Distribution in China

Topics: Marketing, Retailing, Logistics Pages: 42 (9448 words) Published: April 13, 2015

Distribution in China

September 2012

Li & Fung Research Centre

Table of Content

Introduction 1

Part I


Types of Distribution Channels
Latest Developments
Implications for Investors

Part II


Beauty and Personal Care


C h i n a ’s d i s t r i b u t i o n l a n d s c a p e h a s w i t n e s s e d s i g n i f i c a n t transformation over the past years. Eyeing the huge potential of the burgeoning consumer market, many manufacturers and retailers have strived their best to expand their distribution network as well as improving supply chain efficiency in recent years. The Chinese government has also launched a series of initiatives to support the distribution sector, with a view to boosting domestic consumption. There are opportunities abound.

Rapid expansion of retailers, on the other hand, has also put tremendous pressures on many of the traditional wholesalers and distributors; there is much discussion about disintermediation. Nonetheless, given the vast geographical span and huge regional differences, distribution in China remains a complicated task. In Part I of this report, we will give you a general overview of China’s distribution sector and we will focus on the distribution of apparel, confectionery and beauty and personal care products in Part II.


Part I


In China, goods have to pass through multi-tiers of distribution players before reaching the hands of consumers. There are different parties involved in the product supply chains, such as agents, distributors, wholesalers and sub-distributors, etc. Given the complexity of the Chinese market, companies in China often adopt a combination of distribution models (see Exhibit 1).

Exhibit 1: Product Distribution in China

Brand owners, Manufacturers

Brand owners, Manufacturers
Agents Wholesalers, Retailers Consumers Sub-distributors

Wholesalers, Retailers Consumers Sub-distributors

Brand owners, Manufacturers

Retailers Consumers

Brand owners, Consumers Manufacturers

Source: Li & Fung Research Centre

Types of Distribution Channels

There are different types of distribution channels for consumer goods in China.

Distributors and agents

Distributors and agents are authorized by brand owners or manufacturers to distribute their products; typically, they do not involve in manufacturing and retailing of the products. Some of them are obliged to the buyout of these products, thereby carrying inventory risk; whereas some do not need to buy out but receive a certain amount of commissions.

Currently, domestic distributors account for a large share of the wholesale trade in China. Many of these distributors come with state-owned background and have operated since the pre- economic reform era, giving them an edge in terms of established i n f r a s t r u c t u r e , g o v e r n m e n t “ g u a n x i ” a n d n e t w o r k r e a c h (especially in towns and counties).

Distribution sector was opened to foreign investors in 2004. Since then, foreign agents and distributors have been expanding q u i c k...
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