Eight years ago I wrote an article with the title “What Keeps Jeff Bezos Up at Night- And Why What He’s Doing Should Keep You Up.” In it, I described some of the things Amazon was doing and why he might be worried about Chinese competition. Here’s the link. I talk about Ali Express and discuss developments that might almost foreshadow AI. Not bad for eight years ago, though not exactly on the mark. Still a good read.
I wrote, “Ali Express, which I trust you are aware of, ships inexpensive product from China. With free shipping. And no sales tax. I’ve heard from people that this is often the source of products you see on other retail web sites (eBay comes to mind). At higher prices of course.”
I also said, “You also know that I’ve ranted and raved a bit about the fundamental, unavoidable, inevitable changes in retail that, if they aren’t here quite yet, are coming. Not to mention the ones none of us have spotted. I’ve talked about 3D printing, software that will take your measurements in your home, an on demand knitting machine, Intel’s upcoming in store garment “printing” machine and associated systems and a machine where you can put in an unadorned sneaker and it comes out colored and/or with a pattern.”
Three months ago, I wrote, “What About Brands.” I noted that, “China makes lots of everybody’s products” and suggested some troubling ways that might evolve, especially given current high tariffs. Here’s the link to that one.
Now I’ve stumbled on this article- “Chinese JD Moves West Into Europe” on The Robin Report. Here’s the link. Recommend signing up to the free Robin Report if you don’t already get it.
From the articles summary: “In a move that is probably no surprise to anyone watching the global headlines, the growing international ambitions of the Chinese, specifically online giant JD.com, could reshape the consumer electronics retail sector in Europe. In a recent move, JD.com has launched a takeover offer for Ceconomy, the parent company of German retail giants MediaMarkt and Saturn, in a deal valued at about $2.5 billion. The deal is expected be completed in the first half of 2026. Out of the gate, this positions JD to challenge Amazon’s dominance in Europe’s consumer electronics market.”
I don’t know how this is going to work out, but I’ve never thought of consumer electronics as a high margin business. Very competitive, lots of good brands. None of that seems to matter to the Chinese. Note it’s a retailer they are buying.
China needs to export to create jobs. It’s population is aging and declining. They’ve had some success in trying to create a consumer culture like in the U.S. But not enough. I’m told the Chinese are big savers. Where might they find some consumers that don’t have this inconvenient idea about saving rather than buying lots of stuff?
Obviously they believe Europe is one such place. We can assume they are looking at our market the same way. China and the U.S. recognize their mutual dependence. I’m already seeing what I think is mutual backing down from a confrontation. Neither of us can afford it.
If you make something in China (or in Vietnam, etc) they already know and have or can get everything they need to make your product. You are required only for your brand and distribution. Imagine they make a tender offer for an active outdoor retailer. No turnarounds- I’d want it to be one that was well established, fairly large and profitable with a solid balance sheet. Because it’s just easier if you start that way especially since the buyer would be strategic rather than financial (and generally willing to pay a higher price). Size and market position also matter to a Chinese buyer because they want it to represent an important channel for the brands the purchased company carries.
Now it gets interesting. What would the Chinese manufacturer of various kinds or brands or shoes and/or apparel, now the owner of a U. S. retail chain, do with it? If it were me, I’d start by assuring all the brands carried by the chain that it was business as usual. Which it might be for some period of time. I’d try to keep as many of members of management down to the store manager level as I could.
The buyer, based on existing industry knowledge and what it learned during due diligence, would have a strategy in mind or there would be no interest in a deal. They would have shared it in some form with the board of directors of the purchased company as part of the board’s due diligence. With the deal closed and the management team more or less on board, it’s on to implementing the strategy. Wow, I sure made that sound simple. It’s easy to buy a company- not so easy to integrate it. Especially when there are language and cultural differences.
Now the new management team works to see how much of the currently sold product can be made in the Chinese factories. Because the goal is to export. They’ll gauge the idea of selling Chinese owned brands masquerading as American. The reactions of the non-owned brands in the stores will be important to watch- especially if some Chinese branded product, identical to U. S. brands, starts to show up. How would they handle eCommerce?
I’m going to stop now. I’m not sure speculating endlessly on how such a deal might go would be valuable. And it’s important to recognize that buying a soft goods retailer is different from consumer electronics. Still, we’ve watch for years now (at least eight in my case) as the Chinese worked to expand their exports. Any reason to believe they are done?