FEELGOODZ – Lessons Learned in China Expansion
In 2012 the young New Orleans startup company Feelgoodz was making headlines such as “New Orleans Flip Flop Maker Heads to China,” in which the company was touted as having “cracked the lucrative Chinese market.” These headlines were followed only 2 years later with Feelgoodz pulling out of China due to dismal sales. This paper will explore the Feelgoodz brand and examine what went wrong in their China expansion
Feelgoodz is the brainchild of Kyle Berner, who started the company while only in his early 20s. On a backpacking trip through Southeast Asia, Berner fell victim of a rather fortuitous accident: he blew out his flip-flop in Bankok. Traveling lightly, his flip-flops were his only pair of footwear, so he was forced to purchase a new pair from a local merchant. The flip-flops were literally hanging from a tree. Once on his feet, Berner immediately felt that they were different: the flip-flops were of better quality, and they had softer soles. Berner eventually worked out that the flip-flops were made from natural rubber, a recyclable material that is plentiful in Thailand. According to Berner he had his light bulb moment right there in the market to establish Feelgoodz and produce all natural flip-flops for the American market.
Berner’s “ah-ha” moment occurred in 2007, and within a year he founded Feelgoodz and began selling 300 natural rubber flip-flops imported from Thailand to friends, family, and local stores. He immediately sold out and imported 2000 more pairs. By 2009, Feelgoodz could be found in 17 Whole Foods Grocery stores and retailers in Australia and New Zealand with sales just under $1 million. Soon afterward Berner began designing his own line of flip-flops and manufacturing them in Vietnam. The only structural change he made to the basic footwear was to make the rubber soles even softer. The business steadily grew and attracted the attention of environmentally conscientious retailers.
In 2012, the company merged with another eco-friendly footwear company called Kinder Soles and relocated to Raleigh, NC. The merged companies leveraged their respective strengths: Kinder Soles’ owner Mark Saad’s financial expertise and Feelgoodz’ marketing expertise. The newly merged companies provided footwear to 300 Whole Foods Grocery stores and over 100 independent shops and then expanded internationally into Canada and Italy. With their international expansions doing well, Feelgoodz next targeted China for their line of all natural, recyclable flip-flops.
China commands the attention of most companies seeking new, international markets. With its population of 1.38 billion and growing middle class, company CEOs often dream of raking in profits from successfully selling in such a large market. China has many appealing characteristics for Feelgoodz besides its market size: its proximity to manufacturing facilities in Vietnam and China’s massive cultural acceptance of flip-flops and similar footwear. But how was Feelgoodz to break into the lucrative Chinese market?
When entering into a new international market, a company should do a lot of homework. Understanding current market conditions, identifying potential competitors, and studying consumer segments are all critical in an expansion into new markets. Entering a new international market can also be very expensive. Depending upon the strategy employed, a company might for instance decide to open a new domestic office, or build a local manufacturing plant, or perhaps create a joint venture with an established domestic company. Feelgoodz strategy was one taken by many companies entering the unfamiliar Chinese market: limit the capital outlay and depend solely upon electronic-based marketing. Feelgoodz decided not to open a domestic Chinese office and, instead, began selling flip-flops on Alibaba’s Tmall shopping platform. Tmall is a massive e-commerce site that has over 400 million registered Chinese users.
To get their product into China, Feelgoodz employed Export Now, a US company that assists Western companies in setting up shop on Tmall. Export Now maintains warehouses in Shanghai that companies can utilize to quickly get their products to Chinese consumers. For an annual fee of $3000 and 15% of sales, Export Now provides the warehouse space, deals with import paperwork, and provides some marketing advice. Feelgoodz began selling on Tmall in April of 2012, and six months later had sold only 50 pairs of flip-flops. Sales fell off after that, according to Feelgoodz.
So what went wrong? Feelgoodz was doing business in five other countries with robust sales. What made China different? As David Matthieu, founder of Beijing-based Daxue Consulting put it, “The Chinese consumer is very difficult [to understand].” Although Feelgoodz was successfully marketing in several countries, all of them were Western in culture. Feelgoodz lacked Chinese cultural intelligence, the ability to function in a multi-cultural environment. Understanding the cultural differences between China and the West may have enabled Feelgoodz to more effectively enter the Chinese market. One unexplored aspect was the Chinese demand for all natural and recyclable footwear. Feelgoodz found that this element, which differentiated itself from its competitors in Western countries, did not factor very highly with Chinese consumers.
Feelgoodz fell into the trap that many other Western companies have in China: they simply chose their top ten selling products, put those on Tmall and expected to see similar results as in other markets. Again, they did not spend the time identifying and understanding Chinese consumer demands or to explore competitor offerings. Understanding the Chinese market may have allowed Feelgoodz to introduce products that could have differentiated themselves from their competitors, while providing designs that Chinese consumers actually wanted.
Finally, Feelgoodz listed their products on Tmall expecting that Chinese consumers would somehow discover and purchase them. Matthieu of Daxue Consulting complained about Western companies entering the Chinese market, “You have no idea of how many emails we receive that they think they can just open a [e-commerce] shop and sell.” Export Now recommends that companies spend at least $10,000 a month on marketing if they want to sell successfully online in China. And Lac Tran, executive vice president of global e-commerce at Web2Asia, an advisory firm, frankly advises his clients that it will take at least 12 months before they see some sort of returns from advertisements. Western companies entering the Chinese market must first do their homework to understand Chinese consumers and markets, and they must make a financial commitment to establish their brand and products. In retrospect Feelfoogz’ Berner said that the challenge was not getting their product physically into China or getting listed on the Tmall site. “The challenge,” Berner said, “is really what to do once you’ve gotten onto that site.”
The early successes Feelgoodz found in selling all natural and recyclable footwear in the United States and other Western countries did not repeat itself in China. Feelgoodz neglected to research the Chinese markets or understand the demands of its consumers. This mistake led Feelgoodz to introduce products that sold well in the West, but did little to differentiate them in China or to satisfy Chinese consumer demands. Another misstep that Feelgoodz took in China was to simply put their products onto a massive e-commerce site without considering how Chinese consumers were to find them. Feelgoodz mistook a distribution plan for a marketing plan. As Frank Lavin, a former U.S. undersecretary of commerce for international trade, most succinctly said it, “Distribution is no substitution for marketing.” After their failure in China, Feelgoodz pulled out of the Tmall market site and has not indicated if they will attempt to reenter the Chinese market. If they do renter the Chinese market they will undoubtedly utilize the lessons learned during their first venture.