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71
lessons, showing them how to use a drill, for instance, and even teaching
children the mysteries of self-assembly furniture.
Even if B&Q succeeds in changing how people shop, it must
also change its supply chain. In a low-margin industry like retailing,
efficient suppliers are the key to success. However in China, getting
goods into stores is expensive and costly, says David Inglis, head of
operations for B&Q China. The company's gross margins in China are
half of those of its international division, and the group will not break
even (excluding pre-opening costs) until 2005 on an investment of
$120m and rising. China's huge size and enormous regional variations
mean retailers struggle to establish a national infrastructure, let alone a
national brand. Laminated wood, for example, cannot survive
Shenzhen's humid summers while the aquariums popular in the south-
ern city freeze over during a Beijing winter. "It's like operating in dif-
ferent countries," adds Mr Inglis.
As a result, even the biggest retailers remain in thrall to regional
manufacturers – and their middlemen – which raises costs. B&Q has
600 vendors supplying its 350 British stores but 1 800 for 15 Chinese
ones. Even worse, these middlemen cut deals behind retailers' backs.
Even on the shop floor, vendor representatives routinely offer custom-
ers "special" prices. Mr Gilman is concerned: "This is a state-controlled
economy. Price fixing is endemic. Retailers are at the bottom of the
food chain in China. They have far less power than manufacturers. It is
the opposite of the rest of the world."
B&Q is heroically trying to change how its suppliers operate.
From next year it plans to open regional warehouses and to buy directly
from manufacturers. It also wants to turn suppliers into partners. Nip-
pon Paint makes B&Q own-label paint, which earns a margin of over
20% for the retailer, compared with 6% for an independent brand. But
even as market leader B&Q is still not yet big enough to matter in such
a vast market. Even if it were, foreign, retailers are treated inequitably.
They pay sales tax which tiny stores have the guanxi, (connections) to
avoid. They are frequently offered only the poorest sites – B&Q had to
build its new Shenzhen store under a residential tower block, for exam-
ple. Nor does cheap labour compensate. While staff costs in China are
a third of those in Britain, B&Q needs twice as many people per store
to meet the greater service levels expected.
72
Even if foreign retailers can make China's retail industry effi-
cient, shoppers will not readily trust their promises. In Shenzhen and
Shanghai, China's most western cities, customers in B&Q
still try to
haggle over price. And even Ms Yuan, the customer in the new
Shenzhen store, walked out empty handed. "I need to check the prices
of the local specialists down the road," she explained.
lessons, showing them how to use a drill, for instance, and even teaching Even if foreign retailers can make China's retail industry effi-
children the mysteries of self-assembly furniture. cient, shoppers will not readily trust their promises. In Shenzhen and
Even if B&Q succeeds in changing how people shop, it must Shanghai, China's most western cities, customers in B&Q still try to
also change its supply chain. In a low-margin industry like retailing, haggle over price. And even Ms Yuan, the customer in the new
efficient suppliers are the key to success. However in China, getting Shenzhen store, walked out empty handed. "I need to check the prices
goods into stores is expensive and costly, says David Inglis, head of of the local specialists down the road," she explained.
operations for B&Q China. The company's gross margins in China are
half of those of its international division, and the group will not break
even (excluding pre-opening costs) until 2005 on an investment of
$120m and rising. China's huge size and enormous regional variations
mean retailers struggle to establish a national infrastructure, let alone a
national brand. Laminated wood, for example, cannot survive
Shenzhen's humid summers while the aquariums popular in the south-
ern city freeze over during a Beijing winter. "It's like operating in dif-
ferent countries," adds Mr Inglis.
As a result, even the biggest retailers remain in thrall to regional
manufacturers – and their middlemen – which raises costs. B&Q has
600 vendors supplying its 350 British stores but 1 800 for 15 Chinese
ones. Even worse, these middlemen cut deals behind retailers' backs.
Even on the shop floor, vendor representatives routinely offer custom-
ers "special" prices. Mr Gilman is concerned: "This is a state-controlled
economy. Price fixing is endemic. Retailers are at the bottom of the
food chain in China. They have far less power than manufacturers. It is
the opposite of the rest of the world."
B&Q is heroically trying to change how its suppliers operate.
From next year it plans to open regional warehouses and to buy directly
from manufacturers. It also wants to turn suppliers into partners. Nip-
pon Paint makes B&Q own-label paint, which earns a margin of over
20% for the retailer, compared with 6% for an independent brand. But
even as market leader B&Q is still not yet big enough to matter in such
a vast market. Even if it were, foreign, retailers are treated inequitably.
They pay sales tax which tiny stores have the guanxi, (connections) to
avoid. They are frequently offered only the poorest sites – B&Q had to
build its new Shenzhen store under a residential tower block, for exam-
ple. Nor does cheap labour compensate. While staff costs in China are
a third of those in Britain, B&Q needs twice as many people per store
to meet the greater service levels expected.
71 72
