Mark Tanner discusses the pitfalls and risks of marketing in China where consumers are super-sensitive to geopolitics, and mass consumer boycotts can have huge impacts. But there are ways to avoid the worst

By Mark Tanner*

Here is a tale of three brands, each who have seen quite different outcomes in China over the past-12 months. They provide valuable lessons in public relations (PR) in China's increasingly sensitive and less tolerant consumer market.

Our story begins in March 2021, when a letter from the year before was dredged up about H&M disavowing Xinjiang cotton, citing allegations that forced labour was being used in its production. Other foreign brands, including Nike, were soon dragged in to what would arguably become the broadest PR crisis for foreign brands ever in China.

Although a host of brands were slammed, H&M was singled out and effectively cancelled in China. In over a decade of deeply analysing the China market, we had never seen anything like it. H&M disappeared from China's Internet. First its stores and items were removed from the ecommerce platforms such as Taobao, Tmall, JD and Pinduoduo; its social accounts disappeared; and then its bricks & mortar stores couldn't even be found on Didi (China's Uber) or even Apple Maps. Celebrity endorsers left and physical stores were shut down by landlords.

Nike was also hit hard too, hammered by angry, patriotic Chinese on social media which saw sales turn south. Nike's loss was its local competitors' gain. Li Ning's revenue soared 65% in the first half of 2021, and Anta's share price soared - for a while it was tracking to overtake Adidas as the world's second most valuable sports brand after Nike. Although the growth around Li Ning and Anta has slowed, Nike hasn't yet fully recovered. Sales were 5% lower last quarter than a year earlier, which was notable improvement on the 24% drop the quarter before.

Whereas Nike is on track to bounce back, H&M continues to close stores and is still feeling the pain of the Xinjiang cotton saga in China. Although H&M and Nike both effectively took the same stance about Xinjiang cotton, H&M's consequences were much more extreme. It appears that H&M was made an example of, possibly due to its size. H&M was big enough to make an impact - it had a whisker over 500 stores in China at the time - but it wasn't too large to shake the apple cart by being cancelled. Nike, on the other hand, had more than 7,000 stores in the market. Nike also had a much larger base of passionate brand advocates and community than H&M, who would have been pretty angry if the brand had been cancelled.

H&M's home country, Sweden, may have also played a part in its singling-out, with Swedish people having the second-highest unfavourable views of China globally. Beijing may have felt a sense of justice in punishing one of the country's standout brands, more-so than Nike and, by proxy, America, an extremely important trading partner at a time when relationships were already on tenterhooks with the trade war.

Yet possibly the main reason Nike was much less scathed than H&M was the contribution it had been making in China for some time. Chinese sport – even esports – have deep ties with Nike: Organisations such the China Basketball Association, Chinese Football Association and the Chinese Athletic Association, wear Nike kit as part of lucrative sponsorship deals. Nike also supports Chinese sports at grass roots level such as building school-age football leagues and sponsoring Chinese high school basketball and running academies and youth camps. This all aligns very well with Beijing's 2019 “Outline for Building a Leading Sports Nation” plan, aimed at accelerating China’s overall sports development, making Nike a much tougher brand to cancel than H&M.

The third brand in this tale, Uniqlo, also claims to not use Xinjiang cotton, but has kept its views much more on the d-low. Its sales continued to grow following the cotton incident, jumping 17% in 2021 and securing it as the biggest fast fashion brand in China. The brand's approach saw it similarly unscathed in the 2012 Anti-Japanese protests when sales of other Japanese brands tanked. Uniqlo has found success in China through its smart product strategy and moving into the market early, but above all, it is the company’s political approach that helped it rise to the top.

Much like Nike, Uniqlo is perceived as a valuable contributor to society, making donations after natural disasters and regularly partnering with local colleges for student design competitions. Uniqlo is keeping officials happy too, paying more taxes and employing more people in Shanghai than any other foreign fashion brand. It also rented a bigger booth in the politically important CIIE last year.

The difference from Nike, is that Uniqlo aims to be neutral between the US and China, in line with its practice of staying out of politics wherever it sells clothes. Beyond savvy political and PR strategies, brands increasingly need to make tough, big-picture decisions as geopolitics becomes more polarising.

Although Chinese consumers are among the most sensitive to geopolitics globally, foreign markets are seeing more activists speaking out about how brands deal with geopolitics. A brand's exposure to China is likely to impact how they approach the politics. Of the three brands, Uniqlo is most dependent on China for sales. The brand's China sales are almost three times its North America and Europe combined, and in May 2021, it surpassed its home market, Japan. Nike, while not quite as dependent, still has a lot riding on China, which accounts for more than 20% of its global revenue and was its fastest-growing market. For H&M, the China market accounts for just 5.2% of its global sales. While we've seen three different approaches from H&M, Nike and Uniqlo, ultimately, none of the brands use Xinjiang cotton.

The key takeout for successful public relations in China is that it is significantly more than just having a polished crisis management plan in place. Brands should invest in being a 'valuable contributor to society' to build goodwill at both a consumer level and a government level - for smaller brands, that can be relevant local government initiatives. Such contributions are likely to minimise the impact of bad PR, even when the unexpected happens.

Mark Tanner is the CEO of China Skinny, a marketing consultancy in Shanghai. This article was first published here, and is re-posted with permission.