Yesterday’s clash between Nike, H&M and China is a word of warning for other global brands attempting to enter the region, a retail analyst suggested. It is imperative that businesses tread carefully to avoid becoming casualties of political and social tensions in order to operate successfully across the country.
“The key has always been to operate very politically to ensure that you do not upset either sets of customers,” said Philip Wiggenraad, a retail expert who has been providing insights on retail strategy and consumer trends that focus on Europe and Asia for close to 15 years.
“This highlights the challenges that Western brands and retailers face when they operate in China.”
Foreign retail brands came under fire in China on Thursday in the wake of social media posts that took offense to an H&M statement posted in September last year airing concerns relating to alleged Xinjiang human rights issues.
The European Union, United States, Britain and Canada imposed sanctions on officials in the western region of Xinjiang, China earlier this week.
The global community accused China’s senior officials in the north-west region of committing human rights violations against the Uighur Muslim minority in the Xinjiang autonomous region. The sanctions included travel bans and asset freezes.
China denied the accusations and earlier this week hit back with retaliatory sanctions on European lawmakers, academics and institutions.
It comes as a warning to international brands that are often keen to tap into the Chinese market, but must take into account sentiments regarding human rights from consumers back in their home markets.
“This case (brands being criticised in China for putting up statements which relate to sensitive human rights issues) highlights that if you are going to do business in China, you will be doing business on China’s terms. It can be incredibly easy to lose goodwill,” Wiggenraad said.
Retail giants caught in the middle
Retail giants like H&M and Nike and other big Western apparel brands were caught in the middle of the escalating tension with their businesses facing boycotts in China following the announcement of the Western sanctions because of the stand the companies have taken on the issue.
“The H&M comments were actually made last year,” Wiggenraad said. “All of a sudden they have been dug up by Chinese netizens at a time of great political tension. So I don’t think H&M ever imagined that this would blow up like this.”
Both H&M and Nike have issued separate announcements stating their concern about reports that Uighurs were being forced to pick cotton in Xinjiang. H&M then posted in September last year that it is ending its relationship with a Chinese yarn producer over this issue.
Their statements have resurfaced sparked by a recent social media post by the Communist Youth League, a Chinese Communist Party group.
“Spreading rumours to boycott Xinjiang cotton, while also wanting to make money in China? Wishful thinking!” it said on China’s social media platform Weibo on Wednesday and shared screenshots of H&M’s statement.
H&M’s media team said it doesn’t have any comments to release regarding this issue at this time.
Implications on retailers
Wiggenraad said given that non-China sales still account for the vast majority of Nike and H&M’s global turnover, it would stand to reason that they would ultimately take a stance that appeases their global customers.
“But this case once again highlights that it can be incredibly risky to operate in China as public opinion can turn on you so quickly,” he said.
Vincent Djen, a manufacturing and retail expert based in China, said the boycott may not hurt H&M much but Nike is another story altogether.
“Nike’s Greater China business is closing in to being its second largest market,” Djen said. “The Greater China market has the strongest growth for the company.”
China accounts for 5 per cent of H&M’s overall sales, so a significant decline in this business would still be manageable for the group. For Nike it is slightly higher at 12 per cent.
Wiggenraad said H&M won’t really be worried about the short-term effect of the issue as it is only looking at lost sales, but it will be worried about its long-term future in China given that it has been virtually erased from e-commerce platforms, internet searches and map results.
“I think H&M will hope that it eventually dies down,” he said. “But if we look at previous cases where brands have upset Chinese sentiments, there will probably be a long term impact.”
Dolce & Gabbana, for instance, saw its sales slow after it was involved in a racist ad controversy and has yet to fully recover. Third party retailers will no longer stock its products.
“The Dolce and Gabbana racism controversy points to what might happen,” Wiggenraad said. “It is still perceived as a toxic brand in China and largely absent from the internet. It is also unable to work with any celebrities on social media campaigns – a key part to cracking the China market.”
Wiggenraad said in the end, he doesn’t think the more than 350 Chinese manufacturers working with H&M will stop working with the company. He said they will be keen to keep doing business with the company particularly during a time when global demand is still disrupted by the pandemic.
He added that it is more the consumer side that H&M should be worried about. The boycott of Japanese products by South Korean consumers from the summer of 2019 had a dramatic impact on Uniqlo’s revenues in that market. It even shuttered its flagship store in Seoul last year. So consumer boycotts can be incredibly powerful.
“So upsetting China’s netizens can have a substantial and long-lasting impact on your business,” Wiggenraad said.