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Business trends

Private-label products shed low-quality image in China

Retail business shifts as customers become less loyal to foreign brands

Alibaba's Taobao Choice stores, such as this outlet in Hangzhou, sell many private-label products.

SHANGHAI -- Private-label products are proliferating in China as their quality improves, and they are increasingly seen as delivering good value.

In the past, many domestic products were unpopular in China because they were seen as shoddy. Imports, by contrast, though more expensive, were seen as top notch. But the era of blind loyalty to foreign brands is ending as consumers begin to notice that Chinese companies, too, can make fine products.

This change presents an opening to retailers such as Chinese e-commerce leader, Alibaba Group Holding and others, who have begun selling own-brand products. The marriage of competitive pricing and good quality creates opportunities for companies that make and sell private-label goods in China.

Last December, Alibaba tapped Naoto Fukasawa, a Japanese designer who previously worked with the Muji brand. Fukasawa is helping the Chinese online retailer create products such as water bottles and stationery.

Alibaba sells own-brand products at some 10 Taobao Choice bricks-and-mortar shops in Hangzhou, 175 km southwest of Shanghai, and elsewhere, as well as on its Taobao online shopping site.

Electronics retailer Suning.com has also started selling private-label products, including towels, clothing and sundries, created by young designers under the Suning Jiwu brand.

Another company cashing in on the trend is Yo-ren, a startup that is partnering with Japanese convenience store chain Lawson and others to create private-label products.

Among Yo-ren's businesses is managing data for the customer loyalty programs of Lawson, Ministop -- another Japanese convenience store chain -- Japanese sanitary goods maker Unicharm and others in China. As of January, Yo-ren had data on about 7.5 million customers. The company analyzes that information daily to identify consumption trends and conduct other marketing activities.

In March, Yo-ren took an equity investment of about $11 million from Lawson and other companies. The capital will help it with its big-data analysis and to focus on retail-related businesses, such as developing private-label products.

Yo-ren is no stranger to the job. When a big beverage maker tasked it with developing new products it predicted, based on sales data, that many consumers would be interested in a high-quality drink that cost two to three times more than those already on the market.

Yo-ren's analysis also showed that while customers were open to trying new drinks, they tended to trust existing brands more than those they had never heard of. The drinks Yo-ren developed won a following using an existing brand, according to the company. The importance of developing products based on such number-crunching is growing in China.

Behind the growing popularity of private-label products in China are changing tastes: Many people want to consume more wisely. The trend is particularly noticeable among young people, with apps for buying and selling used products gaining popularity.

Private-label products were once seen as cheap knockoffs, but now that overseas brands no longer enjoy unquestioned loyalty from Chinese buyers, overseas manufacturers face a challenge. For companies with experience creating and selling high-quality private-label products, however, there are still rich pickings to be had.

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