. Years ago, Lane Crawford stores in Hong Kong served Chinese and other tourists across the word. This is because purchasing power of the Chinese people could not warrant opening of the Lane Crawford outlet in the mainland China. For this reason, this firm operated its stores in Hong Kong where the cost of doing business is low while targeting the affluent society from the mainland China.
However, this firm attempted to start an outlet store in Shanghai in the last decade. The store that was in Shanghai at Time Square was later closed, in the year 2007. This failure was brought about by the nature of the Chinese economy at that time, when the economy was relatively poor – unlike it is now. There was not enough money for people to purchase luxurious goods. The class of people who were economically well-off to afford luxurious brands sold by Lane Crawford could not sustain the outlet at the China’s Shanghai Time Square. However, with a consistent double digit growth that has been experienced in the Chinese economy in the last decades, it means that the consumer’s disposable income has been continuously on the rise. This has greatly increased the consumers’ purchasing power and hence their demand for luxurious items. The bold dynamics has been expressed by Mr. Keithstatement’s saying that the branch in Chengdu is performing beyond their expectations.
There are a number of factors that favored Lane Crawford’s re-entry into the mainland China. The most important of these factors is the economic advancement of China (Catalogue of Chinese Ceramics and Jade Carvings 17). Unlike in the last decades, the number of Chinese people who can afford luxury brands has greatly increased. Moreover, their purchasing power has followed suit. A recent survey shows that the clientele that buys products from Lane Crawford outlets are also frequent buyers at other luxury shops across the globe. In other words, there arose a need for a supplier of luxurious brands in the recent past in China. This meant that an entrepreneur had to come in and satisfy this need while reciprocally raising his business’s profit. For the above reason, it was perfectly timely and convenient for this firm to reenter the mainland China market as the products were readily affordable by high and medium end consumers.
The reason for the earlier failure of Lane Crawford to succeed in the mainland China market back in the year 2007 was poor timing on the firm’s side. On the other hand, the economic time was not suitable for such a move. At that time, the Chinese economy was predominantly a manufacturing economy with less money to be spent on luxury. A large number of the population was in the middle lower class and could only spend their income on basics or commodity products. At this time, the high end consumers were still few to support luxury stores in expensive cities. In the year 2007, the nominal GDP of the Chinese economy was lower than 4 trillion US dollars. The people’s purchasing power was far lower that it is today. This is evident by the raise in growth rate to above 11% towards the year 2011. This economy has experienced immense growth such that it is projected that the GDP in the net year (year 2015) will tend to reach close to 9.5 trillion US dollars. This means that the purchasing power of the people is now high. Additionally, there is a rising number of people in the top class. This means there are higher end consumers now than ever. In other words, stalls for luxurious goods could not have thrived in the mainland China due to high operational cost and minimal returns. The minimal returns were occasioned by low spending power among buyers and also limited buyers in the high-end.
However, it is important to note that such a store did thrive in the island of Hong Kong. The explanation to this is that the costs of operating such stores in Hong Kong are cheap, that is the labor, space and energy is relatively cheap. It is important to note that a few high-end consumers from the mainland China could afford travelling to Hong Kong to buy such products. Moreover, high end tourist from the mainland China as well as across the globe could visit Hong Kong and afford such luxurious brands, thus making the Lane and Crawford company thriving in Hong Kong while being unable to penetrate the market in the mainland.
Analysis of the Chinese economy in the year 2007 and 2014 shows distinct variations. In the year 2007, the Chinese economy was not as developed as it is now. At present, the Chinese economy is considerably bigger: more factories have been started at various levels; more shipping companies have been developed. Larger ships and vehicles are constructed to ferry more goods to many more destinations in the world. Technological advancement is now at is highest level, which makes the capital productivity of the Chinese economy to be at its all-time highest peak (Armonk 98).
This has translated to more jobs, more income and more personal advancement. Apart from the large ships and sea vessels exporting Chinese goods, China is also importing goods from all over the world. The Chinese economy has now become a very promising market, both at present and in the future. This has been accessioned by increase in consumer income. Such increase creates a higher demand for consumer goods. Additionally, some individuals chose to reinvest their income into the economy rather than using their incomes to purchase consumer goods. This trend expands the economy further, thus leading to even much higher income. In other words, the Chinese economy is projected to triple between the year 2007 and the year 2015. This means that this economy has more than doubled between the year 2007 and the year 2013.
This means that purchasing power has increased at the same rate as the demand for products, and more so, the luxurious products. This means that a firm dealing with luxury products in the mainland China now is more likely to thrive than would have been the case in the year 2007.
Financial analysis refers to the calculation of firmness, feasibility and/or success of a business or a project. This assessment is presented to the top tire management for the purpose of decision making.
For the Lane Crawford Company, the economy of China has more than doubled since the year 2007. This means that any firm that started now has more than 2.5 better chances of survival if the internal mix of factors is handled well. Additionally, the store at Chengdu continues to perform beyond expectation each year. This means that the store in Shanghai has equal or even better chances of survival.
Factors such as high cost of business, and limited income from the consumers are the factors that made Lane Crawford fail in its first entry into China. The returns were minimal due to the fact that the spending power of the Chinese people was low. On the other hand, the purchasing power of the Chinese people is very high at present. Additionally, China has become a very crucial tourism as well as a trade destination in the world. This means that the demand for high end luxurious products is very high. Consequently, any outlet that is set to serve such niches is likely to thrive and grow. Additionally, the prospect of the increase of the same trend is still high. It is expected that the Chinese economy will continue to grow hence raising the consumers’ income. Ultimately, this will boost the purchasing power and solidify China as a market for high end products and luxurious goods and services (Therborn 51).
In conclusion, a business fails or succeeds due to various reasons. Apart from the internal mix of factors that the business has control over, a business has to merely align itself to external factors as there is not much it can do about them. This can be seen in the above scenario where Lane Crawford Company attempted to penetrate the Chinese market in wrong economic times. The result was failure. However, when the same is repeated in better economic times, this firm is likely to succeed and grow.